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TMI Blog1993 (8) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Tribunal was correct in law in holding that the provisions of section 40A(8) of the Income-tax Act, 1961, would not be applicable on current account balances of the shareholders of the assessee-company and as well as that of others ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in concurring with the assessee's claim that only the net interest payable, i.e., after adjusting of interest receipts against the interest payments should be considered for the purpose of the allowance under section 40A(8) of the Income-tax Act, 1961 ?" Shortly stated, the facts relating to the first question are that the assessee-company, engaged in the business of cultivation, manufacture and sale of tea, claimed that since only 40 per cent. of its business income is chargeable to income-tax in terms of rule 8 of the Income-tax Rules, 1962, read with section 10(1) of the Income-tax Act, 1961, only 40 per cent. of the depreciation is actually allowed under section 32 read with section 43(6)(b) of the said Act. The written down value of the depreciable assets in tea business has to be ascertained by deducting from the cost only 40 per cent. of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence was also made to a decision of this court in CIT v. Swedish East Asia Co. Ltd. [1981] 127 ITR 148. In these cited cases, the Supreme Court as also this court went into the question of the true import of the expression "actually allowed" as appearing in section 10(5)(b) of the repealed Act of 1922. The corresponding provision under the Act of 1961 is section 43(6)(b) as already mentioned. The provision under the present Act is in pari materia with the old provision and, therefore, the said decisions can be said to be a sufficient guide to the determination of the issue. In Nandlal Bhandari's case [1966] 60 ITR 173 (SC), the assessee-company was being assessed as a non-resident up to and including 1944. There the assessee contended that, in view of the definition of written down value, it is only the depreciation allowed under the Indian Income-tax Act, 1922, in the past till the year under assessment, which could be said to be depreciation actually allowed. This was found acceptable. The Supreme Court laid down the principle that, where the non-resident's world income is computed after allowing full depreciation and a portion of such world income is the total income subjected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Officer, who applied the formula laid down in rule 33 of the Income-tax Rules, 1922, in fixing the depreciation allowance, had actually allowed only a fraction of the amount towards depreciation allowable in assessing the world income of the assessee." Here also, rule 8 requires the composite income to be determined in the first instance and, in that computation, the entire depreciation is allowable, say at 5 per cent. But 40 per cent. of the composite income is taken as the taxable business income in view of rule 8 of the Income-tax Rules, 1962. Consequently, it is 40 per cent. of the depreciation, i.e., 40 per cent. of Rs. 5 or Rs. 2 that is actually allowed towards depreciation. So, it can be said that Rs. 2 has been allowed as depreciation and Rs. 2 alone can be deducted from the cost of the depreciable asset in deter mining the written down value and not the whole of Rs. 5, notwithstanding the fact that, in the first stage of computation, the entire Rs. 5 was allowed as depreciation. A similar view was taken by the Supreme Court in the other case of Straw Products Ltd. [1966] 60 ITR 156. The decision in Madeva Upendra Sinai v. Union of India [1975] 98 ITR 209 (SC), is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent. of the interest payable on current account balances of the shareholders of the assessee-company as well as its directors by applying the pro visions of section 40A(8) of the said Act. The Income-tax Officer made disallowance of Rs. 20,868 under section 40A(8) of the Act while computing the total Income of the assessee. This disallowance represents 15 per cent. of the interest paid on the credit balance in the current account of the shareholders and others. The assessee claimed that the current account balances could not be treated as representing deposits within the meaning of section 40A(8) of the Act and also that the net interest payment, that is, after adjustment of the interest received against the interest payment could not be considered for the purposes of section 40A(8) of the Act, that is, for the purpose of making the disallowance. The Income-tax Officer did not accept the contention and made the disallowance as aforesaid. The assessee agitated the dispute of disallowance before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) held that the provisions of section 40A(8) would be applicable in respect of the interest paid on curren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the expression "deposit" has been defined to give it a meaning larger than its natural meaning because here deposit also includes any borrowing. But for the definition, it could have been arguable very well that there is difference between a loan and a deposit or that a deposit is not a loan. In the case of a loan, it is the duty of the debtor to seek out the creditor and to repay the money according to the agreement. But in the case of a deposit, it is the duty of the depositor to go to the depositee and to make a demand for the payment. This view was taken by the Lahore High Court in Gurcharan Das v. Ravi Rakha Mal, AIR 1937 Lah 81. The Supreme Court also viewed the loan as different from a deposit in V. E. A. Annamalai Chettiar v. Veerappa Chettiar (S. V. VS.), AIR 1956 SC 12. In Md. Akbar Khan v. Attar Singh, AIR 1936 PC 171, the judicial Committee held that the loan and deposit are both debts repay able, but the point of time when the repayment is to be made furnished the moot point of distinction. The loan is repayable the moment it is incurred. For a deposit, there is no immediate obligation to repay the deposit. A depositee is to keep the money till it is asked fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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