ORDER
D.N. Sharma, Judicial Member
1. Earlier, when this appeal came up for hearing before a Division Bench, it was felt that the following question necessitates consideration of a larger Bench for disposal of this appeal in terms of Section 255(3) of the Income-tax Act, 1961. A request was, therefore, made by the Division Bench to the President to constitute a larger Bench and refer the following question :-
Whether the term ‘deposits’ as defined in Section 40A(8) of the Income-tax Act, excludes from its operation deposits received by a private company from its directors and shareholders?
That is how this appeal has come up for hearing before this Bench.
2. The assessee is a private limited company. The Income-tax Officer, while framing the assessment for the assessment year 1983-84, made a disallowance of Rs. 12,825 under Section 40A(8), being 15 per cent of Rs. 85,505 paid as interest by the assessee-company. The disallowance was made without any discussion or stating the material facts.
3. The assessee appealed to the CIT (Appeals) before whom the assessee objected to the disallowance of Rs. 12,825 under Section 40A(8). It was, inter alia, contended that the deposits were not received from the public, but were received from shareholders and directors of the assessee-company and, therefore, Section 40A(8) had no application in the instant case. Reliance was placed on the order of the Tribunal dated 25-10-1982 in ITA No. 3682/Del/81 and CO. No. 360/Del/81 in the case of M/s. Bhandari Machinery Co. P. Ltd., wherein it was held by the Tribunal that loans taken from shareholders and directors did not constitute deposits for the purpose of Section 40A(8). The CIT (Appeals), however, did not accept the contention advanced on behalf of the assessee. He was of the view that the use of the words, “any deposit of money” in Section 40A(8) signifies that all deposits received from whatever source were liable to be treated as deposits, except those specifically exempted as provided in Explanation (b) to Section 40A(8). The disallowance made under Section 40A(8) was, accordingly, upheld.
4. It has not been disputed before us that deposits in the instant case were received by the assessee- company from its shareholders and directors and that interest amounting to Rs. 85,505 was paid by the assessee-company to these shareholders and directors on such deposits. Shri P.N. Monga, Avocate, appearing for the assessee, contended that deposits received by a company from its directors and shareholders did not fall within the purview of Section 40A(8), with the result that interest paid on such deposits was not disallowable under Section 40A(8). Elaborating his argument, Shri Monga, referring to the background history of introduction of the provision, submitted that Section 40A(8) applied to deposits invited from the public and that directors and shareholders, being members of the company, could not be regarded as members of the public with the result that deposits received from them were not hit by the provisions of Section 40A(8).
5. It was in this context that he referred to the speech of the Finance Minister while piloting the Finance Bill, 1975, which according to him, clearly showed that intention of the Legislature in enacting Sub-section (8) of Section 40A was to restrict its application to deposits received by a company from the public and that it was not intended to apply it to deposits received from directors and shareholders. Reliance was placed on the decision of the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 and our attention was invited to the following passage contained in pages 608 and 609 of the report to support the view that in interpreting a section, the speech of the mover of a Bill in Parliament can be relied on :-
Now, it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation was enacted. This is in accord with the recent trend in juristic thought not only in Western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible.
In support of this contention, reliance was also placed on the decision of the Patna High Court in the case of Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70. Shri Monga then referred us to the speech of the Finance Minister made at the time of moving the Finance Bill, 1975. Reliance was placed on the following portion of the speech of the Finance Minister reproduced in [1975] 98 ITR (Statutes) 113(111):–
The levy of a tax under the Interest-tax Act, 1974, on interest received by scheduled banks has had the effect of increasing, on an average, the cost of borrowings from scheduled banks by about one per cent. The levy of this tax has, therefore, made the acceptance of deposits by non-banking non-financial companies from the public all the more attractive, specially in the context of the selective credit control measures adopted by the Reserve Bank. Some corrective by way of a dis-incentive to borrowings from the public by these companies seems to be indicated so that credit planning according to the priorities laid down by the Government is not defeated. I propose, therefore, that in computing the taxable income of non-banking non-financial companies, only 85 per cent of the interest paid by them on public deposits will be allowed as expenditure for tax purposes. This measure will yield Rs. 10 crores in a full year and Rs. 7.5 crores in 1975-76.
6. Shri Monga also referred to the notes on clauses, wherein it is stated, thus :-
Sub-clause (b) seeks to insert new Sub-section (8). Under the new Sub-section (8), fifteen per cent of the interest paid by non-banking non-financial companies on deposits received by them from the public will be disallowed in computing their total income.
7. According to Shri Monga, use of the words “Public deposits”, in the speech of the Finance Minister and notes on clauses, clearly indicated the legislative intention and that operation of Sub-section (8) was confined only to deposits received from the public and that deposits received from directors and shareholders fell beyond the purview of this sub-section.
8. It was next contended by Shri Monga that under Section 58A and 58B of the Companies Act, 1956, deposits received by a company from its directors and shareholders are excluded. In this connection our attention was invited to the clarification made by the Company Law Board regarding the term “deposits”. A copy of the clarification made by the Company Law Board is given at page 10 of the second paper book filed by the assessee. The clarification reads as under:-
New Delhi, September 19-
The Company Law Board today clarified that deposits secured by a Company, whether public or private limited, from its directors were excluded from the definition of deposits.
But as far as shareholders were concerned, only deposits received by private limited companies 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 – UNI
9. According to Shri Monga, the expression “deposit” occurring in Section 40A(8) should be understood in the light of the provisions of Sections 58A and 58B of the Companies Act, which exclude deposits from directors and shareholders of a company from their operation.
10. In support of the contention that provisions of Section 4()A(8) are not applicable in respect of deposits received by a company from its directors and shareholders, Shri Monga relied on the decision of the Madhya Pradesh High Court (Indore Bench) in the case of CIT v. Kalani Asbestos (P.) Ltd. [1989] 180 ITR 55. This authority, according to Shri Monga, lays down the proposition that interest paid on deposits received by a company from its directors and shareholders does not attract the provisions of Section 40A(8). Reliance has also been placed on the decision of the Delhi Bench ‘E’ in ITA No. 3682/Del/81 and C.O. No. 360/Del/81 in the case of Bhandari Machinery Co. (P.) Ltd. and some other decisions of Delhi Benches in support of the view that deposits received by a company from its directors and shareholders are exempt from the operation of Section 40A(8). Copies of these decisions are included in the first paper book filed by the assessee in this case.
11. Shri Monga then referred to the decision of the Punjab & Haryana High Court in CIT v. Sandika (P.) Ltd. [1989] 179 ITR 117, wherein it has been held that for the applicability of Section 40A(8) it makes no distinction whether payment of interest is made to a director of the company or his relations or strangers totally unconnected with the company or their relatives. It was contended that in the case decided by the Punjab & Haryana High Court, a concession was made on behalf of the assessee to the effect the disallowance of 15 per cent of interest paid to a director of the company or his relations was disallowable under Section 40A(8). Thus, according to Shri Monga, the decision in that case laying down the proposition contrary to the view canvassed before us on behalf of the assessee was based on the concession made on behalf of the assessee in that case. It was further submitted that even if there was a conflict of opinion regarding the scope of the provision under Section 40A(8), the view favourable to the assessee should be adopted. In support of this contention reliance has been placed on the decision of the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 193.
12. Smt. S. Bhattacharya, Sr. departmental representative, on the other hand, fully supported the impugned order of the CIT (Appeals) on the point under consideration. It was contended that the decision of the Madhya Pradesh High Court in Kalani Asbestos (P) Ltd.’s case (supra), cited on behalf of the assessee did not resolve the controversy whether the deposits received by a company from its directors and shareholders fall within the mischief of Section 40A(8). It was submitted that reference to the provisions of Sections 58A and 58B of the Companies Act and also to the definition of “deposit” as is given under that Act was wholly irrelevant for the purpose of construing the meaning of the word “deposit” as used in Section 40A(8). In this connection it was submitted that since Explanation (b) to Sub-section (8) of Section 40A defines the word “deposit”, that meaning alone should be considered even under the rules of interpretation and the meaning of this word given under the Companies Act cannot be imported for the purpose of interpretation of the provisions of Section 40A(8). That may be permissible, should there be any ambiguity in the Income-tax Act. It was then contended that the object and purpose of inserting Sub-section (8) in Section 40A of the Income-tax Act was entirely different from the object and purpose of enacting Sections 58A and 58B of the Companies Act.
13. Learned Sr. departmental representative next contended that definition of the term “deposit”, as initially given in Clause (b) of Rule 2 of Companies (Acceptance of Deposits) Rules, 1975, did not exclude “deposits” received from directors and shareholders of the company and that such an exclusion was provided for the first time by insertion of Sub-clause (ix) in Clause (b) of Rule 2 by the Companies Amendment Rules, 1975 w.e.f. 18-9-1975 and the same was further modified by the Companies Amendment Rules 1978 w.e.f. 1-4-1978. It was contended that but for the exclusion provided under cub-clause (ix), the amounts received by a company from its directors and shareholders would fall within the definition of the term “deposit” as defined under Sub-clause (b) of Rule 2 and also in the Explanation to Section 58 A of the Companies Act. It was further submitted that the Legislature did not insert a similar exclusion in the Explanation to Section 40A(8) for the purpose of excluding deposits received by a company from its directors and shareholders.
14. It was next contended that the Punjab & Haryana High Court in the case of Sandika (P.) Ltd. (supra), has clearly held that the interest paid on deposits received from directors and their relations were disallowable under Section 40A(8).
15. It was further submitted by the learned Sr. departmental representative that there was no ambiguity or uncertainty in the language used in Section 40A(8) and that the Explanation (b) to Sub-section (8) defines the term “deposit” to mean any deposit of money with, and includes any money borrowed by a company. To this definition, certain exceptions, enumerated in Sub-clauses (i) to (ix) have been provided. It was pointed out that the exceptions provided in Sub-clauses (0 to (ix) do not include deposits received by a company from its directors and shareholders. It was, therefore, contended that in the instant case, interest paid to directors and shareholders on deposits received from them would be hit by the provisions of Section 40A(8). Reliance has also been placed on Special Bench decisions of the Tribunal in Kaloomal Shorimal Sachdev Rangwalla (P.) Ltd. v. First ITO [1985] 14 ITD 248 (Bom.) and Glaxo Laboratories (India) Ltd. v. Second ITO [1986] 18 ITD 226 (Bom.) and some other decisions of the Tribunal viz. decision of Calcutta Bench ‘C’ in Boyd Smiths (P.) Ltd. v. ITO [1985] 13 ITD 610; decision of the Bombay Bench ‘A’ in Piramal Sons(P.)Ltd. v. ITO [1986] 19 ITD 219; and the decision of the Ahmedabad Bench ‘A’ in Hindustan Marbles (P.) Ltd. v. ITO [1987] 20 ITD 329.
16. Sub-section (8) of Section 40A was inserted by the Finance Act, 1975 w.e.f. 1-4-1975 and was omitted by the Finance Act, 1985 w.e.f. 1-4-1986. Sub-section (8) as inserted by the Finance Act, 1975 stood as under :-
(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.
Explanation : In this sub-section,-
(a) ‘banking company’ means a company to which Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in Section 51 of that Act;
(b) ‘deposit’ means any deposity of money with, and includes any money borrowed by, a company, but does not include any amount received by the company-
(i) from the Central Government or any State Government or any local authority, or from any other source where the repayment of amount is guaranteed by the Central Government or a State Government;
(ii) from the Government of a foreign State, or from a citizen of a foreign State, or from any institution, association or body (whether incorporated or not) established outside India;
(iii) as a loan from a banking company or from a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank);
(iv) as a loan from any institution or body specified in the list in the Tenth Schedule or such other institution or body as the Central Government may, having regard to the nature and objects of the institution or body, by notification in the Official Gazette, specify in this behalf;
(v) from any other company;
(vi) from any employee of the company by way of security deposit;
(vii) by way of security or as an advance from any purchasing agent, selling agent or other agent in the course of, or for the purpose of, business of the company or as advance against orders for the supply of goods or for the rendering of any service;
(vii) by way of subscription to any share, stock, bond or debenture (such bond or debenture being secured by a charge or a lien on the assets of the company) pending the allotment of the said share, stock, bond or debenture, or by way of advance payment of any moneys uncalled and unpaid upon any shares in the company, if such moneys are not repayable in accordance with the articles of association of the company.
(ix) as a loan from any person where the loan is secured by the creation of a mortgage, charge or pledge of any assets of the company (such loan being hereafter in this sub-clause referred to as the relevant loan) and the amount of the relevant loan, together with die amount of any other prior debt or loan secured by the creation of a mortgage, charge or pledge of such assets, is not more than seventy-five per cent of the price that such assets would ordinarily fetch on sale in the open market on the date of creation of the mortgage, charge or pledge for the relevant loan;
(c)…
17. The object of insertion of Sub-section (8) was explained in the departmental Circular No. 169 dated 23rd June 1975 in the following manner:-
32. In order to discourage unrestricted growth of deposits in the non-banking sector, the Finance Act has inserted a new Sub-section (8) in Section 40A to provide for partial disallowance of interest paid by non-banking, non-financial companies on deposits received by them. Under the new Section 40A(8), 15 per cent of the expenditure incurred by way of interest paid on deposits, will be disallowed in computing the profits and gains of business in the case of a company other than a ‘ banking company’ or ‘financial company’.
(See Sampath lyengar’s Law of Income-tax, Vol. 2, page 2363.)
18. The speech of the Finance Minister, a portion whereof has been extracted above, also shows that the object of enacting Sub-section (8) was to introduce some corrective by way of dis-incentive to borrowings from the public by companies. It cannot be said that “deposits” received from directors and shareholders if included in the definition of the expression “deposil” would defeat the object and purpose of insertion of Sub-section (8). Deposits received by a company from its directors and shareholders would certainly lead to growth of deposits in the non-banking sector and, therefore, the object and purpose of enacting of Sub-section (8) would be fully achieved, if deposits received from directors and shareholders are considered for disallowance of interest paid to them. The speech of the Finance Minister, inter alia, mentioning that only 85 per cent of interest paid by the companies on public deposits would be allowed as expenditure for tax purposes, does not exclude the deposits received by a company from its directors and shareholders. Similarly, notes on clauses, explaining the object of enacting Sub-section (8) do not exclude deposits received from directors and shareholders for the purpose of disallowance of 15 per cent of interest paid by non-banking financial companies.
19. The expression “deposit” is defined under Explanation (b) to Section 40A(8) to mean any deposit of money with, and includes any money borrowed by, a company, but does not include any amount received by the company as referred to in Sub-clauses (0 to (ix) of Clause (b). Thus, while defining the word “deposit” in Explanation (b) the Legislature has used the expression “any deposit”. The use of the word “any” before the word “deposit” in Explanation (b) is very significant and it gives a wide amplitude to the definition of word “deposit” and does not restrict the meaning of word “deposit” only to deposits received from the public. If we put the construction on the definition of the word “deposit” as suggested by the learned Counsel for the assessee and give it a restrictive meaning, the use of the word “any” would become redundant. While construing a statute, every word used by the Legislature has to be given a meaning and the construction which renders the use of a word redundant or meaningless, has to be avoided. The language of Section 40A(8) including the definition of the word “deposit” as given in Explanation (b) clearly makes the legislative intendment clear, namely, that “deposit” includes all deposits from whatever source or quarter received, but does not include amounts mentioned in Sub-clauses (i) to (ix, which have been specifically excluded from the definition of the term “deposit”. Had the Legislature intended that deposits received by a company from its directors and shareholders should not fall within the mischief of Sub-section (8), it would have provided an exclusion to that effect by inserting a sub-clause, as has been done under the Companies (Acceptance of Deposits) Rules, 1975, by inserting Clause (ix) in Section 2(b) w.e.f. 18-9-1975 which has been further amended w.e.f. 1-4-1978. The effect of this amendment was that amounts received from directors and shareholders were excluded from the term “deposit” as defined in Rule 2(b) of the aforesaid Rules and also under Explanation to Section 58A. The Legislature in its wisdom did not insert any exception under Explanation (b) similar to the exception introduced in companies (Acceptance of Deposits) Rules, 1975 by inserting Clause (ix). This further reinforces our view that deposits received from directors and shareholders were not to be excluded from the purview of Section 40A(8) and that interest paid on such deposits attracts the provisions of Sub-section (8).
20. Some of the observations made by Their Lordships in K.P. Varghese’s case (supra), and relied upon by the learned counsel for the assessee have already been extracted above. It would also be useful to reproduce the following observations made by Their Lordships in the said case:-
It is well recognised rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. There are many situations where the construction suggested on behalf of the revenue would lead to a wholly unreasonable result which could never have been intended by the Legislature … where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the Court may modify the language used by the Legislature or even ‘do some violence’ to it, so as to achieve the obvious intention of the Legislature and produce a rational construction.
Keeping in view the object and purpose of enacting Sub-section (8) it is clear that legislative intendment was to include even deposits received by a company from directors and shareholders for the purpose of disallowance of interest paid on such deposits. Such an interpretation advances the object for which the Sub-section (8) has been enacted and does not lead to any absurdity or unjust result.
21. M/s Bhandari Machinery Co. P. Ltd. (supra), and some other decisions by various division Benches of the Tribunal, cited on behalf of the assessee and copies whereof are included in the first paper book filed by the assessee have not correctly interpreted the provisions of Section 40A(8) and the definition of deposit as given in Explanation (b). A similar issue arose for consideration before the Special Bench of the Tribunal in Kaloomal Shorimal Rangwalla (P.) Ltd.’s case (supra). In that case it was held by majority decision that credits in current accounts fall within the definition of deposit under Explanation (b) of Section 40A(8). By majority decision it was further held that deposits by directors continued to be included in the definition of “deposit” for the purpose of disallowance of interest under Section 40A(8). In that case the minority view was expressed by the learned Vice President. Even according to the minority view, whether the depositor is a director, a non-director, a shareholder, a relative of these persons or an outsider, does not matter at all for the purpose of disallowance of interest under Section 40A. It was further held that Section 40A(8) does not make a difference between a director, a non-director, and relative of a director etc. as far as the deposit is concerned. Thus, in that case all the three learned Members were of unanimous opinion that deposits made by directors are deposits within the meaning of Section 40A(8) and interest paid on such deposits is disallowable to the extent of 15 per cent. This, in our opinion, is the correct interpretation of the provisions of Section 40A(8).
22. As has been rightly submitted on behalf of the Revenue, the definition of “deposit” as given in the Explanation to Section 58A of the Companies Act and Companies (Acceptance of Deposits) Rules, 1975 is for a totally different purpose and is neither useful nor germane to the determination of the question before us whether deposits received by a company from its directors or shareholders would amount to a deposit within the meaning of Section 40A(8) for the simple reason that the expression “deposit” has been defined under the Explanation (b) to Section 40A(8). Therefore, reference to the definition of this expression under the Companies Act and the aforesaid rules, given for a different purpose, is not necessary. Further, it may even amount to discarding the plain meaning to be given to the word “deposit” as used in the Income-tax Act, and adopting the meaning given to the word “deposit” in the Companies Act. The word may be the same. The etymological meaning may also seem similar, but the context and object have to be kept in view, while construing the meaning of this word. In the normal sense of the term a deposit may not include borrowings. But the definition given in Sub-section (8) to the word “deposit”, includes borrowings. Thus, the scope of the meaning has been so broadened as to include borrowals also. If for argument sake we exclude deposits received from the shareholders and directors, we may have still to include borrowings from them. In this case, the nature of the sums received partake the nature of borrowings as interest of substantial amount was paid, and there was no period prescribed for their return. We may mention here that while the object of enacting Sections 58A and 58B of the Companies Act is to regulate the flow of deposits into non-banking and non-financial companies without having any serious impact on the regular banking companies, the object of enacting Sub-section (8) of Section 40A is, as stated by the Finance Minister while moving the bill in the Parliament, to provide a dis-incentive to offer high rates of interest which may border on usurious rates all with a view to attract deposits by companies which may not be able to sustain and support the deposits particularly the capacity to refund.
23. We now advert to the decision of the Madhya Pradesh High Court in the case of Kalani Asbestos (P.) Ltd. (supra), cited on behalf of the assessee. In this case, while framing the assessment, for the assessment year 1983-84, the Income-tax Officer held that in respect of payment of interest by the assessee to certain parties, the principal amounts were received by the assessee by way of deposits and, hence, under the provisions of Section 40A(8), 15 per cent of interest paid to these persons deserved to be disallowed. When the matter ultimately went up before the Tribunal, the Tribunal upheld the contention advanced on behalf of the assessee that interest was paid mainly to directors and shareholders on their current accounts and, therefore, disallowing interest under Section 40A(8) was not called for. The High Court held that the Tribunal having found that interest was not paid by the assessee in respect of any deposit received by it, it was right in holding that disallowance under the provisions of Section 40A(8) was not called for. Thus, it was on the basis of a finding of fact recorded by the Tribunal that the High Court held that the Tribunal was right in holding that disallowance under Section 40A(8) was not called for. Their Lordships in that case were not to consider the question whether deposits received by a company from its directors and shareholders would fall within the ambit of Section 40A(8). The decision of the High Court in that case was based on the finding of fact recorded by the Tribunal. This ruling cannot, therefore, be construed as case authority for the view canvassed before us on behalf of the assessee and it does not lay down in so many terms the proposition that deposits received by the company from its directors and shareholders do not fall within the purview of Section 40A(8) and, therefore, interest paid on such deposits is not disallowable to the extent of 15 per cent of interest.
24. Coming to the decision of the Punjab & Haryana High Court in the case of Sandika (P.) Ltd. (supra) cited on behalf of the Revenue, it would be necessary to state the facts of this case in some detail. In that case the assessee, a private limited company, paid a total amount of Rs. 57,941 by way of interest to its depositors in the period relevant to the assessment year 1976-77. In the assessment proceedings, the company claimed deduction of interest paid, but the ITO disallowed 15 per cent in view of Section 40A(8). The Income-tax Officer also found that interest was paid @ 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), whether the payment of interest on the deposits was excessive or unreasonable. He came to the conclusion that payment of interest to the extent of 6 per cent per annum out of 24 per cent per annum was unreasonable and disallowed the payment of interest to this extent under Section 40A(2)(a) read with Sub-section (2)(b)(ii). The matter finally went up before the Tribunal. On behalf of the assessee it was contended that in view of specific provisions of Section 40A(8), disallowance of 15 per cent could be made and no further disallowance could be made either under Section 40(c) or under Section 40A(2). The Tribunal agreed with the contention of the assessee and held that disallowance of Rs. 8,691 only was justified with reference to the figure of interest paid to the extent of Rs. 57,941 and the disallowance was restricted to this figure. One of the questions referred for the opinion of the High Court was as follows:-
Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in restricting the disallowance of interest paid by the assessee-company to its directors and their relations to 15 per cent only of the expenditure under Section 40A(8) regardless of the specific provisions made by the Income-tax Act, 1961, in Sections 40(c) and 40A(2) ?
25. The High Court observed that one distinction between Section 40A(8) and Section 40A(2) is that 15 per cent is disallowable out of the expenditure incurred under Section 40A(8); whereas, under Section 40A(2), only that part of the expenditure is disallowable which is found to be excessive or unreasonable. It was held that for the applicability of Section 40A(8) it makes no distinction whether payment of interest is made to a director of the company or his relations or strangers totally unconnected with the company or their relatives whereas Section 40A(2) is applicable only when payments are made to the relatives of individual assessee, a director of the company, partners of the firm, members of association or family, or any relative of any such partner, director or member. It was further held that these provisions have different objects to be achieved and can co-exist in the statute book and one does not exclude the other. It was further held that the Tribunal was in error in coming to the conclusion that Section 40A(8) excludes Section 40A(2) of the Act so far as companies are concerned.
26. While contending that decision in the case of Sandika (P.) Ltd. (supra), was based on the concession made on behalf of the assessee, learned counsel for the assessee referred to certain portions of the judgment saying that it was contended that in view of specific provisions of Section 40A(8) disallowance of 15 per cent could be made and that there was no dispute that 15 per cent has to be disallowed under Section 40A(8). We are unable to subscribe to the view canvassed on behalf of the assessee. There can be no concession against law. The court has to interpret the law regardless of any concession made by a party. The efficacy of the decision of a High Court on a point of law is not diluted simply because the exposition of law propounded by the High Court has not been disputed by the party, adversely affected by such decision. On the other hand, the High Court in the case of Sandika (P.) Ltd. (supra), has clearly held that for the applicability of Section 40A(8), it makes no distinction whether the payment of interest is made to a director of a company or his relations or strangers totally unconnected with the company or their relatives. This authority, therefore, supports the view that deposits received by a company from its directors and shareholders fall with in the ambit of Section 40A(8) and that 15 per cent of interest paid on such deposits is disallowable.
27. For the foregoing reasons, we uphold the disallowance of Rs. 12,825 under Section 40A(8) out of interest paid to directors and shareholders.
28. The assessee has raised one more ground which relates to the disallowance of Rs. 5,000 out of car maintenance expenses, claimed at Rs. 11,858. The Income-tax Officer disallowed the entire claim on the ground that the car No. DHP-4525, in respect of which maintenance expenses have been claimed, was not registered in the name of the company and that it was held in the personal name of the director. On appeal, the CIT (Appeals) found that the company has no other car. He also found that the contention advanced on behalf of the assessee that the car was utilized by the Managing Director for the purpose of the company, was partly correct. He, accordingly, restricted the disallowance to Rs. 5,000.
29. We have heard learned authorised representatives of the parties and have gone through the record of the case. The authorities below have not recorded a finding that the car was being used by the assessee company for non-business purposes also. No evidence could be brought on record by the authorities below to show that the car was being partly used for non-business purposes. There is no dispute that the company has no other car. Having regard to the facts of the case, we hold that the car maintenance expenses were incurred by the assessee company wholly and exclusively for the purpose of business and, therefore, the entire expenses were allowable under Section 37. We, accordingly, delete the disallowance of Rs. 5,000.
30. In the result, the appeal is allowed partly to the extent indicated above.