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TMI Blog1982 (2) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... ia and Sainikraj Chordia, to the extent of Rs. 4,41,450. For the asst. yr. 1978-79 interest accrued and became due to the four directors to the extent of Rs. 13,02,944.67. Similarly, for the asst. yr. 1979-80 interest accrued and became due to four directors on monies left with the company to the extent of Rs. 11,23,785.50. For the asst. yr. 1977-78 by order dt. 24th Jan, 1978, the ITO without giving any reason disallowed u/s 40A(8) of the Act interest of 15% on Rs. 7,09,938 but a rectification, order was passed on 5th April, 1978 restricting the disallowance at 15% on interest of Rs. 4,41,450. For the asst. yr. 1978-79 by order dt 17th April, 1979 the ITO disallowed interest u/s 40A(8) of Rs. 1,45,500. Similarly, for the asst. yr. 1979-80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company and since such monies were utilised by the company for its business purposes, interest was due and accrued and such interest paid by the company on the out standings is not hit by s. 40A(8) of the Act and hence the disallowance of 15% of such interest is improper. He relied on the decision of the Bombay Bench of the Tribunal in the case of M.E. Pvt. Ltd. vs.ITO in It Ref. No. 691 (Bom) of 1979 dt 2nd February, 1980 (1981) 11 TTJ 299. He also relied on the Ministry of Law, Justice Company Affairs press not dt 21st October, 1975 clarifying that the amounts received by a company from its directors as well as shareholders are not deposits and hence not subject to the limits specified in rule 3 of the Companies (Acceptance of Deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not proper. 7. The ld. counsel for the assessee had placed before us the particulars of the monies of Shri Shivraj Chordia with the company from 1st July 1967 onwards till 30th June, 1979. A perusal of such accounting entries shows that the director had left his monies in the company and the company had maintained a running current account and on different dates monies were withdrawn by the director or paid by the director to the company. The copies of accounts relating to the various transactions clearly indicate that they are in the nature of a running current account of the directors with the company. The position is the same as regards the other directors to whom interest payments were allowed on monies left with by them in the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrent account wherein normally there is no restriction of withdrawal either as to the amount or as to time. The Tribunal also considered the question whether such a transaction amounts to money borrowed by the company and came to the conclusion that there was no borrowal inasmuch as the amounts lying to the credits of the directors were for their use as and when needed in a current account and that the company had offered the formalities of current account in a bank. According to the Tribunal, such private account amounts to purely domestic nature and such current accounts transactions do not amount to deposit as contemplated in s. 40A(8) of the Act. We have gone through the decision of the Tribunal and we agree with the reasonings. 8. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies from their shareholders are exempt from the definition of deposits. The deposits received by a Public Limited Company from its shareholders will continue to be considered as deposits. Deposit accepted/received by a Private Company: 3.18. Section 58A of the Companies Act, 1956, or the Companies (Acceptance of Deposits) Rules, 1975, does not make distinction in so far as acceptance of deposits is concerned on the basis of the status and formation of a company as Public or Private. The distinction, however, lies in one point in regard to acceptance of deposit and the Department of Company Affairs in a note dated 21st October, 1976 clarified that the amount received by a Private company from its Directors as well as shareholders are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, there is no questions of the company borrowing the monies as capital by the directors. The monies of the directors lay with the company and the company utilises such monies for the business and the deduction can be allowed u/s 37 of the Act. Whatever be the nature of deduction of interest, it is clear from the transactions that the monies of the directors left with in the company cannot be treated as either deposited with the company or a borrowing by the company. Hence, we hold that the provisions of s. 40A(8) of the Act are not attracted and the disallowance of 15% of the interest accrued and fallen due to the directors for the 3 years in questions is not proper. 9. The ld. counsel for the assessee had raised an alternative contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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