The registration of the charge with the Registrar of Companies under Section 125 of the Companies Act, 1956, is sufficient to create a valid charge over the immovable properties of the company, and the nature of the product manufactured is not decisive in considering the eligibility of claim under section 80J of the Act.

N.V. BALASUBRAMANIAN, J.

The Income Tax Appellate Tribunal has stated a case, both at the instance of the assessee as well as at the instance of the Revenue and referred the following questions of law under Section 256(i) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act').

Questions of law referred at the instance of the assessee:-

(i) Whether on the facts and in the circumstances of the case a valid charge or mortgage was created by the deed of hypothecation trust dated 1-4-1979 ?

(ii) Whether on the facts and in the circumstances of the case, the disallowance of interest of Rs.83,292/- in the assessment year 1980-81 and of Rs.1,14,807/- in the assessment year 1981-82 under Section 40A(8) of the Income Tax Act, 1961 are justified in law ?

Questions of law referred at the instance of the Revenue:-

(i) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee company is entitled to a deduction of Rs.1,60,699/- for the assessment year 1979-80, Rs.3,47,944/- for the assessment year 1980-81 and Rs.7,74,846/- for the assessment year 1981-82 under Section 80J of the Income-Tax Act, 1961 in respect of its new unit 'B' at Kirikera, Hindupur District, Andhra Pradesh ?

(ii) Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in holding that Section 40(c)(ii) and not Section 40A(5) should be applied in allowing the deduction in respect of salary, perquisites etc. to the Managing Director of the assessee company in the assessment year 1980-81 ?

2. Learned counsel appearing for both the parties submitted and agreed that the amount Rs.1,14,807/- mentioned in the second question referred at the instance of the assessee is not a correct amount and the correct figure is Rs.42,173/- and the said figure shall be substituted in the place of a sum of Rs.1,14,807/-. Accordingly, the sum of Rs.42,173/- shall be substituted in the second question referred at the instance of the assessee in the place of Rs.1,14,807/-.

3. We will take up the reference at the instance of the assessee first. The questions relate to the interpretation of section 40A(8) of the Act. The assessee claimed certain interest payments on deposits received by it as business expenditure. The Income Tax Officer has disallowed a portion of the interest payments on the ground that no charge or mortgage was created over the properties of the assessee company at the time of receipt of the fixed deposits and the portion of interest paid on the fixed deposits was liable to be disallowed under Section 40A(8) of the Act and accordingly, he disallowed a sum of Rs.83,292/- for 1980-81 and Rs.1,14,807/- for 1981-82. The Commissioner of Income Tax (Appeals), on appeal, took a different view and held that a floating charge was created by the hypothecation of the properties of the assessee company and security was created in favour of the deposit holders and the said charge was also registered with the Registrar of Companies as provided under the Companies Act, 1956. He therefore held that the security was available to the deposit holders and the disallowance of interest was not sustainable as per Section 40A(8) of the Act. However, he held that a sum of Rs.42,173/- should be disallowed in any event for the assessment year 1981-82 on the score that the security created by the assessee did not cover the entire amount of fixed deposits received by it. The Commissioner of Income-tax (Appeals) therefore partly allowed the appeals preferred by the assessee.

4. The Appellate Tribunal, on appeal by the Revenue, reversed the orders of the Commissioner of Income Tax (Appeals) holding that a first mortgage of the immovable properties was created in favour of a nationalised bank and there could not be any valid second mortgage. The Tribunal also held that the deed of hypothecation was not registered with the Registrar of Assurance, and without registration under the Registration