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Issues: Disallowance under section 40A(8) of the IT Act
Analysis: The appeal filed by the assessee private limited company challenges the disallowance under section 40A(8) of the IT Act, 1961, of interest paid to three directors of the company amounting to Rs. 10,536. The authorized counsel of the appellant argued vehemently that the disallowance was not permissible under section 40A(8). He contended that money borrowed by a private limited company from its directors does not qualify as deposits within the meaning of the section. The counsel referred to the Finance Minister's speech during the presentation of the Finance Bill 1975 and the Notes on Clauses to support the argument that only interest on deposits taken from the public could be disallowed under section 40A(8). The counsel further emphasized that since directors of a private limited company are not part of the 'public,' the disallowance of 15% of the interest paid to them was unwarranted. The counsel also relied on decisions of the ITAT Delhi Benches to support the argument. On the contrary, the Departmental Representative supported the CIT(A)'s order, asserting that the disallowance of 15% interest was justified as per the language of section 40A(8). The Tribunal, after considering both viewpoints, held that external aids of interpretation like the Finance Minister's speech or Notes on Clauses are only applicable when the language of an enactment is ambiguous. In this case, the provisions of section 40A(8) clearly state that 15% of interest expenditure on any deposit received by a company, including from shareholders or directors, is not allowable as a deduction. The word 'deposit' includes money borrowed by a company, with no exceptions for deposits or loans from directors of a private company. The Tribunal upheld the disallowance of Rs. 10,536 out of the total interest paid to the directors, stating that the language of section 40A(8) leaves no room for ambiguity. The decision was based on the Full Bench decision of the ITAT, disregarding the conflicting views of other ITAT Delhi Benches. Consequently, the Tribunal sustained the disallowance under section 40A(8) and dismissed the appeal of the assessee private limited company.
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