ORDER
A. Kalyanasundharam, Accountant Member
1. The revenue and the assessee are in cross-appeals for the same assessment year and, therefore, they are heard together and disposed of by this composite order.
2. In the appeal by the revenue issue relates to the amount disallowable under Section 40A(8) out of interest paid on the borrowings from directors. Learned Departmental Representative, Shri Shrivastava, placed reliance on the Special Bench decision in the case of Kalloomal Shorimal Sachdev Rangwalla (P.) Ltd. v. First ITO [1985] 14 ITD 248 (Bom.). The counsel for the assessee, ShriChhajed, placed reliance on the Madhya Pradesh High Court decision in the case of CIT v. Kalani Asbestos (P.) Ltd. [1989] 180ITR 55.
3. On this issue we have considered the rival submissions. In the case of law relied on by the assessee of MP High Court in Kalani Asbestos (P.) Ltd.’s case (supra) the question that was under consideration was “whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the amounts received from the directors and shareholders of the assessee private limited company does not represent deposits within the meaning of Section 40A(8) of the Income-tax Act and no disallowance of interest under Section 40A(8) of the Income-tax Act is called for”.
In regard to the above question, the High Court observed the Tribunal having found that interest was not paid by the assessee in respect of any deposit received by it, the Tribunal was right in holding that disallowance under the provisions of Section 40A(8) of the act was not called for. The premise which was the basis of the Hon’ble High Court to confirm this decision was that the primary fact of the amount received from the share-holders and the directors by the company was not a deposit. In the instant case, before us it has never been the contention of the assessee that the amounts lying to the credit of the current account of the directors and the shareholders are not deposits. The assessee, no doubt, had contended that interest on such current accounts shall not be disallowable. The Special bench in the case of Kalloomal Shorimal Sachdev Rangwalla (P,) Ltd. (supra) examined the identical aspect. They had given a finding as to what is the nature of the current accounrwith special reference to the term “current account” as accepted by the bankers. It was observed that the banks do not allow any interest on current accounts but charges some commission. Since the assessee company was paying interest on the current account, the finding was that the account can no longer be said to be in the nature of a current account and, accordingly, it was held that the nature was that of a deposit account. In the instant case, the facts being identical, the Special Bench decision would squarely apply and these very features not existing in the case considered by the M.P. High Court (supra), the said decision would have no applicability to the present case. In view of the above, we have to set aside the order of the CIT(A) on this issue and restore that of the assessing officer.
4. In the appeal by the assessee two issues have been raised. The issue relating to disallowance of Rs. 11,674 representing sales-tax liability was not pressed during the course of hearing and accordingly this ground is treated as dismissed for having been withdrawn.
5. The only other ground that survives relates to the receipt of Rs. 42,649 collected as Dharmada on sale bills, whether are to be treated as part of the trading receipts or in the nature of the capital. The counsel for the assessee, Shri Chhajed, had filed a copy of the order of the Tribunal for the A.Y. 1975-76 dated 28th April, 1981 in the case of the assessee wherein in paragraph 11 the finding in regard to nature of Dharmada collections had been considered. His plea was that no doubt the Tribunal had come to the conclusion that the nature was not that of a capital receipt but that of a revenue, but in the light of decision of MadhyaPradesh High Court in Chunnilal Onkarlal (HUF) v. CIT [1982] 135 ITR 580, the issue requires reconsideration. The learned Departmental representative, Shri Shrivastava, placed reliance on the order of the Tribunal for the assessment year 1975-76.
6. On this issue we have given our careful consideration. The undisputed fact remains that Dharmada has been collected alongwith the sale bill of the various items dealt with by the assessee. The amount so collected from various customers has been credited to an account styled Dharmada account. This account showed an opening balance of Rs. 72,186 to which the collections of the year Rs. 42,649 when added, the balance at the year end stood at Rs. 1,14,836. During the course of arguments, Shri Chhajed had submitted that the assessee had made donations of Rs. 3,697 only which was claimed as a deduction, but was not allowed. From this he wanted to emphasis that the collections are intended for meeting various expenses. He also provided details of the subsequent years where the expenses are said to be around 10% of the total annual collections. In the case of Chunnilal Onkarmal (HUF) (supra) the High Court found that the assessee though had collected Dharmada voluntarily from his customers, had been regularly contributing to charitable institutions and that such institutions were in the receipt of such amounts for the last 25 to 30 years. It was also found that a fixed percentage of the receipts was being spent on charitable purposes. It was further found that merely for the reason that in a particular year a lesser amount was spent on the charitable purpose, the object of collection of Dharmada does not get changed. In the instant case before us, the assessee has not been able to bring on record any such similar or identical feature of it having contributions on a regular basis to some of the institutions and that it is calculated on a percentage of its receipts. Therefore, the case of the assessee is clearly distinguishable from the one considered by the MadhyaPradesh High Court.
7. For the A.Y. 1975-76 the Tribunal vide order dated 28th April, 1981 considering the Supreme Court decision in the case of CIT v. Bijli Cotton Mills (P.) Ltd. [1979] 116 ITR 60, had found that there was no evidence at all to show that the assessee was under a legal obligation to spend the Dharmada receipts for charitable purposes. The fact remains the same for the assessment year under appeal and we see no reason to take a different view from the one taken earlier. Confirming the treatment meted out to this particular item, we see no merit in the appeal of the assessee.
8. In the result, the revenue’s appeal is allowed while that of the assessee dismissed.