Judgment :- N.V. BALASUBRAMANIAN, J. The assessee is a company. The years of assessment under consideration are 1982-83 and 1983-84. The assessee had invited deposits from public. The assessee-company accepted deposits from the public in accordance with the provisions of s. 58-A of the Companies Act, 1956 (hereinafter to be referred to as 'the Companies Act'). The deposits to the amount of Rs. 5, 45, 000 were secured by the creation of floating charge on the fixed assets of the assessee-company. The assessee-company executed a second hypothecation deed called, second hypothecation trust on 1st day of August, 1981, in favour of some of its directors who are called the trustees. The deed was executed with a view to create security for repayment of the deposits and the loan and interest thereon and the assessee-company offered to appoint its directors as trustees in favour of whom the second charge was agreed to be created by the company. It is relevant to notice that first charge was created in favour of Karnataka State Financial Corporation, Bangalore. The assessee created a second charge by way of hypothecation of the fixed assets of the company belonging to the assessee and also on the assets which may thereafter be acquired or brought about by the company for a sum of Rs. 5, 45, 000, subject, however, to the existing first charge. The hypothecation deed was not registered under the provisions of the Indian Registration Act, but it was registered under the Companies Act with the Registrar of Companies, Chennai to satisfy the requirements of the Companies Act. The assessee-company during the course of the assessment proceedings for the asst. yrs. 1982-83 and 1983-84 claimed deduction of the interest relatable to the deposits. The IAC rejected the claim of the assessee on the ground that the trustees were the directors of the assessee-company and the hypothecation deed would not fully secure the interest of depositors. No, therefore, held that the interest claimed by the assessee is liable to be disallowed under s. 40A(8) of the IT Act, 1961 (hereinafter to be referred to as 'the Act'). The CIT(A) following the earlier order of his own passed in the case of another company, M/s Elgi Equipment Ltd., dt. No, therefore, held that the interest claimed by the assessee is liable to be disallowed under s. 40A(8) of the IT Act, 1961 (hereinafter to be referred to as 'the Act'). The CIT(A) following the earlier order of his own passed in the case of another company, M/s Elgi Equipment Ltd., dt. 10th January, 1985, held that the charge was created in favour of a forum of board of trustees and it was a floating charge and it was not possible to create a charge in favour of the large body of members involved in the transaction and the trustees were answerable to the general body of creditors, debenture holders or depositors. According to him, since the charge was registered with the Registrar of Companies as required by the Company Law, there was a valid and proper charge. He also held that the registration with the Registrar of Companies would be noticed by the persons dealing with depositing the money and the assessee was entitled to exemption on the basis of cl. (ix) of s. 40A(8) of the Act and allowed the appeals preferred by the assessee. 2. The Department filed appeals before the Tribunal challenging the order of the CIT(A) on the ground that there was no registered document under the Indian Registration Act and, therefore, there was no charge. The Tribunal held that the second charge would not be created without registration. The Tribunal held that the second charge cannot be created by deposit of title deeds since they were already deposited in creation of the charge and, therefore, it cannot be held that the loan was secured by creation of a mortgage or charge of fixed assets of the company and in this view of the matter, the Tribunal held that the disallowance made by the IAC (Asst.) for each of the years under appeal was justified and allowed the appeals preferred by the Department. On applications preferred by the assessee, the Tribunal referred the following questions of law for our consideration. "1. Whether, on the facts and in the circumstances of the case, a valid charge or mortgage was created by the deed of Hypothecation Trust dt. 1st August, 1981 ? 2. On applications preferred by the assessee, the Tribunal referred the following questions of law for our consideration. "1. Whether, on the facts and in the circumstances of the case, a valid charge or mortgage was created by the deed of Hypothecation Trust dt. 1st August, 1981 ? 2. Whether, on the facts and in the circumstances of the case, part of the interest of fixed deposits from the public was liable to be disallowed under s. 40A(8) of the IT Act, 1961 ?" 3. During the pendency of the tax case reference, the company merged with another company and accordingly the cause title was ordered to be amended in TCMP Nos. 2 and 3 of 1998 by order dt. 27th January, 1998. 4. Mr. Philip George, learned counsel for the assessee, submitted that the Tribunal was not correct in holding that the amounts received by the assessee by way of deposit are secured by way of creation of a charge on the fixed assets of the company and it would fall under cl. (ix) of s. 40A(8) of the Act as the loan is to be secured by creation of a charge on the fixed assets of the company. According to the learned counsel for the assessee, s. 40A(8) deals with the companies and companies' deposits and when there was a valid charge created under the provisions of the Companies Act that would be sufficient to take the case out of the provisions of s. 40A(8) of the Act, notwithstanding the fact that the deed of hypothecation was not registered under the provisions of the Indian Registration Act. 5. Mr. C. V. Rajan, learned counsel for the Department, submitted that under the Indian Registration Act, the trust deed has to be registered under the provisions of s. 17 of the Indian Registration Act and, therefore, without the valid registration under the Indian Registration Act, the assessee is not entitled to claim that his case would fall under s. 40A(8)(ix) of the Act. In support of his submission, learned counsel for the Department relied upon the decision of this Court in Viswanadhan vs. M. S. Menon 1939 AIR(Mad) 202. In support of his submission, learned counsel for the Department relied upon the decision of this Court in Viswanadhan vs. M. S. Menon 1939 AIR(Mad) 202. He also referred to the decision in the case of Sushil Prasad vs. Official Liquidator, Vinod Motors P. Ltd. A strong reliance was placed on the decision of State of Madras vs. Madras Electric Tramways wherein a Bench of this Court held that for an effective charge on the immovable properties, the security should be registered under the Registration Act as well as under s. 109 of the Companies Act, 1903 which came into force after 15th January, 1937, and he also referred to the decision of the Supreme Court in M.L. Abdul Jabhar Sahib vs. H. V. Venkata Sastri & Sons 1. Finally, he drew our attention to the decision of the Calcutta High Court in the case of Roy & Bros. vs. Ramnath Das and submitted that though the trust deed was required to be registered, the debentures issued by the trustees was not registered. 6. We have carefully considered the submissions of the learned counsel for the parties. Finally, he drew our attention to the decision of the Calcutta High Court in the case of Roy & Bros. vs. Ramnath Das and submitted that though the trust deed was required to be registered, the debentures issued by the trustees was not registered. 6. We have carefully considered the submissions of the learned counsel for the parties. Sec. 40A(8) of the IT Act, 1961, in so far as it is relevant for the purpose of the case reads as under : "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.Explanation : In this sub - section, - (a) 'banking company' means a company to which the Banking Regulation Act, 1949 (X of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act; (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) ***** (ii) ***** (ix) as a loan from any person where the loan is secured by the creation of a mortgage, charge or pledge of any assets of the company (such loan being hereafter in this sub-clause referred to as the relevant loan) and the amount of the relevant loan, together with the amount of any other prior debt or loan secured by the creation of a mortgage, charge or pledge of such assets, is not more than seventy-five per cent of the price that such assets would ordinarily fetch on sale in the open market on the date of creation of the mortgage, charge or pledge for the relevant loan;" A careful study of the provisions of s. 40A(8) indicates that the provision deals with the companies other than a banking company or a financial company. It deals with the allowance of expenditure by way of interest in respect of any deposit received by the company of an extent of 15 per cent on such expenditure and to that extent it shall not be allowed a deduction. Clause (b) of s. 40A(8) deals with the definition of the term, 'deposit' and cl. (a) excludes certain loan from the scope of the deposit. Under cl. Clause (b) of s. 40A(8) deals with the definition of the term, 'deposit' and cl. (a) excludes certain loan from the scope of the deposit. Under cl. (ix), if any loan is secured by the creation of mortgage, charge or pledge of any assets of the company and the amount of the relevant loan together with the amount of any other prior debt or loan secured by the creation of a mortgage, is not more than 75 per cent of the mortgage value of the assets on the date of the creation of the charge for the relevant loan, then the loan is not regarded as a deposit. There is no dispute on the facts of the case that all other requirements of the provisions of s. 40A(8) of the Act are satisfied, except the only condition that the loan obtained by the company was not secured by the creation of a charge on the fixed assets of the company under the Indian Registration Act. 7. Now let us consider the various case law cited by the learned counsel for the Revenue. In Roy & Bros. vs. Ramanath Das (supra), the Calcutta High Court noticed the purpose of the registration under the Indian Registration Act and the Indian Companies Act and came to the conclusion that the registration under both the Acts are necessary and the reasoning of the Calcutta High Court reads as under : "In my opinion for the reasons I have given it is necessary that a debenture creating a charge whether floating or fixed over any immovable property should be registered according to the provisions of law laid down in s. 17 of the Registration Act, in addition to the provisions of the Companies Act. The provisions of the Companies Act are intended to protect people who have business dealings with companies and to warn them to the extent to which the companies have created obligations over their property. The provisions of the Registration Act are intended to protect all who may have dealings with land so that those persons, particularly those local persons, may have knowledge of the obligations which have been created over and in respect of the land" . 8. The provisions of the Registration Act are intended to protect all who may have dealings with land so that those persons, particularly those local persons, may have knowledge of the obligations which have been created over and in respect of the land" . 8. The learned counsel relied upon the decision of this Court in the case of Viswanathan vs. M. S. Menon (supra) to contend that the charge under s.100 of Transfer of Property Act attracts s. 59 of the Transfer of Property Act and a charge can be created only by a registered document signed, registered and attested by two witnesses in accordance with s. 59 where the principal money secured is Rs. 100 or above. The above decision was not accepted by the Supreme Court in the case of Abdul Jabhar vs. Venkata Sastri (supra). The Supreme Court held as under : "If a charge can be made by a registered instrument only in accordance with s. 59 the subsequent transferee will always have notice of the charge in view of s. 3 under which registration of the instrument operates as such a notice. But the basic assumption of the doctrine of notice enunciated in the second paragraph is that there may be cases where the subsequent transferee may not have notice of the charge. The plain implication of this paragraph is that a charge can be made without any writing" . 9. The learned counsel for the Revenue also relied on the decision in the case of State of Madras vs. Madras Electric Tramways (supra) where a Division Bench of this Court held that the debenture creating a charge, whether floating or fixed over any immovable property, should be registered according to the provision of law laid down under s. 17 of the Registration Act. This Court also noticed that the registration under the Registration Act is essential to make a charge in respect of immovable properties in favour of the debenture holder valid and enforceable, but it would not affect the right of the debenture-holder over the movable property. 10. The Delhi High Court in the case of Sushil Prasad vs. Official Liquidator, Vinod Motors Pvt. Ltd. (supra) has taken the view that a charge over the property can be created orally as well as by the written document. 10. The Delhi High Court in the case of Sushil Prasad vs. Official Liquidator, Vinod Motors Pvt. Ltd. (supra) has taken the view that a charge over the property can be created orally as well as by the written document. However, if a charge is created by a written document, then the provisions of Registration Act should be complied with and the document should be registered. However, if the conduct of the parties shows that de hors the written document a charge was created, the charge created can be regarded as a valid charge. The Delhi High Court in the above case referred to the decision of the Supreme Court in the case of M.L. Abdul Jabhar vs. Venkata Sastri, cited supra and held that the charge can be created orally. It is no doubt true that if the charge is created by a document, the document would be inadmissible in evidence unless it is registered. In the present case the conduct of the parties clearly shows that the charge was created over the company's properties. The resolution of the company authorising the director to create subsequent charge on the hypothecation of the fixed assets belonging to the assessee-company and the conduct of the parties creating a charge and the registration under the Companies Act all can be taken into consideration to show that there was a prior oral agreement for creating a charge. Even if the document dt. 1st August, 1991, is ignored, the resolution and the registration under the Companies Act cannot be ignored and they can be taken into consideration to show that a valid charge was created over the company's properties. The Delhi High Court in the case cited supra has taken the view that the resolution of the company as well as the registration under the Registration Act can be relied upon to indicate that a charge was validly created and the written document creating a charge can be ignored. The Delhi High Court in the case cited supra has taken the view that the resolution of the company as well as the registration under the Registration Act can be relied upon to indicate that a charge was validly created and the written document creating a charge can be ignored. Therefore, even if we ignore the second hypothecation deed on the ground that it is unregistered, the conduct of the parties, passing of the resolution and the oral agreement prior to the execution of the second hypothecation deed and the act of registration with the Registrar of the Companies under s. 125 of the Companies Act should be taken into consideration which would prove the creation of a valid charge over the immovable properties and once there is a valid charge which was registered under the relevant provision of the Companies Act, the assessee-company would be satisfying the requirements of cl. (ix) of sub-cl. (d) (sic) of s. 40A(8) of the Act. 11. Therefore, we hold that it is not open to the ITO to include the interest by invoking the provisions of s. 40A(8) of the Act. It is significant to notice that a floating charge was created and for creation of floating charge there is no requirement that a document of title should be delivered to the charge-holder as in the case of equitable mortgage. If the document has been delivered, that itself would be evidence for the creation of the charge over the company properties. However, even from the conduct of the parties, it can be inferred that there was a valid charge over the company's assets. Hence, we are not able to agree with the view endorsed by the Andhra Pradesh High Court in the case of CIT vs. Kohinoor Glass Factory P. Ltd. that there must be a clear evidence to show that there was a delivery of title deeds to create a valid charge. In the case of floating charge, we are of the view that a charge can be created orally as held by the Supreme Court in the case of Abdul Jabhar vs. Venkata Sastri (supra) and the case of M. C. Chacko vs. State Bank of Travancore and by the conduct of the parties, the creation of a valid charge can be inferred. Hence, we are not able to agree with the conclusion of the Tribunal that there was no valid charge and consequently, we hold that no part of interest is disallowable under s. 40A(8) of the Act. 12. Hence, our answer to both the questions of law referred to us is as under : First question : There was a valid charge and hence this question is answered in the affirmative and in favour of the assessee. Second question : It is answered in the negative and in favour of the assessee. In the circumstances of the case, there will be no order as to costs.