1. On an application under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following common question for the assessment years 1981-82 and 1982-83 for our opinion :
'Whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 40A(8) of the Income-tax Act, 1961, the Tribunal was justified in law in holding that Section 40A(8) of the said Act is not applicable on the interest paid on the surplus of current account of the director, Shri H. P. Lohia ?' .
2. The matter was listed 2/3 times. None appeared for the assessee. We proceed to hear learned counsel for the Revenue. Heard learned counsel for the Revenue.
3. The assessee is Hari Finance and Trade (P.) Ltd. and the assessment years involved are 1981-82 and 1982-83. During the course of assessment, the Assessing Officer has noticed that interest has been paid to one Shri Hari Prosad Lohia, on his deposit with the assessee-company. The Income-tax Officer disallowed 15 per cent. of the interest paid, invoking the provisions of Section 40A(8) of the Act. The Tribunal has allowed the claim of the assessee following the decision of the Madhya Pradesh High Court in the case of CIT v. Kalani Asbestos (Put.) Ltd. : 180ITR55(MP) and held that in the case of current deposit of the director in the company, the provisions of Section 40A(8) are not applicable.
4. The admitted fact is that Shri Hari Prosad Lohia was a director in the assessee-company and interest has been paid to him on the deposits made by him. The Tribunal following the decision of the Madhya Pradesh High Court in the case of CIT v. Kalani Asbestos (Pot.) Ltd. : 180ITR55(MP) had taken the view that the provisions of Section 40A(8) are not applicable in the case of interest paid on current deposit of the director.
5. Considering the submissions and the provisions of Sub-section (8) of Section 40A of the Act, it is difficult to follow the view taken by the Madhya Pradesh High Court. When interest is paid on the deposits, we have to go by the definition of 'deposit' given in Sub-section (8) of Section 40A of the Act, which reads as follows :
Sub-section (8) was omitted by the Finance Act, 1985, with effect from April 1, 1986. Sub-section (8) as inserted by the Finance Act, 1975, with effect from April 1, 1976, stood as under : '(8) Where the assessee, being a company (other than a banking company or a finance company), incurs any expenditure by way of interest in respect of any deposit received by it, 15 per cent. of such expenditure shall not be allowed as a deduction.
6. Explanation.--In this sub-section,--
(a) 'banking company' means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in Section 50 of that Act ;
(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 co-operative land mortgage bank or a co-operative land development bank).'
7. Nowhere the current deposit is excluded from the definition of 'deposit'. When the Legislature did not intend for exclusion of the current deposit in the definition of 'deposit', there is no justification to stretch or narrow down the definition of deposit, given in the Explanation in that subsection in the Act itself. When a plain reading of the language in the definition of 'deposit' clearly provides that 'deposit' means any deposit of money, there is no question of excluding the current deposit. Any money' includes money deposited by the director in the company.
8. Therefore, with respect we are not in agreement with the view taken by the Madhya Pradesh High Court in the cases relied on by the Tribunal. For the purpose of Section 40A(8), 'deposit' includes current deposit of the director for disallowance of interest payable by the company. In our view, the Assessing Officer has rightly invoked the provisions of Section 40A(8) for disallowing 15 per cent. interest payable on the deposit made by the director, Shri Lohia.
9. In the result, we answer the question in the negative, that is, in favour of the Revenue and against the assessee.
10. The application is, accordingly, disposed of.
11. All parties are to act on a xeroxed signed copy of this dictated order on the usual undertaking.