2002 (7) TMI 74 - HC - Income Tax

Business Expenditure, Disallowance Of Expenditure, Interest On Deposits - 1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that no disallowance of interest should be made on interest payments made to the directors and shareholders on the credit balances in the current accounts held by them with the assessee in terms of section 40A(8) of the Act? - 2. Whether, on the facts and in the circumstances of the case, the Income tax Appellate Tribunal was right in law in holding that the interest payment made to the directors and shareholders on their deposits with the assessee-company is excepted by the provisions of section 40A(8) on the basis of the ratio of the decision laid down by the Madhya Pradesh High Court in the case of CIT v. Kalani Asbestos (P.) Ltd. ? - questions of law referred to us are answered against the Revenue and in favour of the assessee.

Summary

The High Court of Madras ruled in favor of the assessee regarding the interpretation of section 40A(8) of the Income-tax Act, 1961. The court held that interest payments made to directors and shareholders on credit balances in current accounts were not subject to disallowance under section 40A(8) as they were not considered deposits. The decision was based on the legal distinction between deposits and credit balances, as supported by a previous case.