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Commissioner of Income-tax, Bombay City-i Vs. Ramnath A. Podar - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 21 of 1968
Judge
Reported in[1978]112ITR436(Bom)
ActsIncome Tax Act, 1961 - Sections 2(24)
AppellantCommissioner of Income-tax, Bombay City-i
RespondentRamnath A. Podar
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateTanubhai Desai, Adv.
Excerpt:
.....expenditure met by company on account of assessee's wife's foreign tour liable to be treated as income of assessee under section 2 (24) - nothing in section 2 (24) under which payment received by relative of director could be treated as income of director - when company met foreign tour expenses of assessee's wife she derived certain benefit but that cannot be added in income of assessee - amount of tour expenses not assessable. - - during the accounting year relevant for the assessment year in question as well as in the accounting year for 1958-59 assessment, the assessee went abroad for exploring the possibility of further exports. 10,662. the income-tax officer as well as the appellate assistant commissioner treated these expenses met by the company on account of the..........is anything in that provision which requires the value of any benefit or perquisite received by a director's relative to be included as the income of the director himself. section 2(24)(iv) runs thus : '2. (24) 'income' includes - .... (iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid.' it must be borne in mind that section 2(24)(iv) is merely a definition section and the particular clause merely defines the expression 'income' and,.....
Judgment:

Tulzapurkar, J.

1. The question that has been referred to us for determination in this reference under Section 256(1) of the Income-tax Act, 1961 runs thus :-

'Whether, on the facts and in the circumstances of the case, the foreign tour expenditure of Rs. 10,662 met by M/s. Podar Sons Pvt. Ltd. on account of the assessee's wife's foreign tour was liable to be treated as the income of the assessee under Section 2(24)(iv) of the Income-tax Act, 1961 ?'

2. The question relates to the assessment year 1963-64, the relevant accounting year being the year ended 31st March,1963, and it arises out of these facts : Assessee, Shri Ramnath A. Podar, an individual, is a director of M/s. Podar Sons Pvt. Ltd. which company is the managing agent of certain textile mills. During the accounting year relevant for the assessment year in question as well as in the accounting year for 1958-59 assessment, the assessee went abroad for exploring the possibility of further exports. The company met the assessee's expenditure for both the years. It appears that the assessee persuaded the broad of the company to meet the expenditure of his wife who accompanied him on both the occasions. The resolution passed by the company's board on May 16, 1957, ran thus ''RESOLVED that as it is advisable that Shri Ramnath A. Podar should take his wife along with him abroad to assist him in his present condition of health, the company do defray the foreign journey expenses of Mrs. Ramnathji and also the medical check-up expenses of Mr. and Mrs. Ramnathji A. Podar, etc...'. For the accounting year relevant to the assessment year 1963-64, the actual amount met by the company on account of foreign tour expenses on the assessee's wife was to the tune of Rs. 10,662. The Income-tax Officer as well as the Appellate Assistant Commissioner treated these expenses met by the company on account of the assessee's wife's tour as the income of the assessee for the relevant year and in that behalf reliance was placed upon the definition of the expression 'income' as given in section 2(24)(iv) of the 1961 Act. The taxing authorities held that the expenditure on the wife's journey was something which the assessee would have been obliged to meet from his own pocket if the company had not come to his help. The plea of the assessee that if such expenses met by the company were of the nature of 'income', these could be assessed as the income of his wife was rejected. The matter was carried by the assessee to the Tribunal and the Tribunal held that there was nothing in section 2(24)(iv) under which payment received by a relative of a director could be treated as the income of the director and that when the company met the foreign tour expenses of the assessee's wife, she at any rate derived some benefit, but there was nothing in section 2(24)(iv) by which the income of a relative of a director was by legal fiction to be treated as the income of the director himself. The Tribunal, therefore, reversed the view taken by the taxing authorities below and held that the sum of Rs. 10,662 was not assessable in the assessee's hands. At the instance of the Commissioner of Income-tax the question set out at the commencement of the judgment has been referred to us for our opinion.

3. Since on the facts there is no dispute between the parties, the question really turns upon the proper interpretation of the definition of the expression 'income' as given in section 2(24)(iv) of the 1961 Act, and the question is whether there is anything in that provision which requires the value of any benefit or perquisite received by a director's relative to be included as the income of the director himself. Section 2(24)(iv) runs thus :

'2. (24) 'income' includes - ....

(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid.' It must be borne in mind that section 2(24)(iv) is merely a definition section and the particular clause merely defines the expression 'income' and, ordinarily, the value of any benefit or perquisite received by any of the persons falling within the four categories mentioned in that clause would become the income of such person; in other words, if the benefit or perquisite is received by a director it will be the income of the director; if the benefit or perquisite is received by a person who is substantially interested in the company it will be the income of such person having substantial interest in the company; if the same is received by a relative of the director or if the same is received by a relative of the director or if the same is received by a relative of such person having substantial interest in the company,. it will be the income of the relative of the director or of such person having a substantial interest in the company, and that would be the proper scope of the definition section and on a reading of the entire provision there does not appear to be any warrant to construe the value of any benefit or perquisite received by the director's relative or the relative of a person having a substantial interest in the company as the income of the director or of such person having substantial interest in the company. Unless, therefore, there is some legal fiction or a deeming provision by which the value of such benefit or perquisite received by a relative of the director or by a relative of a person having a substantial interest in the company is to be regarded as income of the director or of such person having a substantial interest in the company, it would not be possible to include the value of such benefit in the assessment of the director or such person having a substantial interest in the company. Mr. Joshi appearing for the revenue has, however, placed reliance upon the latter part of that provision, which runs thus : '... and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid' and relying upon this provision it was sought to be urged by mr. Joshi that what was intended by the legislature was that the value of the benefit or perquisite so received by a relative of the director or a relative of the person having a substantial interest in the company was intended to be included in the assessment of the director or such person, inasmuch as the provision clearly suggests that if the director or the person having substantial interest was under an obligation to pay the value of the benefit, the same should be treated as the income of such director or or such person having substantial interest in the company. It is not possible to accept this submission of Mr. Joshi for the simple reason that there is nothing either on the facts of the case or even under the latter provision of the section to suggest that in every case there would be an obligation on the part of the director or the person having substantial interest to suffer the value of the benefit or perquisite that had been received by the director's relative or the relative of the person having substantial interest in the company. In the instant case, for example, it would be very difficult to say that if the company had not met the foreign tour expenses of the assessee's wife it would be the assessee who was or would be under an obligation to meet those expenses. The assessee's wife herself, who has been assessed to income-tax separately as an individual, would have and could have met those expenses. In our view, therefore in the absence of any legal fiction or specific provision in that behalf it would be difficult to interpret the provisions of section 2(24)(iv) of the Act so as to include the value of the benefit or perquisite received by the relative in the income of the director or of such person. In our view, the Tribunal was right in coming to the conclusion that the item of Rs. 10,662 was not liable to be treated as the income of the assessee under section 2(24)(iv) of the Act.

4. In the result, the question referred to us is answered in the negative in favour of the assessee.

5. The revenue will pay the costs of the reference to the assessee.


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