9911796707
TMI Blog1989 (1) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... tatute book during the relevant assessment year. That provision was as follows : "(8) where the assessee, being a company (other than a banking company or a financial company), incurs any expenditure by way of interest in respect of any deposit received by it, fifteen per cent. of such expenditure shall not be allowed as a deduction." The Income-tax Officer also found that the interest was paid at the rate of 24 per cent. per annum on the deposits made by the directors of the company and their relations and consequently proceeded to consider, under section 40A(2)(a) read with sub-section (2)(b)(ii) of the Act, whether the payment of interest on the deposits was excessive or unreasonable. He came to the conclusion that payment of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, counsel for the Revenue pleaded that under section 40A(8) of the Act, 15 per cent. of the interest, whether paid to a stranger or to a director of the company or any relative of such director, was disallowable whereas under section 40A(2), payments made to a director of the company or any relative of such director, if found to be excessive or unreasonable, could be disallowed and in this manner it was urged that both the provisions were different and had different objects to be achieved and could stand at the same time and one provision did not exclude the other as was sought to be argued on behalf of the assessee. The Tribunal agreed with the contention of the assessee and held that disallowance of Rs. 8,691 only was justified with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 40A(8) makes provision in regard to companies other than banking or financial company and is not applicable to individual assessees, firms, associations of persons or Hindu undivided families. Whenever such company incurs expenditure by way of interest in respect of any deposit received by it, 15 per cent. of such expenditure has to be disallowed in view of the aforesaid provision. On the contrary, section 40A(2) is applicable to all assessees including individuals, companies, firms, associations of persons and Hindu undivided families. This provision provides that where an assessee incurs expenditure in respect of which payment has been made or has to be made to any person referred to in clause (b) of sub-section, and if the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to its directors and their relations was excessive and unreasonable and whatever is found to be excessive and unreasonable, the same shall have to be disallowed. It will be open to the Tribunal to consider whether 15 per cent. which is to be disallowed under section 40A(8) would be included in the disallowance to be made under section 40A(2) or would be in addition to this disallowance. In this behalf, the matter can be looked at from different angles. While considering the matter under section 40A(2), the Tribunal might come to the conclusion that payment of interest was reasonable to figure between 15 per cent. to 25 per cent. (this is only by way of illustration). The balance payment of interest would thus be unreasonable. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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