Ajit K. Sengupta, J.:— This is a reference under section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue. The assessment year involved is 1983–84, the previous year being calendar year 1982.

2. The questions referred for our opinion are as follows:

“(1) Whether, on the facts and in the circumstances of the case, and on a correct interpretation of section 43(6) of the Income-tax Act read with rule 8(1) of the Income-tax Rules, 1962, the Tribunal was correct in law in holding that for the purpose of computing the written down value of depreciable assets used in tea business only 40 per cent, instead of 100 per cent, of depreciation allowable at the prescribed rate should have to be deducted in the assessee's case?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the provisions of section 40A(8) of the Income-tax Act, 1961, would not be applicable on current account balances of the shareholders of the assessee-company and as well as that of others?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in concurring with the assessee's claim that only the net interest payable, i.e, after adjusting of interest receipts against the interest payments should be considered for the purpose of the allowance under section 40A(8) of the Income-tax Act, 1961?”

3. Shortly stated, the facts relating to the first question are that the assessee-company, engaged in the business of cultivation, manufacture and sale of tea, claimed that since only 40 per cent, of its business income is chargeable to income-tax in terms of rule 8 of the Income-tax Rules, 1962, read with section 10(1) of the Income-tax Act, 1961, only 40 per cent, of the depreciation is actually allowed under section 32 read with section 43(6)(b) of the said Act. The written down value of the depreciable assets in tea business has to be ascertained by deducting from the cost only 40 per cent, of the depreciation allowable at the prescribed rate. Section 43(6) defines the expression “written down value” and the material part of the said definition is set out below:

“43. (6)(b)…. in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force:”

4. The Tribunal, relying on the judgments of the Supreme Court in CIT v. Nandlal Bhandari Mills Ltd., [1966] 60 ITR 173, CIT v. Dharampur Leather Co. Ltd., [1966] 60 ITR 165 and Madeva Upendra Sinai v. Union of India, [1975] 98 ITR 209 (SC) accepted the assessee's contention. The Income-tax Officer allowed 100 per cent, depreciation to the extent of 100 per cent, of the prescribed rate while computing the written down value of the assessee's depreciable assets. The assessee agitated this action of the Income-tax Officer before the Commissioner of Income-tax (Appeals) and submitted that the Income-tax Officer should have allowed depreciation to the extent of 40 per cent, of the prescribed rate for the depreciable assets for the purpose of arriving at the written down value of the respective assets. The Commissioner of Income-tax (Appeals) has followed his earlier order in the assessee's own case for the assessment year 1984–85 and confirmed the Income-tax Officer's computation of the written down value of the depreciable asset by rejecting the assessee's appeal. Being aggrieved, the assessee preferred a second appeal before the Tribunal. The Tribunal, after considering the assessee's submission, held that the provisions of rule 8(1) could not be ignored and at the same time the judgments of the Supreme Court referred to above cannot also be overlooked. The Tribunal, accordingly, allowed the assessee's case on the point. The controversy, in this case, turns on the meaning of the expression “actually allowed” as appearing in section 43(6)(b). We have heard the rival contentions. Before us, learned counsel for the assessee relied upon the decisions of the Supreme Court in CIT v. Nandlal Bhandari Mills Ltd., [1966] 60 ITR 173, Commissioner Of Income-Tax v. Straw Products Ltd., [1966] 60 ITR 156 (SC) and Madeva Upendra Sinai v. Union of India, [1975] 98 ITR 209 (SC). Reference was also made to a decision of this court in CIT v. Swedish East Asia Co. Ltd., [1981] 127 ITR 148. In these cited cases, the Supreme Court as also this court went into the question of the true import of the expression “actually allowed” as appearing in section 10(5)(b) of the repealed Act of 1922. The corresponding provision under the Act of 1961 is section 43(6)(b) as already mentioned. The provision under the present Act is in pari materia with the old provision and, therefore, the said decisions can be said to be a sufficient guide to the determination of the issue.

5. In Nandlal Bhandari's case, [1966] 60 ITR 173 (SC), the assessee-company was being assessed as a non-resident up to and including 1944. There the assessee contended that, in view of the definition of written down value, it is only the depreciation allowed under the Indian Income-tax Act, 1922, in the past till the year under assessment, which could be said to be depreciation actually allowed. This was found acceptable. The Supreme Court laid down the principle that, where the non-resident's world income is computed after allowing full depreciation and a portion of such world income is the total income subjected to Indian taxation, only that proportionate part of the depreciation can be said to be actually allowed. The present case is akin to the situation that arose in the said case. Here also, full depreciation is allowed in computing the total income of the assessee-company growing and manufacturing tea as a composite business and thereafter only 40 per cent, of such computed income is taken as the total income exigible to income-tax being the non-agricultural part of the assessee's total income. The majority view of the Supreme Court in Nandlal Bhandari, [1966] 60 ITR 173, held that the portion of the depreciation which entered into the computation of income taxable under the Indian Income-tax Act, 1922, was the depreciation which had been actually allowed. The fact that, in the first stage of computation of the total income, the full amount of depreciation was deducted from the world income was immaterial. Similarly, here also, it can be said that a portion of the composite total income, namely, 40 per cent, thereof, is taxable income. Therefore, depreciation actually allowed is only 40 per cent, of the depreciation though, while computing the composite income, 100 per cent, depreciation was allowed. The position will be clear from a reading of the illustration which the Supreme Court gave in that decision (at page 179):

“Suppose the total profit of a business is Rs. 100 and the receipt in India is Rs. 25, i.e, the income accrued in India is one-fourth of the total income. If a sum of Rs. 5 represents the depreciation of the assets used in the business and if this is allowed, the total income will be Rs. 95; and one-fourth of Rs. 95 is Rs. 23.75; that is the income accrued in India under this formula. In arriving at Rs. 23.75, as the income in India, only Rs. 1.25, which is one-fourth of Rs. 5, the total depreciation is deducted from Rs. 25 towards the depreciation, that is to say, only Rs. 1.25 is actually allowed towards depreciation. The same illustration may also be put in another way; Rs. 25 is the gross income accrued in India to a non-resident; Rs. 5 is the value of the depreciation on the total assets. By taking one-fourth of Rs. 5, i.e, Rs. 1.25, we get at the figure of Rs. 23.75, that is to say, only one-fourth of the amount representing depreciation is allowed in ascertaining the taxable income in India. It is, therefore, manifest that the Income-tax Officer, who applied the formula laid down in rule 33 of the Income-tax Rules, 1922, in fixing the depreciation allowance, had actually allowed only a fraction of the amount towards depreciation allowable in assessing the world income of the assessee.”

6. Here also, rule 8 requires the composite income to be determined in the first instance and, in that computation, the entire depreciation is allowable, say at 5 per cent. But 40 per cent, of the composite income is taken as the taxable business income in view of rule 8 of the Income-tax Rules, 1962. Consequently, it is 40 per cent, of the depreciation, i.e, 40 per cent, of Rs. 5 or Rs. 2 that is actually allowed towards depreciation. So, it can be said that Rs. 2 has been allowed as depreciation and Rs. 2 alone can be deducted from the cost of the depreciable asset in determining the written down value and not the whole of Rs. 5, notwithstanding the fact that, in the first stage of computation, the entire Rs. 5 was allowed as depreciation. A similar view was taken by the Supreme Court in the other case of Straw Products Ltd., [1966] 60 ITR 156. The decision in Madeva Upendra Sinai v. Union of India, [1975] 98 ITR 209 (SC), is the decision of a larger Bench of five judges of the Supreme Court. The following observations in the said judgment will make it clear that the law was finally settled as regards the meaning of the expression “actually allowed” in the present context (at page 223):

“The pivot of the definition of ‘written down value’ is the ‘actual cost’ of the assets. Where the asset was acquired and also used for the business in the previous year, such value would be its full actual cost and depreciation for that year would be allowed at the prescribed rate on such cost. In the subsequent year, depreciation would be calculated on the basis of actual cost less depreciation actually allowed. The key word in clause (b) is ‘actually’. It is the antithesis of that which is merely speculative, theoretical or imaginary. ‘Actually’ contra-indicates a deeming construction of the word ‘allowed’ which it qualifies. The connotation of the phrase ‘actually allowed’ is thus limited to depreciation actually taken into account or granted and given effect to, i.e, debited by the Income-tax Officer against the incomings of the business in computing the taxable income of the assessee; it cannot be stretched to mean ‘notionally allowed’ or merely allowable on a notional basis.”

7. It is also not in dispute that this court in CIT v. Swedish East Asia Co. Ltd., [1981] 127 ITR 148, came to the same finding, following the decision of the Supreme Court. Our attention was drawn to a circular of the Board NO. 27 dated July 6, 1955, as well as No. 324 dated February 3, 1982*. There it was explained that, in respect of tea companies, investment allowance, development rebate, etc., are to be allowed only to the extent of 40 per cent. of the amounts calculated at the prescribed rates. This indirectly lends support to the assessee's contention that depreciation also is actually allowed to the extent of 40 per cent, of the amount calculated at the prescribed rate. For the reasons aforesaid, we are convinced that the Tribunal was Very correct in taking the view that, for computing the written down value of depreciable assets used in tea business, only 40 per cent, of the depreciation has to be deducted while determining the written down value, The first question is, therefore, answered in the affirmative and in favour of the assessee.

8. The second and third questions relate to the disallowance of 15 per cent, of the interest payable on current account balances of the shareholders of the assessee-company as well as its directors by applying the provisions of section 40A(8) Of the said Act. The Income-tax Officer made disallowance of Rs. 20,868 under section 40A(8) Of the Act while computing the total income of the assessee. This disallowance represents 15 per cent, of the interest paid on the credit balance in the current account of the shareholders and others, The assessee claimed that the current account balances could not be treated as representing deposits within the meaning of Section 40A(8) of the Act and also that the net interest payment, that is, after adjustment of the interest received against the interest payment could not be considered for the purposes of Section 40A(8) of the Act, that is, for the purpose of making the disallowance. The Income-tax Officer did not accept the contention and made the disallowance as aforesaid.

9. The assessee agitated the dispute of disallowance before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) held that the provisions of section 40A(8) would be applicable in respect of the interest paid on current account balances in view of the decision of the Special Bench of the Tribunal in the case of Kaloomal Shorimal Sachdev Rangwalla (P.) Ltd. v. First ITO, [1985] 14 ITD 248 (Bom). The Commissioner of Income-tax (Appeals) also rejected the assessee's claim that only the net interest payment is to be taken into account. Against the order of the Commissioner of Income-tax (Appeals) on the point, the assessee filed an appeal before the Tribunal.

10. The Tribunal held that no disallowance under section 40A(8) of the Act was called for in the case and thus allowed the assessee's claim in this respect. Thus, all the questions have arisen out of the order of the Tribunal.

11. It is the contention of the assessee-company that balances lying in the current account of its shareholders and directors, etc., did not come within the expression “deposit” as defined in Explanation (b) to section 40A(8). This submission of the assessee-company also finds support in the decision of the Madhya Pradesh High Court in Commissioner Of Income-Tax v. Kalani Asbestos (P.) Ltd., [1989] 180 ITR 55. In that case also, the Tribunal had found that the interest was paid mainly to directors and shareholders on their current accounts and not on any deposit received by the assessee-company. There, the Madhya Pradesh High Court observed that the Tribunal in these circumstances was right in holding that no disallowance under section 40A(8) was called for. This is the only decision on this point. There is no contrary decision made by any other court so far.

12. In the case of the assessee-company also, there is a clear finding of the Tribunal and the same is also apparent in question No. 2 itself which goes to seek the opinion of this court on the question whether disallowance under section 40A(8) could be made in respect of interest payable on current account balances of shareholders and directors of the assessee-company.

13. We agree with the submission of learned counsel for the assessee that the disallowance contemplated in section 40A(8) applies only in respect of interest payable on deposits received by the company. From the definition of “deposit” in Explanation (b) to section 40A(8), it is manifest that deposit could mean any deposit of money with the company including any amount borrowed by the company. Where interest becomes payable on current account, the same cannot be said to be a deposit received by the assessee. We find that the expression “deposit” has been defined to give it a meaning larger than its natural meaning because here deposit also includes any borrowing. But for the definition, it could have been arguable very well that there is difference between a loan and a deposit or that a deposit is not a loan. In the case of a loan, it is the duty of the debtor to seek out the creditor and to repay the money according to the agreement. But in the case of a deposit, it is the duty of the depositor to go to the depositee and to make a demand for the payment. This view was taken by the Lahore High Court in Gurcharan Das v. Ram Rakha Mal, AIR 1937 Lah 81. The Supreme Court also viewed the loan as different from a deposit in V.E.A Annamalai Chettiar v. Veerappa Chettiar (S.V.V.S), AIR 1956 SC 12. In Md. Akbar Khan v. Attar Singh, AIR 1936 PC 171, the Judicial Committee held that the loan and deposit are both debts repayable, but the point of time when the repayment is to be made furnished the moot point of distinction. The loan is repayable the moment it is incurred. For a deposit, there is no immediate obligation to repay the deposit. A depositee is to keep the money till it is asked for. But, in the present case, the admitted position is that the interest disallowed was in respect of transactions in current account. The very description of the account being in the nature of current account implies that the directors had a current loan account. If it had been a current account not involving any borrowing between the company and its directors or shareholders, there would have been no question of paying interest.

14. The clue to the entire issue is in the Explanation: Clause (b) below section 40A(8), which is as follows:

“‘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—”

15. It may be seen that the definition of deposit has been given the widest amplitude so as to include any borrowing by a company. Borrowing is a generic term. It shall include deposits as well as loans and the distinction between deposits and loans is thus obliterated and furnishes no saving from the mischief of the provision of section 40A(8). On the one hand, the definition is inclusive and, on the other hand, it excludes certain specific types of loans as appearing in sub-clauses (i) to (ix). A saving can only be had of the exceptions contained in the sub-clauses. The sub-clauses have to be looked into for any attempt to find place in the particular kind of loan transactions referred to in the sub-clauses as exceptions. The account of the nature, i.e, a current account of the directors and shareholders of the company may have a place in sub-clause (vii),. provided the advance arose not from any solicitation from the directors as creditors but arose from the directors while acting in discharge of their duties of office as directors in the course of or for the purpose of the business of the company. The interest paid to the shareholders may come under another exception as referred to in sub-clause (viii), if the interest is on the amount lying with the company pending allotment of any shares, stocks, bonds or debentures or advance payment of call money for shares, such monies not being repayable in accordance with the articles of association of the company.

16. There is, however, no finding of fact in this regard, The Tribunal has approached the question from a rather vague appreciation of the account as a current loan account not attracted by section 40A(8), in the absence of necessary finding of facts we decline to answer the questions. We are not inclined on the facts stated by the Tribunal to accept any abstract proposition that interest on current loan accounts are not disallowable under section 40A(8).

17. We, therefore, decline to answer the second and the third questions and remand the matter to the Tribunal directing it to re-examine the facts in the light of the observations made by us. The Tribunal should allow the parties to lead such evidence as may be necessary. There will be no order as to costs.

Shyamal Kumar Sen, J.:— I agree.