1. These appeals are by the assessee pertaining to the assessment years 1979-80 and 1980-81. The point in issue in both the appeals is the same. So both the appeals were heard together and for the sake of convenience are being disposed of by a common order.
2. The assessee is a private limited company. The ITO for the assessment year 1979-80, while scrutinising the interest account found that the assessee has paid interest of Rs. 5,199 which included interest payment of Rs. 4,343 to Smt. Jiviben Himatlal Shah, wife of Shri Himatlal Shah. According to the ITO, the payment of interest of Rs. 4,343 to Smt. Jiviben Himatlal Shah attracts the provisions of Section 40A(8) of the Income-tax Act, 1961 ("the Act"). The ITO disallowed the claim on this expenditure to the extent of Rs. 651 only.
3. In the assessment order for the assessment year 1980-81 disallowance was made at Rs. 630.
4. Being aggrieved with the order of the ITO, the assessee took up the matter in appeal. Before the learned Commissioner (Appeals), it was contended that Smt. Jiviben Himatlal Shah, who is wife of late Managing Director, Himatlal Shah, had not deposited any money in the company as contemplated under Section 40A(8) but credit to her account was given by virtue of her succession. Whatever the amount credited to the account of her husband was transferred to her account as his legal heir. Since the assessee had not received any amount by way of deposit, it was claimed that the provisions of Section 40A(8) of the Act were not attracted.
5. The learned Commissioner (Appeals) after considering the contentions of the appellant was of the view that neither before the ITO nor before him the assessee was able to show that the amount lying to the credit of Himatlal Shah was current account. According to him, Sub-section (8) of Section 40A applies whenever a non-banking company incurs any expenditure by way of interest in respect of any deposit received by it. The exceptions have been mentioned in Explanation (b) to the said sub-section. According to the learned Commissioner (Appeals), the amount lying as deposit in the account of Smt Jiviben Himatlal Shah does not fall in any of the exceptions mentioned in Explanation to Sub-clauses (i) to (ix) of Clause (b). Thus, the learned Commissioner (Appeals) sustained the order of the ITO.6. Before the Tribunal, the learned counsel for the appellant contended that the finding of the learned Commissioner (Appeals) is not correct.
It is wrong to say that the assessee has not shown to him that the amount in question was lying to the credit of Shri Himatlal Shah. The assessee's counsel read over a letter dated 29-1-1980 to the Commissioner (Appeals) and also explained its contents. He also contended that the finding of the learned Commissioner (Appeals) is not supported by any material on record.
7. The learned departmental representative supported the order of the Commissioner (Appeals) and contended that the present case is covered under Section 40A(8) and as such interest amount was rightly added.
8. I have heard the parties and perused the entire material on record.
The learned Commissioner (Appeals) is not correct in saying that no material was placed before him to show that in this case the provisions of Section 40A(8) are not attracted. The assessee had filed a letter dated 20-1-1980 before the ITO. A copy of the same is in the paper book. In this letter the assessee stated as under : For this we have to state that the credit balance standing to the credit of the account of late Managing Director Shri Himatlal Mulchandbhai Shah in samvat year 2032 was transferred in her account as his legal heir and the said account continued in the books of the company, which is operated by her for her own use, and maintenance and the interest is given on this account. So it will be thus seen that this amount is not received by the company by way of any deposits on account of borrowing and hence the provisions of Section 40A(8) are not applicable.
The said letter is also supported from the copy of account of Smt.
Jiviben Himatlal Shah for the assessment years 1979-80 and 1980-81. A copy of the same is in the paper book. From the material on record, it is clear that there is nothing to show that there was any borrowing by the assessee-company from the person concerned. On the other hand it appears that the company, being a private limited company, has offered the facilities of a current account as in a bank. Under the circumstances, it does not appear to me that the provisions of Section 40A(8) are attracted in the present case.
9. For the reasons discussed above the order of the learned Commissioner (Appeals) is cancelled. The additions in question are deleted in both the years under consideration.