1. The first two appeals were fixed as the Special Bench hearings having been referred to the Special Bench by the President. The other appeals involving the same point have come up as interveners. The point at issue is considered on the facts of the first assessee.
2. The assessee-company paid interest of Rs. 68,290 to directors and their relatives. In the computation of income while filing the return, the asses-see disallowed interest of 15 per cent on the net amount of Rs. 61,101. The disallowance amounted to Rs. 9,165. At the time of the assessment, however, the assessee's learned counsel contended before the ITO that the provisions of Section 40A(8) of the Income-tax Act, 1961 ('the Act'), on the basis of which the above disallowance was made, were not applicable to the assessee's case. The assessee had not invited public deposit, not even deposits from the directors. All the accounts were current accounts to which, according to the learned counsel, the provisions of Section 40A(8) were not applicable. Some decisions of the Tribunal were also cited before the ITO. Rejecting the contention of the assessee and holding that it was not possible to distinguish between loans raised by the company to directors or relatives and deposits as envisaged by Section 40A(8), the ITO computed the interest paid on deposits at Rs. 68,090 and disallowed 15 per cent of the same, namely, Rs. 10,213.
3. On appeal, the Commissioner (Appeals) held that the provisions of Section 40A(8) applied to the case and confirmed the ITO's order.
Incidentally, it requires to be mentioned that in paragraph No. 2.10 of his order the Commissioner (Appeals) held that order of the Tribunal unacceptable to him, if not misconceived. It is against this order of the Commissioner (Appeals) that the present appeals are laid before the Tribunal.
4. The learned counsel for the assessee has pointed out that the definition of 'deposit' obtaining in Section 40A(8), Explanation (b), does not fit in with the facts of the present case. Interest was paid for the assessment year 1979-80 in the assessee's case to three directors, Tulsiram Nathumal, R.T. Arora and R.K. Sachdev, and also two of their relatives, Lala Shorimal Tulsidas and Master Vijay Arora.
Interest was paid to the above parties on their credit balances which could not be held to be deposit under Section 40A(8). Referring to the words of the Finance Minister introducing sub-section 40A(8), the learned counsel has pointed out that in order to accept deposits from the public an invitation has to be issued. Such deposits are governed by Section 58A of the Companies Act, 1956, read with the Companies (Acceptance of Deposit) Rules, 1975. The assessee had not invited deposits from the public. There was no unrestricted growth in the credit balances of these parties which came forward from several years.
The accounts were mere current accounts and the balances in such accounts could not be interpreted as deposits. Stress is laid in this context on the reference to the cost of borrowings from scheduled banks which have gone up by 1 per cent, to which reference was made by the Finance Minister in his budget speech dated 28-2-1975. The deduction in the present case was a corrective by way of disincentive to borrowings from the public by companies referred in the Finance Minister's speech.
The memorandum explaining the provisions of the Finance Bill, 1975 also emphasised this aspect. The learned counsel took us through the accounts of the various directors coming over from the year 1971 onwards. These were all current accounts showing entries for receipts and payments of money, crediting of interest, withdrawals for interest and in cash, etc. The copies of accounts clearly indicated that what the director had with the company was a current account in which several transactions figured. From the very nature of things, a current account would not come up for consideration in connection with Section 40A(8). The learned counsel referred also to some of the decisions of the Tribunal in favour of the assessee where a clear distinction had been made between the nature and working of a current account and a deposit account. The Tribunal has consistently taken the view that a current account amounts are outside the purview of the sub-section in question and in respect of orders allowing the assessee's appeals also rejected even the reference applications. In the assessee's case, the account was clearly a current account as in the case of M.E. (P.) Ltd. Neither the directors nor their relatives made deposits with the assessee as the accounts would show. The provisions of Section 40A(8) applicable to non-banking and non-financial companies are not applicable to others. In fact, there was no justification as would be clear from the Finance Minister's speech and other details for this 'discounted deduction' in cases other than deposits for a period.
5. The intention behind the provisions as clarified by the Finance Minister piloting the Bill and the memorandum of the explanation to the Finance Act, 1975, clearly supports the assessee's case. There is a difference between a loan and a deposit as articles 21 and 22 of the Limitation Act, 1963 would indicate. There was no limitation on a deposit. The definition of 'current account' obtaining in Strand's Dictionary and other legal books is also referred to in this connection. As would be clear from the Civil Court Manual, Vol. 9, Eleventh edn. M.L.J., pp. 715 to 717, 'deposit' and 'current account' constitute distinctive ideas. Deposits are for the specified term. The rules also provide that a company cannot accept deposits for a period less than that specified. Reference is made in this connection to Rule 2 and Rule 3 of the Companies (Acceptance of Deposit) Rules. According to Sub-rule (ix), 'deposit' does not include amounts received from directors or shareholders. Even under the Companies Act, such receipts are not deposits. Referring to various legislations, it is pointed out that the expression 'deposit' has various connotations. A 'deposit' is a money paid with the stipulation such as, for instance, a repayment after a fixed period or term. Even if the deposit is a loan, it is a special type of loan. Reference is made in this connection to page 213 of Biswas Encyclopaedia Law Dictionary, Second edn.
6. According to the learned counsel, every amount belonging to the director and lying with the company or given to the company cannot be regarded as a deposit for the purposes of the section. A director can keep money on loan account, deposit account or current account. This will be the position with regard to others as well. In the present case, that the amounts lying in the directors' accounts in the company were on current account is not disputed by the ITO. Since the moneys lie on current account, they are neither borrowings nor deposits for the present purpose. Several judgments of the Tribunal have held that current accounts do not constitute deposits. The intention behind the legislation was to put restrictions on public companies accepting deposits from the public at attractive rate of interest and-* not to discourage private limited companies from allowing their directors, etc., from opening current accounts for the sake of the company's business. The intention of the legislation as gathered from the Finance Minister's speech and a memorandum explaining the provisions cannot be ignored for this purpose.
7. Mr. Raiyani appearing for intervener, G.J. Engg. (P.) Ltd., pointed out that a provision like this where a deduction is normally allowed for expenditure but is disallowed in certain circumstances should be given a strict interpretation. Words used in the enactment are unambiguous. One need not go to the speech of the Finance Minister or the Explanation but, in case there is an ambiguity, it is our duty to refer to that. Under Section 40A(8), 15 per cent of the interest is to be disallowed on the deposits received by the company. But, if the meaning of the word 'deposit' is so clear, there was no necessity for the Act to give an Explanation. The very fact that an Explanation has to be provided, according to the learned counsel, indicates that the Legislature has intended a particular meaning. In 1975, simultaneously the rules under Section 58A of the Companies Act and the provisions of Section 40A(8) of the Income-tax Act were introduced. Both deal with the case of companies only. When the Finance Act was introduced on 20-2-1975 after the Companies (Acceptance of Deposit) Rules were framed on 3-2-1975, the Legislature were clearly aware of the definition of 'deposits' obtaining in the Companies Act. Section 40A(8) therefore was intended to apply only to those deposits already specified under the Companies (Acceptance of Deposit) Rules. Alternatively, it is contended, deposit should mean that deposit which was understood as such by the companies and the public at large. All accounts do not refer to deposits or to borrowings. They can also refer to loan accounts. In deposits or borrowings account, a person who wants money has to seek it by giving an advertisement, whereas in several cases in spite of there being no need for the money, money is brought to the company. The initiative in this latter case will lie with the lender.
Moneys are also in such cases to be repaid on demand. In a deposit account or a fixed deposit account, generally, there is provision for repayment on a particular date. It is always called a terra deposit. As far as companies are concerned, the full meaning of the word 'deposit' being clear, it must be given the meaning as understood under the deposit rules. If this is not so, deposits could only mean what they are under the general law under the various decisions given by the Court or under the various legislations. The Companies (Acceptance of Deposit) Rules would apply to the credit balances in this account. If the credit balance of the director with the company is considered to be a deposit, it would be necessary for the company to comply with the provisions of these rules. According to the learned counsel, the twin requirements of payment after a period or event and in conformity to the Companies (Acceptance of Deposit) Rules cannot be ignored. A mere payment of money to a person cannot give rise to a deposit of money. In fact, the onus is on the department to show that there were deposits or a demand for loans. Reference is made in this connection to the decision in Shree Ram Mills Ltd. v. CEPT  23 ITR 120 (SC), CEPT v. Bhartia Electric Steel Co. Ltd.  25 ITR 192 (Cal.) and Sole Trustee, Loka Shikshana Trust v. CIT  101 ITR 234 (SC). Other provisions of the Act also deal with the expression 'deposit', for instance Section 269T of the Act. In effect, according to the learned counsel, money with a company will not by the very fact of its being there be a deposit but will be only a mere credit balance, the company not having invited any deposit.
8. For the department, stress is laid on the orders of the authorities below. The legislative definition of the expression is found in Section 40A(8). Where there is a statutory definition for a term, no external evidence is called for understanding its implication or scope. There is no ambiguity or obscurity involved in the word 'deposit' obtaining in the Explanation. Borrowed money also is covered therein. In fact, the exclusion clause is provided to exempt or exclude an item which but for the definition would fall within that. In fact, the expression 'loan' is included in the term 'deposit' through Explanation (ii)(iii).
9. The Companies (Acceptance of Deposit) Rules came into effect on 3-2-1975. The definition of 'deposit' in Section 40A(8) is similar to that definition except for an exclusion. Till 18-9-1975, Clause (9) of the Companies (Acceptance of Deposit) Rules (deposit by directors) was not one of the exceptions. This was introduced by the amendment of the rules with effect from 18-9-1975. Section 40A(8), on the other hand, belongs to a field where there was no pre-existing law. For the first time, there was an enactment. In view of these clear legal provisions, according to the learned counsel, a reference to the Finance Minister's speech, etc., is not necessary or relevant. Reference is made in this connection to the decision in CIT v. Raja Benoy Kumar Sahas Roy  32 ITR 466 (SC) especially at pp. 476 and 477. One has to read the statute to effectuate the intention of the Legislature. That which advances the remedy and suppresses the mischief was to be ascertained.
The intention of the Legislature is important in this connection.
Reference is made to State of West Bengal v. Union of India AIR 1963 SC 1241. It is the expression of the collective will of the Legislature as a whole which is important. K.P. Varghese v. ITO  131 ITR 597 (SC) is referred to in this connection. In the first case referred to, on facts, there is no current account of the director. In fact, the assessees themselves disallowed 15 per cent but only at the time of the assessment they backed out of this. The learned counsel has pointed out that it is not proper even to adopt the dictionary meaning of a word when the statute has given a definition. In fact, even the Finance Minister's speech did not cover the remaining situation as in this case. Public cannot include directors, shareholders, etc. They are separate entities. If there is no borrowing the interest itself cannot be allowed. It is also pointed out that there are no current accounts at all in the present case. Reference to Schedule VI to the Companies Act and the Notes at pages 1209-1220 of Ramayya's Companies Act, 1977 edn., are also relied on. It is also pointed out that the definition in Section 269T cannot be resorted to for the present purpose. The amounts deposited-whether on own account or taken as a loan or by inviting deposits or by way of the alleged current account-all constitute deposits. According to the learned counsel, the clear test to be applied in such cases was whether amounts belonging to outsiders are available to the assessee for use and whether interest has been paid on these amounts deposited with the assessee as understood in common parlance. There is no sanctity about the deposit being for any specific period or for an uncertain period. In both the cases, outsiders' money is available to the company and on this interest is paid. The very purpose of the legislation is to prevent such availability of money for limited companies from outsiders instead of from the institutional banking system. In fact, even a current account consists of a series of deposits or loans. If they were not there, there would be no money to draw upon even in this case.
10. The simple issue in the controversy before us is to what type of accounts the provisions of Section 40A(8) can be applied. The sub-section runs as under : (8) Where the assessee, being a company (other than a banking company or a financial company), incurs any expenditure by way of interest in respect of any deposit received by it, fifteen per cent of such expenditure shall not be allowed as a deduction.
(b) 'deposit' means any deposit of money with, and includes any money borrowed by, a company, but does not include any amount received by the company- (i) from the Central Government or any State Government or any local authority, or from any other source where the repayment of the amount is guaranteed by the Central Government or a State Government ; (ii) from the Government of a foreign State, or from a citizen of a foreign State, or from any institution, association or body (whether incorporated or not) established outside India ; (iii) as a loan from a banking company or from a co-operative society engaged in carrying on the business of banking (including a cooperative land mortgage bank or a co-operative land development bank); (iv) as a loan from any institution or body specified in the list in the Tenth Schedule or such other institution or body as the Central Government may, having regard to the nature and objects of the institution or body, by notification in the Official Gazette, specify in this behalf; (Vii) by way of security or as an advance from any purchasing agent, selling agent or other agent in the course of, or for the purpose of, the business of the company or as advance against orders for the supply of goods or for the rendering of any service ; (vii) by way of subscription to any share, stock, bond or debenture (such bond or debenture being secured by a charge or a lien on the assets of the company) pending the allotment of the said share, stock, bond or debenture, or by way of advance payment of any moneys uncalled and unpaid upon any shares in the company, if such moneys are not repayable in accordance with the articles of association of the company ; (ix) as a loan from any person where the loan is secured by the creation of a mortgage, charge or pledge of any assets of the company (such loan being hereafter in this sub-clause referred to as the relevant loan) and the amount of the relevant loan, together with the amount of any other prior debt or loan secured by the creation of a mortgage, charge or pledge of such assets, is not more than seventy-five per cent of the price that such assets would ordinarily fetch on sale in the open market on the date of creation of the mortgage, charge or pledge for the relevant loan ; Whether the speech of the Finance Minister or the memorandum accompanying the Bill is made use of for the purpose of interpretation of the section or not, the purpose of the above sub-section introduced by the Finance Act with effect from 1-4-1976 is clear. Consequent on the charging of interest on bank deposits, the cost of bank borrowing went up with the resultant diversion of deposits from banks to non-banking and non-financial companies. In order to prevent this, it was enacted that interest paid by non-banking and non-financial companies on deposits received by them should be discounted by 15 per cent for the purpose of allowance as an expenditure in computing the total income. In other words, a countervailing liability was put on non-banking and non-financial companies to set off the extra liability under the Interest tax Act, 1893 placed on the banking sector. If one were to proceed from the purpose of the legislation, it would appear that only those amounts received by banks subject to the interest liability under the Interest tax Act should, if received from non-banking companies, be subjected to an impost. In other words, a purposeful interpretation of the provisions would require that if an amount is not a 'deposit' for the purpose of the Interest Act, the same cannot be held to be so under Section 40A(8) also. Under the Interest tax Act, tax is levied on the interest received by the scheduled banks, thus, increasing the cost of borrowing from scheduled banks more by about 1 per cent.
11. The section does not clearly define what a 'deposit' for the purpose of Section 40A(8) is. There is, however, definition of this expression in Clause (b) of the Explanation reproduced above. According to this 'deposit' means a deposit of money with a company. When a 'deposit' is defined as a deposit, it virtually means that the statute takes it for granted that the meaning of the expression 'deposit' is clear. It must have the general or any other acceptable meaning. There could, however, be deposits of various types and deposits of various things. The Explanation would appear to serve only to indicate certain purposes instead of giving a general definition of the expression 'deposit'. The first is that it clarifies that a deposit means only deposit of money with a company. It also acts as an inclusive definition including 'any money borrowed by' a company and also excluding the amounts received by the company in the nine types of amounts dealt with in the Explanation. These exclusions follow a pattern and cover (7) amounts received from the Government, (2) loans from banking company, co-operative society, specified institutions, etc., (3) from other companies, employees, etc., and (4) by way of security from agents, subscription, mortgage, etc. A clear reading, therefore, of the Explanation would indicate that from the normally well understood meaning of the word 'deposit' one has to concentrate on deposit of money with a company. To this must be added money borrowed by the company and from this must be taken away the specified amounts mentioned in sub-clauses (i) to (ix). An inclusive definition generally includes in an expression what it does not normally connote. When, therefore, the expression 'deposit' is stated to 'include' any money borrowed by the company prima facie it would appear that the word 'deposit' is understood not to include borrowings. By a legal fiction, borrowings by a company are, thus, sought or understood to be included.
The Explanation, thus, makes clear two things : by a fiction it includes money borrowed meaning thereby that 'deposit' would only mean amounts kept on deposit voluntarily by the outsider and not amounts the company seeks from the outsider by way of borrowings ; secondly, the word should cover items like amounts received from the Government, loans from the banks or other companies, from employees by way of security, etc. The one characteristic common to these items numbering 9 is that they represent a one time receipt, e.g., a 'loan' means a single receipt ; a security deposit would be a single receipt ; a subscription or an amount received from a company would also be a single receipt. By excluding, therefore, only items of single receipts it would appear that 'deposit' as understood should normally "relate to only single receipts. If there are a series of receipts or out of an amount received or borrowed adjustments are made, withdrawals are done leaving a balance, etc., the balance may not constitute a deposit for the purpose of the section. This fact, in our view, is of importance while considering the question whether a current account with a balance would constitute a deposit-an important argument urged by the learned counsels for the assessees.
12. The important issue canvassed for the assessee in the present case is that even though the directors have some moneys owing to them from the company, this would not satisfy the requirements of Section 40A(8) because they are held on current account and dealt with as such. It is in this context that the distinction between current account and deposit has been emphasized both in terms of accountancy principles and also in the light of the Companies (Acceptance of Deposit) Rules. In our view, Section 40A(8) does not, in the first place, make any difference between a director, a non-director, a relative of a director, etc., as far as the deposit is concerned. It only refers to expenditure of interest 'in respect of any deposit received by it'.
Whether, therefore, the depositor is a director, a non-director, a shareholder, a relative of these or an outsider does not matter at all for the purpose of this discount of expenditure allowable. Whatever applies to 'directors would apply to relatives, outsiders, in fact to all persons who make deposits. We are emphasising this fact for the reason that irrespective of the ground of appeal raised before us in these appeals, the question referred to the Special Bench appears to deal with interest on deposits from directors and their relatives.
13. Incidentally, there was a dispute regarding the terms 'loans' and 'deposits'. Essentially, they are not mutually exclusive terms. There are a number of features common to them, an important distinction being the time of repayment. A loan is repayable the minute it is incurred, whereas in the case of a deposit, the repayment would depend upon the maturity date fixed therefor or the terms of the agreement relating to the demand, on the making of which the deposit will become repayable.
There is no immediate obligation to make the repayment in the case of a deposit. Abdul Hamid Sahib v. Rahmat Bi AIR 1965 Mad. 427 considered the true test to distinguish a loan from deposit, thus : Whether it was intended that the amount should remain with the payee indefinitely or not, in other words, whether it was intended that the payee was to seek out the creditor for the payment of the amount paid or whether the payer was to demand the amount from the payee before the amount becomes payable. In the former case the transaction is of a loan and in the latter case it is of a deposit-Ujjagar Singh v. Committee of the Management of the Gurudwara Shahidan, Ladewal AIR 1976 Punj. & Har. 352 held that : Where a question arises as to whether a transaction is a deposit or a loan, there is no presumption in law that it is a deposit except in regard to the monies of a customer in the hands of a banker. If a person hands over money to another who is not a banker on the understanding that it is not a gift, it would be regarded in law as a loan and if the former wants to make out that it is a deposit, the onus is on him to show that the parties intended to treat it as such. Where there is no evidence in support of the proposition that the intention of the parties was that the defendant should keep the money till it was asked for by the plaintiff, the transaction is a loan. (p. 352) Even though, before us, the question whether loans would come under the terms of Section 40A(8) was raised, this no more remains an issue in point because of the explicit provision of Clause (b) of the Explanation stating that a deposit 'includes money borrowed by a company' and also the reference to 'loans' in some of the sub-clauses (i) to (ix) of this clause.
14. The main issue thus raised on behalf of the assessee is that current accounts do not come within the purview of Section 40A(8). Both in law as well as accountancy, a 'current account' is specifically distinguished from other deposits. A 'current account' is in common parlance referred to as a 'running account'. In fact, what is known as a 'current account' as well as a 'savings bank account' under banking law would be running accounts and could for the purpose of Section 40A(8) be placed in juxtaposition to a deposit. A running account-which would be a more correct general expression to be used in this context-would represent an account which outlines in accountancy terms a series of transactions one person has with another. Here, money is either paid in cash or by cheque or withdrawn in cash or against cheques issued. Adjustments for other receipts of money, incurring of expenditure, etc., are also made through this account. There would be no prohibition for putting any money into the account at any time or taking it out also. In the course of the same day, in a very actively operated running account, there could be several transactions in respect of cash, bank items, expenditure and even other transactions.
The balances in these accounts are struck after every transaction or a series of transactions and a balance at the beginning of the day may not be the same as at the end of the day or even at any other point during the day. What normally one has in this account is, therefore, a balance of account. It is not even impossible that the running account shows, if the party tolerates it, an excess withdrawal by the person who puts in money so that he actually owes money instead of having a positive balance in his favour. Money in a current account can be withdrawn or put in without previous notice and at any time the holder of the account could only regard the balance in his account at any time as the result of his numerous financial transactions. None of these inputs or out-takes of money is, therefore, accompanied by a specific stipulation as to time for which the money could be kept. The person who puts in money can claim a withdrawal at any time.
15. Reference was made to the notes by way of general instructions for the preparation of balance sheets of companies and the schedule of the balance sheet as well. Item No. (p) of the Notes refers to 'current accounts with Directors, Managing Agents, Secretaries and Treasurers and Manager, whether they are in credit or debit, shall be shown separately'. On the strength of this, it was argued that the proforma balance sheet itself stipulates a special treatment for current account as different from loans and fixed deposits which obtain in the body of Part I of the Schedule VI proforma. This argument ignores the fact that the Schedule refers only to 'loans from Directors, the Managing Agents, etc., .. should be shown separately' and 'loans from directors, etc., .
. should be shown separately' both against secured loans and unsecured loans mentioned in Column 2 of the Schedule. No reference to 'current account' obtains in the Schedule, whereas 'current account' is mentioned only in the Notes. In the first place, this does not mean that a current account would be a deposit or a loan. Secondly, the Schedule only requires that the financial liabilities or assets directly relatable to the directors, managing agents, etc., should be specifically mentioned in the balance sheet so that any outsider can notice them. If these liabilities are loans or deposits, they should be shown as such. On the contrary, if they are current accounts, they should be shown on the credit or on the debit side of the balance sheet, as the case may be. In our view, this general mention of two unrelated items would not strengthen the revenue's case.
16. The expression 'current account' is defined in Earl Jowitt's Dictionary of English Law, thus : Current Account : in banking a term used to distinguish drawing accounts from fixed deposits accounts, in partnership and individual entrepreneur's account, a current account where each partner or the entrepreneur is usually set up as an account current (q.u.) between the individual and the business.
A deposit account, on the other hand, is treated as a single time payment to be held by the recipient for a specific term under specific conditions of interest, etc., and not to be called back before the specified term except in exceptional cases. In the latter case, generally, the higher rate of interest charged for term deposits is not paid by the debtor. While in a deposit, generally, both the terms of the deposit and a rather higher rate of interest than in other accounts is stipulated, it is not always the case that in current accounts no interest is granted. A savings account in a bank is a running account and for the purposes of operation is almost like a current account.
Interest is charged in the savings account. Sometimes (as it used to be earlier) banks "grant interest even on balances in current accounts, even though now-a-days no interest is granted. All these clearly indicate that there is a distinct difference between moneys on current or running accounts and moneys kept as deposit both in accountancy and finance.
17. Even from the purely legal point of view, there is a difference between a current account and a deposit. The right to demand return of money and enforce the same; fixation of different periods after which only the demand can be made; "different limitation periods under the Limitation Act for making demands or filing suits for recovery ; the fixed nature of a deposit as contrasted with the daily or even from frequent fluctuation in amounts in a running account ; the differences specifically cast by the Companies (Acceptance of Deposit) Rules--all these leave us with no doubt that in law also there is a substantial distinction between a deposit and a current account.
18. In view of the above the expression 'deposit' in Section 40A(8) cannot be said to include a running account. In fact, what one gets in running or current account is the balance one person owes to the other at any time as against an amount standing deposited that obtains in the case of a deposit. If the purpose of the Legislature was to discount the interest paid on balances in an account or even net balances, we see no reason why a direct reference to 'balances' or 'net balance' is not made in the section but a reference is made only to deposits. That in a current account or running account amounts will be coming in and going out and adjustments would be made is certainly well known. If that be so, the deliberate use of the word 'deposit' instead of a 'balance' or 'net balance' is a clear indication that a running account was not in view. The factual difficulty that arises if a running account is considered as a deposit could be illustrated. A running account of the following type could be envisaged :15-3-1985 credit 50,000 72,03915-3-1985 withdrawal 2,000 70,03915-3-1985 credit 3,000 73,03915-3-1985 payment for 155 72,884 expenses15-3-1985 bank collections 4,120 77,00415-3-1985 cash deposit 10,000 87,00416-3-1985 withdrawal 4,000 83,004income-tax paid 3,780 79,224 etc.
The above account starts with an opening balance in the running account. Could it be said that this balance is a deposit On 15-3-1985, a sum of Rs. 50,000 is put into the account, thus, increasing the balance to Rs. 72,039. Immediately thereafter, a withdrawal of Rs. 2,000 is made bringing the balance to Rs. 70,039. A further credit of Rs. 3,000 brought up the balance to Rs. 73,039. Could we say that all these balances-Rs. 22,039, Rs. 72,039, Rs. 70,039, Rs. 73,039, etc.-are the deposits of the assessee in this account since these represent amounts the assessee is to get from this account The account can also show a negative balance if the assessee has been permitted to withdraw more moneys from the running account that he has put in overall. Could a negative balance be called a 'deposit' or, for that matter, a 'negative deposit' 19. The above facts, therefore, clearly indicate that a current account would not be the subject-matter of discounted interest envisaged in Section 40A(8).
20. It was argued for the department that even if a current account could not be brought into the mischief of Section 40A(8), in the present case, the directors' or relatives' accounts are not current or running accounts. There are large amounts deposited on specified dates.
The amounts remained with the assessee-company for a long time. If at all, it is only a misuse of the current account provisions to keep a deposit with the company so as to get over the provisions of Section 40A(8).
21. The accounts of these persons with the company have been seen.
Copies of their accounts are on record. We do not see how these running accounts could not be regarded as running or current accounts but could be only called deposits. Taking, for instance, the account of director, Tulsiram Nathumal, for the period 1-1-1978 to 31-12-1978, there is a balance in this account carried forward of Rs. 2,11,146.27. Two cheques were received on 3-1-1978 and 6-1-1978 of Rs. 50,000 and Rs. 75,000 respectively. A sum of Rs. 1,25,000 was withdrawn by issue of a cheque by the company on 2-3-1978. On 31-3-1978, the company credited interest of Rs. 8,557 and debited a sum of Rs. 856 by way of tax deducted. There were cheque payments into the account on 22-4-1978, 18-5-1978, 7-8-1978, 11-8-1978 and 7-12-1978. On 31-12-1978, interest of Rs. 27,997 was credited to the account. Tax deducted of Rs. 2,800 was debited to the account, thus, leaving a balance of Rs. 4,29,044.27., This is exactly what a typical running or current account would reveal.
It would be a misuse of the concept to term the payments made into this account as deposits and ignoring the withdrawals or debits. In the accounts of other persons also, there are payments in withdrawals, charging of interest, transfers, etc. There is no time limit fixed for the retention or the payment of any of the amounts. Apparently at any time the director concerned could withdraw the amount from this account. There seems to be no prohibition also on this account running negative. As far as the director is concerned he can leave a negative balance rather than a positive one in the account. On the facts, we have to hold that the accounts of the directors with the company in the present case are clearly current or running accounts and would not come under the head 'Deposits' for the purpose of Section 40A(8). The position is the same in the case of the interveners also.
22. In the case of intervener, Space Builders (P.) Ltd., certain other grounds have been raised. As this appeal as such is not referred to the Special Bench, that will be decided separately by the Bench which hears it.
23. The assessee's appeals are allowed, while the departmental appeals are dismissed.
1. I have carefully read the order proposed by the learned Vice President but regret that I cannot bring myself to subscribe to the views propounded therein and the conclusions reached by him.
2. The arguments advanced by the parties have been reproduced by the Vice President and need not, therefore, be repeated. The short question at issue is whether the amounts to the credit of directors, their relatives, friends and some trusts, described as relatives, are covered by the term 'deposit' in Section 40A(8) as denned in the Explanation.
The definition is inclusive. If the meaning of deposit can be clearly gleaned from the definition, then external aids to interpretation of statutes cannot be brought into consideration for varying the meaning of deposit.
3. In CIT v. Shahzada Hand & Sons  60 ITR 392, the Supreme Court dealing with the interpretation of statutes held as follows : ...In a taxing Act one has to look merely at what is clearly said.
There is no room for any intendment. There is no equity about a tax.
There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.
To this may be added a rider : in a case of reasonable doubt, the construction most beneficial to the subject is to be adopted. But even so, the fundamental rule of construction is the same for all statutes, whether fiscal or otherwise. 'The underlying principle is that the meaning and intention of a statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the Court as to what is just or expedient.' The expressed intention must guide the Court....(p.
398) A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the Court may modify the language used by the Legislature or even do some violence to it, so as to achieve the obvious intention of the Legislature and produce a rational construction.
Speeches made by the members of the Legislature on the floor of the House when the Bill is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for its introduction can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in juristic thought not only in western countries but also in India, that the interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. (p. 598) 5. With these principles of interpretation in mind, let us have a look at the definition of a 'deposit' in Section 40A(8), Explanation (b). It is an admitted position that the assessee is a non-banking company which has incurred expenditure by way of interest on the amounts which are claimed to be current accounts, so that if they can come within the definition of deposits under this section, 15 per cent of the interest would have to be disallowed.
6. 'Deposit' means any deposit of money with, and includes any money borrowed by, a company but does not include any money received by the company : (i) from the Central Government or any State Government or any local authority, or from any other source where the repayment of the amount is guaranteed by the Central Government or a State Government; (ii) from the Government of a foreign State, or from a citizen of a foreign State, or from any institution, association or body (whether incorporated or not) established outside India ; (iii) as a loan from a banking company or from a co-operative society engaged in carrying on the business of banking (including a cooperative land mortgage bank or a co-operative land development bank) ; (iv) as a loan from any institution or body specified in the list in the Tenth Schedule or such other institution or body as the Central Government may, having regard to the nature and objects of the institution or body, by notification in the Official Gazette, specify in this behalf; (vii) by way of security or as an advance from any purchasing agent, selling agent or other agent in the course of, or for the purpose of, the business of the company or as advance against orders for the supply of goods or for the rendering of any service ; (viii) by way of subscription to any share, stock, bond, or debenture (such bond or debenture being secured by a charge or a lien on the assets of the company) pending the allotment of the said share, stock, bond or debenture, or by way of advance payment of any moneys uncalled and unpaid upon any shares in the company, if such moneys are not repayable in accordance with the articles of association of the company ; (ix) as a loan from any person where the loan is secured by the creation of a mortgage, charge or pledge of any assets of the company (such loan being hereafter in this sub-clause referred to as the relevant loan) and the amount of the relevant loan, together with the amount of any other prior debt or loan secured by the creation of a mortgage, charge or pledge of such assets, is not more than seventy-five per cent of the price that such assets would ordinarily fetch on sale in the open market on the date of creation of the mortgage, charge or pledge for the relevant loan ;" 7. While borrowing is included in the definition, sub-clauses (iii) and (iv) show that a loan would also be a deposit. Sub-clause (v) shows that but for the exclusion any money received by the company from any other company would also be treated as a deposit. Sub-clauses (vi) and (vii) show that but for the exclusion, even a security deposit received from an employee or security or advance received from an agent or any advance against orders for supply of goods or for rendering of service would be a deposit under the section for disallowance of interest vide Sub-clause (viii). It is clear that but for the exclusion, subscription paid for any shares, stock, bond or debenture pending allotment would be a deposit under the section.
8. The above analysis shows that the definition of deposit, under Section 40A(8) is very wide.
9. When a director, or his relative or a trust with which they are connected, give money to the company with an agreement, express or implied, to pay interest, the question arises whether it does not fall within this wide definition of deposit because the lawyers/accountants have named these accounts as 'current accounts'. Incidentally, all accounts are not similar to those reproduced in the order of the learned Vice President. The following accounts would give an altogether different complexion to so-called current accounts :31-3-1979 to TDS on Interest 282.00 1-1-1979 By Balance B/d. 95,347.4831-12-1979 To Income-tax onInterest 286.00 31-3-1979 By Interest 2,821.00Balance C/f.
1,05,852.48 31-3-1979 By Interest 8,852.00 ----------- ----------- 1,05,852.48 1,07,020.48 ----------- ----------- Only interest has been credited, TDS and income-tax debited.
Master Vinay R. AroraIV. Rs. Rs.31-3-1979 To TDS on Interest 240.00 18-5-1979 By Cheque 35,000.0031-3-1979 To Balance C/f.
37,153.00 31-5-1979 By Interest 2,393.00 --------- --------- Statement of account of Smt. Chandrikaben J. Jhaveri from 1-4-1978 to 31-3-1979 :Date Particulars Amount Date Particulars Amount Rs. Rs.31-3-1979 to TDS on Interest 879.00 1-4-1978 By Balance B/f. 68,443.3231-3-1979 to Balance C/f.
92,554.50 4-12-1978 By Bank 15,000.00 By Interest 4,790.18 Statement of account of Smt. Prabhavatiben Amrutlal Shah from 1-4-1978 to 31-3-1979 : Debit Rs Credit Rs.31-3-1978 To TDS on Interest 147.00 1-4-1978 By Balance B/f. 2,252.35 To Balance C/f.
13,575.60 31-3-1979 By Interest 1,470.25 ------------- ------------ 13,722.60 13,722.60 Statement of account of Shri Bhupendrakumar Amrutlal Shah from 1-4-1978 to 31-3-1979 : Debit Rs. Credit Rs.31-3-1978 To Balance C/f.
3,795.00 1-4-1978 By Balance B/f. 3,388.44 31-3-1979 By Interest 406.56 ------------- ------------- 3,795.00 3,795.00 Statement of account of Shri Nalinkumar Amrutlal Shah from 1-4-1978 to 31-3-1979 : Debit Rs. Credit Rs.18-10-1978 To LTC 63.30 1-4-1978 By Balance B/f. 2,221.5427-3-1979 To LTC 63.30 31-3-1979 By Interest 263.16 ------------- ------------- 1484.70 2,484.70 Statement of account of Shri Seventilal Surajmal Jhaveri from 1-4-1978 to 31-3-1979 : Debit Rs. Credit Rs.31-3-1979 To TDS on Interest 400.00 1-4-1978 By Balance B/f. 33,293.3031-3-1979 To Balance C/f.
36,888.45 31-3-1979 By Interest 3,992.15 ------------- ------------- 37,288.45 37,288.45 10. Thus, all accounts are not such where there are a number of deposits and withdrawals during the year. There are also those where there are no transactions at all.
11. Does the fact that those accounts were paid to the company by directors or others, without any advertisement by the company inviting deposits as per the Companies (Acceptance of Deposit) Rules, make them in a class by themselves different from 'deposits' under Section 40A(8) We fail to see how that can be so. Indeed, the purpose for" which this section was enacted has been elaborately discussed in the order of the Vice President. However, the definition of 'deposits' in the Explanation is so wide that it must include all these so-called 'current accounts' so that the benefit of mischief rule for interpretation cannot limit the meaning of the term 'deposit' as enacted in the Explanation to Section 40A(8), since there is no ambiguity in the definition.
12. The argument advanced on behalf of the assessees was that 'deposit' means only a term deposit for a fixed period. The argument is totally misconceived. There are deposits, commonly understood, made in the bank accounts like (i) current account ; (ii) savings bank account, and (iii) fixed deposit account, etc., for a certain period.
13. It cannot be said that what a person put in the current account is not a deposit. If it is not a deposit, we fail to understand what it is. In Halsbury's Laws of England, Fourth edn., Vol. 3, p. 67 under the head 'Buniness of banking', in paragraph No. 89, the learned author describes the bank accounts as follows : 2. A deposit account repayable at a fixed future date or after the lapse of a specified time.
3. A deposit account repayable at the end of a given period of notice.
14. On page 33, the learned author observes that 'the receipt of money on deposit account constitutes the banker a debtor to the depositor but not a trustee thereof for him. No new contract is created every time there is a fresh deposit, the account is a continuing one. The debt is repayable either on demand or on condition agreed with the depositors".
15. If that be the legal relationship created by the deposit in current account (deposit account repayable on demand) in a bank that the bank becomes a debtor to the depositor, the same relationship would be created when amounts are deposited with the company under the so-called current accounts. A person taking a loan is a debtor while a person giving the loan is a creditor. 'Loan' is included in the definition of 'deposit'. Therefore, all deposits in these current accounts would be deposits within the meaning of 'deposit' in Section 40A(8).
16. It is immaterial that in some cases there have been a number of deposits and withdrawals. Once it is held that these are deposits, all that the ITO has to do is to disallow arithmetically 15 per cent of the interest paid thereon. It was not necessary for the Parliament to say that the disallowance of interest would be on the balance, as observed by the learned Vice President in paragraph No, 18 of his order. The failure of the Parliament to use the words 'balance' or 'net balance' would not justify the conclusion that current or running account would be outside the purview of Section 40A(8).
17. The difficulty expressed at the end of paragraph No. 18 by the learned Vice President Of a negative deposit is purely hypothetical because in that event no interest would be paid to him but it would be charged from him and no question of interest being disallowed would then arise.
A general deposit is where the money deposited is not itself to be returned but an equivalent in money (that is, a like sum) is to be returned. (p. 395) It is equivalent to a loan and the money deposited becomes the property of the depositor's demand deposit-'bank deposit which may be withdrawn at any time by the depositor without prior notice to Bank'. On page 296, time deposit has been described as deposit which is to remain for specified period of time or on which notice must be given to bank before withdrawal. Thus, a deposit with the bank creates a loan and a loan is a 'deposit' under Section 40A(8).
19. Thus, it is clear that whatever amount stands to the credit of directors or their relatives, etc., created a loan or debtor/creditor relationship between the assessee-company and the depositors which clearly falls within the definition of 'deposit' under Section 40A(8).
20. We may here point out that except a banking company, which the assessee is admittedly not, no one can do the business of banking under the Banking Regulation Act, 1949. Banking has been defined in Section 5(b) of the Banking Regulation Act as : " 'banking' means the accepting, for the purpose of lending or investment, of deposits of money from the public repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise 21. Relatives of the directors or trusts (which cannot be relatives of a company, in any event) would clearly be part of public and if the assessee claims to have current accounts "of depositors, then it is violating the Banking Regulation Act.
22. The conclusion reached by the learned Vice President in paragraph No. 11 that the definition of deposit indicates that 'the money should be kept on deposit voluntarily by the outsider and not the amounts the company seeks from the outsider by way of borrowings' and that characteristic common to Explanation (b)(i) to (ix) is that it means a single receipt does not, in our opinion, follow from the rending of the definition. Nothing, however, in our opinion, turns on such a conclusion, for reasons already given by us.
23. The Companies (Acceptance of Deposit) Rules came into effect on 3-2-1975, and till 18-9-1975, the definition of 'deposit' in the rule and Section 40A(8) was the tame, bat on 18-9-1975, however, Clause (9) (deposits by directors) was enacted to exclude deposits by directors from the term 'deposit'. That it became necessary to exempt deposits from the directors from the definition of 'deposit' in the Companies (Acceptance of Deposit) Rules clearly means that otherwise the deposit by directors would be covered by definition of 'deposit'.
24. Section 40A(8) was, however, not amended to exempt deposits by directors from the definition in the Act. The conclusion is inescapable that under the Act, deposits by directors continued to be included in the definition of deposits for disallowance of interest, though under the deposit rules, they did not amount to deposit for calculating the limits of borrowing. The failure to amend the definition in Section 40A(8) appears to have been a conscious decision.
25. The difference between a loan and a deposit under the Limitation Act is purely for the purpose of limitation and rulings under that Act cannot be of assistance to decide the point at issue.
26. However, the assessee has always treated the amounts in the current accounts as moneys borrowed for the purposes of business and claimed and was allowed deduction of interest under Section 36(1)(iii) of the Act. Even the assessee while filing the return treated the amounts as deposits and disallowed 15 per cent interest voluntarily. This, too, gives an indication as to how the assessee has looked at these deposits. Whether these were deposits under Section 40A(8) cannot but be a mixed question of facts and law and the fact that the assessee treated them as deposits is a fact which cannot be brushed aside as inconsequential.
27. In paragraph No. 14 of his order, the learned Vice President has dealt with the requirements of the Companies Act to show in the balance sheet separately 'current account with directors, managing -agents, secretaries and members of the management'. This shows firstly, that none else except directors, etc. (i.e., their relatives and connected trusts) can have a current account with the company. Secondly, since the assessee did not show these amounts in question as current accounts in the balance sheet, it is clear that the assessee-company never treated them as current accounts.
(i) All the credits in the accounts involved in these appeals cannot be described as current accounts.
(ii) Even as current accounts, all the credits therein fall within the definition of 'deposit' under Section 40A(8) Explanation (b).
(iii) The definition of 'deposit' is so explicit and unambiguous that it is not permissible to take the aid of speech of the Finance Minister, the memorandum explaining the purview of the Finance Bill, 1975 or to invoke mischief rule for the interpretation of statutes.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 In view of the majority decision, the appeals by the assessee for the assessment years 1979-80 and 1980-81 in IT Appeal Nos. 3020 and 3021 (Bom.) of 1981 by Kaloomal Shorimal Sachdev Rangwalla (P.) Ltd. are dismissed.