Judgment:
1. The Income-tax Appellate Tribunal, Delhi, has referred the following question of law under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for opinion to this Court :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in upholding the finding of the Commissioner of Income-tax (Appeals) that disallowance under Section 40A(8) of the Income-tax Act, 1961 could be made only with reference to the interest paid to the directors and their relations on their deposits and not of others ?'
2. The reference relates to the assessment year 1983-84.
3. Briefly stated, the facts giving rise to the present reference are as follows :
The respondent-assessee is a private limited company. It derives income from commission agency of khandsari and sugar and from own trading in the commodities. For the assessment year in question it claimed interest payment of Rs. 2,45,896. The Income-tax Officer disallowed a sum of Rs. 35,803 being 15 per cent, of the amount of interest under Section 40A(8) of the Act. Feeling aggrieved, the respondent preferred an appeal before the Commissioner of Income-tax (Appeals) who had held that the additions made under Section 40A(8) of the Act in respect of interest paid to the directors and their relation and associates could only be disallowed. No disallowance was called for in respect of payment of interest to outsiders. He found that the interest to two directors and their relation on deposits was Rs. 86,472 and interest paid on the amount taken on the advance in business was Rs. 1,52,218. The Commissioner, therefore, upheld the disallowance under Section 40A(8) with reference to interest of Rs. 86,472. Feeling aggrieved, the Revenue preferred appeal before the Tribunal. The Tribunal upheld the order passed by the Commissioner of Income-tax (Appeals).
5. We have heard Sri A.N. Mahajan, learned standing counsel for the Revenue. Nobody has appeared on behalf of the respondent-assessee.
6. We find that under Section 40A(8) of the Act, 15 per cent, of expenditure incurred by a company by way of interest in respect of any deposit received by it is to be disallowed. The disallowance is not restricted to deposits made by the directors or their relatives. It is applicable to all and sundry and wherever interest is paid, 15 per cent, of the amount is to be disallowed. In this view of the matter, the Tribunal was not justified in holding that the disallowance is to be restricted on the amount of interest paid to the directors and their relatives.
7. In view of the foregoing discussions, we answer the question of law referred to us in the negative, i.e., in favour of the Revenue and against the assessee. There shall be no order as to costs.