S.P. Bharucha, C.J.—This is a reference under section 256(2) of the Income Tax Act, 1961, made at the instance of the Revenue. The following questions arise for determination :

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in deleting addition of Rs. 5,21,241 made by the Income Tax Officer under section 40A(5) and sustained by the Commissioner of Income Tax (Appeals) ?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that non-charging of interest on the debit balance in the running account of the directors would not constitute a perquisite ?"

2. The assessee is a limited company. The assessment year with which we are concerned is the assessment year 1979-80. The assessee had borrowed moneys and was paying interest thereon at the rate of fifteen per cent. per annum. The amount of the interest that was paid was claimed as deduction in the computation of the assessee's income under section 36 of the Income Tax Act, 1961. The Income Tax Officer disallowed there from the sum of Rs. 5,21,241, being fifteen per cent. of the aggregate of the amount standing to