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CIT v. M/s Arun Hotels & Cinema - INCOME TAX REFERENCE No. 112 of 1986 [2004] RD-AH 1253 (29 October 2004)


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Court No. 37

ITR No. 112 of 1986

Commissioner of Income Tax Allahabad........  Applicant


M/s Arun Hotels and Cinema P. Ltd, Varanasi.......Respondent

Hon'ble R.K. Agrawal, J.

Hon'ble Prakash Krishna, J.

Income Tax Appellate Tribunal, Allahabad referred the following two questions of law under Section 256 (1) of the Income Tax Act, hereinafter referred to as the Act for opinion to this Court.

1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the credit balance in the accounts of the Directors, who had maintained a running account with the Company, could not be considered as a deposit within the meaning of Section 40A(8) of the I.T. Act, 1961?

2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in deleting the addition of Rs. 13,443/- disallowed u/s 10A (8) of the Act?

Briefly stated the facts giving rise to the present reference are as follows :-

The reference relates to the assessment year 1981-82. The respondent is a private limited company. It engaged in cinema business during the assessment year in question. It had paid interest amounting to Rs. 896232/- to the Directors and relatives in respect of the amount standing to their credit in its books of account. The Income Tax Officer disallowed 15% of the said interest under Section 40 A (8) of the Act. The order was upheld by the Commissioner of Income Tax (Appeals). On this issue, however, in further appeal the Tribunal has deleted the disallowance on the ground that the running amount maintained by the Directors with the Company could not be considered as the deposit within the meaning of Section 40A(8) of the Act.

We have heard Shri Shambhu Chopra, learned Standing Counsel for the Revenue and Shri SBL Srivastava, learned counsel appearing for the respondent/assessee.

It may be mentioned here that Section 40A(8) does not differentiate with the amount deposited with the Company, whether it is a fixed term deposit, long term deposit, short term deposit or a running current account. The interest if any paid on any of such deposit is covered by the said provisions. Therefore, the Tribunal has erred in law in holding that the interest paid on the current account maintained by the Directors and the relatives with the Company is out side the scope of Section 40A(8) of the Act.

In view of the above discussions, we answer the questions referred to us in negative i.e. in favour of the Revenue and against the assessee. There shall be no order as to costs.

Dt. 29.10.2004



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