Section 40A(8) and Section 40A(2) of the Income-tax Act, 1961, can co-exist and be applied to the same facts, depending on the circumstances.

Gokal Chand Mital, J.

1. The assessee is a private limited company. The company paid a total amount of Rs. 57,941 by way of interest to its depositors in the period relevant to assessment year 1976-77. In the assessment proceedings, the company claimed deduction of the interest paid but the Income-tax Officer disallowed 15% in view of Section 40A(8) of the Income-tax Act, 1961 (hereinafter called "the Act"), which was on the statute book during the relevant assessment year. That provision was as follows :

"(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."

2. The Income-tax Officer also found that the interest was paid at the rate of 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) of the Act, 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 payment of interest to this extent under Section 40A(2)(a) read with Sub-section (2)(b)(ii) of the Act. Some other matters were also decided. The assessee went up in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner agreed with the Income-tax Officer that 15 per cent. has to be disallowed under Section 40A(8) of the Act. He also agreed that the payment of interest at the rate of 18 per cent. per annum was reasonable and the balance was considered as disallowable under Section 40(c) of the Act. In spite of this, he made the following observation :

"Taking into consideration the fact that the total disallowance is in excess of 15%, disallowance of Rs. 14,425 is considered as inclusive of the disallowance required to be made under Section 40A(8)."

3. Against the aforesaid appellate order, the assessee as well as the Department went up in separate appeals before the Income-tax Appellate Tribunal, Amritsar.

4. On behalf of the assessee, it was contended that in view of the specific provisions of Section 40A(8) of the Act, 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) of the Act. It was also contended that a special provision overrides the general provision and, therefore, in the face of Section 40A(8), the other provisions would not apply. On the other hand, counsel for the Revenue pleaded that under Section 40A(8) of the Act, 15 per cent. of the interest, whether paid to a stranger or to a director of the company or any relative of such director, was disallowable whereas under Section 40A(2), payments made to a director of the company or any relative of such director, if found to be excessive or unreasonable, could be disallowed and in this manner it was urged that both the provisions were different and had different objects to be achieved and could stand at the same time and one provision did not exclude the other as was sought to be argued on behalf of the assessee. The Tribunal agreed with the contention of the assessee and held that disallowance of Rs. 8,691 only was justified with reference to the figures of interest payment of Rs. 57,941 and the disallowance was restricted to this figure. We are surprised to find, on a reading of para 6 of the order of the Tribunal, that the matter was remitted to the Income-tax Officer for fresh disposal to see whether Section 40A(2) of the Act was applicable or not. In the aforesaid background, we have to opine on the following question referred for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in restricting the