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Issues: Interpretation of section 40A(8) of the Income-tax Act, 1961 for assessment years 1983-84 and 1984-85.
Analysis: 1. Background: The Revenue referred a question regarding the applicability of section 40A(8) of the Income-tax Act, 1961, for the assessment years 1983-84 and 1984-85. 2. Commissioner's Disallowance: The Commissioner disallowed the claim under section 40A(8) based on the amalgamation of two companies and the issuance of debentures in lieu of payment, considering it as an interest expense subject to disallowance. 3. Tribunal's Decision: The Appellate Tribunal allowed the appeal, stating that the payment made was not interest on any deposit received or money borrowed, but rather on the mode of payment for assets received through amalgamation. 4. Legal Analysis: The question at hand was the legality of disallowing Rs. 82,500 under section 40A(8) of the Act. The Tribunal held that the assessee did not incur interest on any deposit received or money borrowed, as per the definition of 'deposit' in Explanation (b) to sub-section (8). 5. Interpretation of 'Deposit': The Tribunal clarified that no deposit within the meaning of Explanation (b) was established in this case, leading to the conclusion that no interest was paid on a deposit as per the Act. 6. Legislative Intent: The court examined the legislative intent behind introducing sub-section (8) of section 40A, which aimed to regulate non-banking and non-financial companies' indiscriminate acceptance of public deposits to maintain monetary policy effectiveness. 7. Judgment: The court agreed with the Tribunal's view that section 40A(8) did not apply in this case, as there was no interest liability incurred on a deposit as defined in the Act. The court ruled in favor of the assessee and against the Revenue, holding the disallowance under section 40A(8) as legally unsustainable.
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