Interest paid to directors on their deposits in running accounts is disallowable to the extent prescribed under section 40A(8) of the Income-tax Act.

1. - The Income-tax Appellate Tribunal has referred the following question of law for the decision of this court, under section 256(1) of the Income-tax Act (hereafter to be called as " the Act') :

"Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the interest paid to the directors on their deposits in running accounts was not disallowable to the extent prescribed under section 40A(B) of the Act? "

2. The brief facts of the case are that the Income-tax officer, while finalising the assessment for the assessment year 1980-84, disallowed sum of 15 per cent. interest paid under section 40A(8) of the Act. This interest was paid to the directors on their current accounts maintained with the company. The Commissioner of Income-tax (Appeals) deleted the said disallowance and, affirming the decision of the Commissioner of Income-tax (Appeals), it was held by the Tribunal that, under section 40A(8) of the Act, where the assessee, being a company (other than 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. The expression " deposit " as used in section 40A(8) of the Act is defined in clause (b) of the Explanation thereto to mean " any deposit of money with, and includes any money borrowed by, a company, but does not include any of the amounts received by the company in the exceptions provided therein ". Admittedly, the present case does not fall under one or the other of the exceptions provided therein. It is to be noted that the definition of the expression " deposit " as used in section 40A(8) of the Act, vide clause (b) of the Explanation thereto, is a comprehensive and complete definition. We say so because the said definition defines " deposit " to mean any deposit of money with a company. It has been further expanded to include therein by including any money borrowed by a company. current account, as is well known and is ordinarily understood under the accountancy principles, is an account to meet current expenses involving amounts brought in the form of credits and debits representing the outgoings. So far as the money in the current account is concerned, there is no restriction of withdrawal whether as to the amount or as to the time. The amount credited to such an account cannot, by any stretch of imagination, be taken to represent borrowing of money by the company. We say so because borrowal involves the taking of money as loan which is never there in the case of a current account. There is also no deposit in the case of a current account. As already stated, deposit for the purposes of section 40A(8) means a " deposit ". A " deposit ", according to the ordinary dictionary meaning as given in Chambers 20th Century Dictionary (Revised Edition) at page 281, is " something entrusted to another's care ". The restrictions of withdrawal may be of the amount or as to the time. Such a situation does not exist in the case of an amount standing to the credit of a person in a current account like the one involved in the present case.

3. The provisions of sub-section (8) of section 40A of the Act, during the relevant period, were 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 deduction.

Explanation. In this sub-section,

(b) 'deposit' means any deposit 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 the amount is guaranteed by the Central Government or by a State Government;

(ii) from the Government of a foreign State, or from a citize