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TMI Blog1982 (8) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 40A(8) of the Income-tax Act, 1961 ('the Act'). 3. The assessee being aggrieved, came up in appeal before the Commissioner (Appeals). It was contended before the Commissioner (Appeals) on behalf of the assessee that the amounts on which interest had been paid had been received from the directors/shareholders which could not be construed as 'deposits' within the meaning of section 40A(8). It was also contended that the said deposits were made much before the coming into force of section 40A(8) and, therefore, the disallowance could not be made. Reliance was also placed, on behalf of the assessee, on the decision dated 2-2-1980 of the Tribunal, Bombay Bench, in the case of M. E. (P.) Ltd. [IT Appeal No. 691 (Bom.) of 1979] for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of deposits by the companies. He submitted that the amounts in question did not qualify as 'deposits' under the Companies Act. He pointed out that there was no time factor involved in the amounts, nor were they made by the public and, therefore, they could not be treated as 'deposits'. Reference was also made by him to the Memorandum explaining the provision of the Finance Bill, 1975 (paragraph 9) wherein the scope and objectives of the provisions of section 40A(8) were explained. It is as follows : "As a result of the general policy of credit restraint and enforcement of selective control measures by the Reserve Bank of India, non-banking, non-financial companies have been increasingly resorting to acceptance of deposits from the pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... framed under section 58A, read with section 642, of the Companies Act, 1956, were not applicable. He submitted that the facts in the case of M. E. (P.) Ltd. were not the same as in the present case. Summing up his arguments, Shri Satya Prakash submitted that there was no warrant or justification for any interference with the orders of the income-tax authorities. 5. We have considered the rival submissions of both the parties. Firstly, it needs to be noticed that the taxability or disallowance of interest as explained, is to be considered only with reference to the provisions of the Income-tax Act, and not with reference to any provisions of the Companies Act, the Reserve Bank of India Act or the Companies (Acceptance of Deposits) Rules. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andum explaining the provisions of the Finance Bill, 1975, cannot be taken advantage of. According to the definition of 'deposit' as appearing in Explanation (b) to section 40A(8), every loan taken by a company from a private party would be liable to be regarded as a deposit and the interest thereon would come up for disallowance to the extent of 15 per cent in every case, regardless of the quantum of the interest, the nature of company, the purpose of the loan, the terms of repayment and the rights and liabilities of the parties in respect of the amount of such loan. We are not considering here nor could we consider any challenge to the constitutional validity of the provisions of section 40A(8). Having regard to the above discussion, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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