Skip to content


income-tax Officer Vs. Charanjit Singh - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1982)2ITD530(Delhi)
Appellantincome-tax Officer
RespondentCharanjit Singh
Excerpt:
1. this appeal filed by the revenue is directed against the order dated 2-12-1980, appeal no. 192/1979-80, of the commissioner (appeals) viii, new delhi.2. the assessee, an individual, is the managing director of pure drinks (new delhi) (p.) ltd. ('pure drinks'). the resolution of the board of directors of the aforesaid company in their meeting held on 15-6-1974 reads as under : on the proposal of s. daljit singh, it was unanimously resolved that s.charanjit singh, director of the company, be and is hereby appointed the managing director of the company with effect from 1st july, 1974.his remuneration be and is hereby fixed at rs. 4,500 per month.further resolved that he be made a member of the employees provident fund and gratuity scheme and the employer's contribution ... be given to.....
Judgment:
1. This appeal filed by the revenue is directed against the order dated 2-12-1980, Appeal No. 192/1979-80, of the Commissioner (Appeals) VIII, New Delhi.

2. The assessee, an individual, is the Managing Director of Pure Drinks (New Delhi) (P.) Ltd. ('Pure Drinks'). The resolution of the board of directors of the aforesaid company in their meeting held on 15-6-1974 reads as under : On the proposal of S. Daljit Singh, it was unanimously resolved that S.Charanjit Singh, Director of the Company, be and is hereby appointed the Managing Director of the Company with effect from 1st July, 1974.

His remuneration be and is hereby fixed at Rs. 4,500 per month.

Further resolved that he be made a member of the Employees Provident Fund and Gratuity Scheme and the employer's contribution ... be given to him as per rules of the company.

The previous year for the assessment year 1976-77 ended on 31-3-1976.

The balance sheet of Pure Drinks as on 3MO-1975 disclosed a sum of Rs. 45,66,214.31 due from directors and companies under the same management (as per Schedule 'C' annexed). Schedule 'C' disclosed that as on 31-10-1975 a sum of Rs. 9,95,917.75 was due by the assessee to the aforesaid company and similarly a sum of Rs. 6,34,732.28 was due by S.Daljit Singh, brother of the assessee and the whole-time director-chairman of the said company. The assessee had more than one account in the books of the aforesaid company as per details given below :Plant No. I-Account No. I ... Dr.

2,864.50Plant No. II-Account No. II ... Dr.

5,93,926.00Plant No. III-Account No. III ... Dr.

4,46,254.25 ------------Plant No. II-Account No. I ... Cr.

27,005,50 ------------ Though the assessee's account stood overdrawn to the extent of Rs. 10,16,039, as indicated above, the said company did not charge any interest though the profit and loss account and balance sheet of the said company showed that for the year ending 31-10-1975 it paid interest and bank charges to the extent of Rs. 9,13,369. During the course of the assessment proceedings the ITO required the assessee to show cause why interest on the aforesaid loan granted by the aforesaid company should not be treated as a perquisite within the meaning of Section 17(2) of the Income-tax Act, 1961 ('the Act'). The assessee objected to the proposal of the ITO and in a letter dated 12-3-1979 the assessee stated as under : You have required us to furnish the reasons as to why the advance raised by S. Charanjit Singh from Pure Drinks (New Delhi) (P.) Ltd. be not treated as 'perquisite' as defined within the meaning of Section 17(2)(iv) of the Income-tax Act, 1961.

In this connection, we beg to submit that Section 17(1) defines 'salary'; Section 17(2) defines 'perquisites' and Section 17(3) defines 'profits in lieu of salary'. The three definitions are 'inclusive' and not 'exhaustive'. Section 17(2), Sub-clause (iv) defines 'perquisites' as any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the employee-assessee. The value of the benefit or amenity will be included in the total income only if it is actually granted or provided to the employee. In cases, where the employee waives the benefit due to him under the contract of service, the value of the benefit not enjoyed will not be included in the total income.

As per the copy of account of S. Charanjit Singh as appearing in the books of Pure Drinks (New Delhi) (P.) Ltd., you will kindly observe that there is an opening debit balance to the extent of Rs. 9,70,348.65 and the closing balance at debit is Rs. 10,16,039.75.

Thus, from the copy of account you will kindy observe that the excess debit during the year to the extent of Rs. 45,691.10 is mainly due to the income-tax payments made by him.

The company, Pure Drinks (New Delhi) (P.) Ltd., had not charged any interest from S. Charanjit Singh because of the reason that amounts advanced to S. Charanjit Singh are out of the company's own earnings and there is no law which says that interest-free loans cannot be advanced to an employee-director of the company. The system of paying interest on the borrowings and charging interest on advances made is not followed by the companies even on inter-company transactions and as such, the question of treating the interest not charged as 'perquisite' under Section 17(2) of the Act in the hands of the assessee does not arise. We may also submit for your kind consideration that on the day when the above-referred payments were made by the company on behalf of S. Charanjit Singh, there were cash balances on hand to the extent of more than Rs. 3 lakhs. The company has a common pool in the form of daily cash collections and the bank balances and it is not possible to bifurcate as to which money has been passed on to the director free of interest.

Under the circumstances explained above, the provisions of Section 17(2) of the Income-tax Act cannot be made applicable in this case.

Before the ITO it was also submitted that the aforesaid company had general reserves and surplus amounting to Rs. 1,41,15,702 and as such the amount advanced to the assessee was out of the company's own earnings and there was no law which prohibited interest-free loans being advanced to an employee-director of the company. It was also argued that the system of paying interest on borrowings and charging interest on advances made was not followed by the company even in respect of inter-company transactions. The ITO considered these arguments very carefully but he did not accept the assessee's submissions. He observed that it was not necessary that the benefit or amenity should be specifically expressed in the contract of employment.

As long as any benefit or amenity could be shown to have emanated from the employer-company and passed on to the employee-assessee, the same shall be covered within the provisions of Section 17(2). He also observed that, at any rate, the assessee had not established that the interest-free advances received by him had nothing to do with his (assessee's) employment. The ITO observed that even though the assessee was a small shareholder in the aforesaid company but at the same time he was the managing director thereof. He observed that though there was no law stating that interest-free loans could not be advanced to an employee-director of the company but all the same, he held that on the facts of this case, the benefit/amenity in the shape of interest-free loans was a perquisite within the meaning of Section 17(2). In his draft assessment, the ITO worked out the addition to be made at Rs. 1,22,320.

3. The assessee filed objections which along with the draft assessment order were forwarded to the IAC. Before the IAC, the assessee relied on the judgments of the Madras High Court in CIT v. A.R. Adaikappa Chettiar [1913] 91 ITR. 90 and CIT v. G. Venkataraman [1978] 111 ITR 444. The submission made was that as the assessee did not have any right to receive an interest-free loan from the said company, no amount could he taxed as a perquisite in the hands of the assessee. It was also submitted that against the figure of Rs 1,22,320 suggested by the ITO, the actual figure would be Rs. 1,19,158. The IAC held that the aforesaid two judgments of the Madras High Court were not applicable to the facts of the present case. He held that the interest-free loan was a perquisite within the meaning of Section 11(2)(iii)(d). He accepted the assessee's contention that the addition to be made should be limited to Rs. 1,19,158. The ITO, accordingly, completed the assessment on 30-6-1979 and made the addition of Rs. 1,19,158 as a perquisite under Section 11(2)(iii).

4. Aggrieved by this order, the assessee filed an appeal to the Commissioner (Appeals). It was first pointed out that initially, the ITO wanted to invoke the provisions of Section 2(22)(e) of the Act, but after considering the assessee's reply, the proposed action, to bring to tax the debit balance in the account of the assessee in the books of the aforesaid company as dividend under Section 2(22)(e), was dropped by the ITO himself. It was then submitted that the grant of interest-free loan to the assessee by the aforesaid company would not be covered by the provisions of Section 17(2)(iv). It was further submitted that the provisions of Section 17(2)(iii) were also not.

applicable in the case of the assessee because Pure Drinks had not entered into any undertaking to grant advances free of interest by virtue of the contract of the assessee's employment with the said company as a director. According to the learned counsel for the assessee, in the absence of a contract between the said company and the assessee for the grant of interest-free loans, no amount could be said to have been advanced, granted or provided by the company to the assessee and no amount, therefore, could be taxed as a perquisite in his hands. The use of the words "...granted or provided free of cost or at concessional rate" occurring in Section 17(2)(iii) was emphasised and it was argued that the granting or providing of a facility had to be a deliberate act on the part of the company. It was submitted that if a director utilised his position in a company to secure certain advantages by way of drawal of funds free of interest as had happened in this case, it could not be said that the company had actually granted or provided free of interest the funds that such a director may have drawn from the company. It was thus argued that the question of any perquisite in the hands of the assessee, in respect of the interest-free advances drawn by him from the company, could not arise.

Reliance was placed on the judgments in Venkataraman (supra) and Adaikappa Chettiar (supra). In the alternative, it was argued that the company had sufficient internal resources, over and above its borrowed funds, out of which the advances in question could be said to have been drawn by the assessee and in these circumstances, the said company could not be said to have foregone the recovery of any sum which it might have paid, in its own turn, by way of interest to its own creditors and the non-recovery of such hypothetical interest could not constitute a perquisite in the hands of the assessee.

For this reason also, it was argued, the question of assessing any amount by way of perquisite in the hands of the assessee could not arise. The learned Commissioner (Appeals) considered the assessee's submissions. He first observed that the provisions of Section 17(2)(iv) would not be applicable to the case of the assessee. He then held that in view of the aforesaid two judgments of the Madras High Court, the provisions of Section 17(2)(iv) would also not be applicable. He observed that the ratio of the two aforesaid judgments of the Madras High Court would be equally applicable in construing the provisions of Section 17(2)(iii) as well as the provisions of Section 2(24)(iv). He thus held that the addition of Rs. 1,19,158 made by the ITO on account of perquisite was without any justification. He, accordingly, deleted the addition of Rs. 1,19,158 and allowed the assessee's appeal.

5. The revenue is aggrieved by this order of the Commissioner (Appeals) and the following ground of appeal has been raised : On the facts and in the circumstances of the case, the Commissioner (Appeals) VIII, New Delhi, has erred in law in deleting the addition of Rs. 1,19,158 made by the ITO under Section 17(2) of the Income-tax Act, 1961.

6. The learned departmental representative submitted that the grant, of an interest-free loan by Pure Drinks to the assessee was a valuable benefit and this benefit or amenity was definitely taxable as perquisite within the meaning of that term under Section 17(2)(iii)(a).

He pointed out that it was not controverted by the assessee that he was an employee-director of Pure Drinks. He explained that though in the case of the said company no disallowance had been made out of the payment of interest on the ground that a part of the funds of the company had been allowed to be used interest-free by the director but all the same the grant of interest-free loan was a perquisite taxable under Section 17(2)(iii). According to the learned departmental representative, the Commissioner (Appeals) erred in following the aforesaid judgments of the Madras High Court and in holding that the provisions of Section 17(2)(m) were not applicable to this case. He went a step further and submitted that the amount in question was taxable even under Section 2(24)(iv). He sought permission to raise the following additional ground of appeal: That alternatively the additions made by the ITO may be sustained under Section 2(24)(iv) of the Income-tax Act, 1961.

In support of his submission that the aforesaid additional ground of appeal should be admitted, he relied on the judgments of the Supreme Court in Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 and the Delhi High Court in CIT v. Nar Hari Dalrnia [1971] 80 ITR 454. He thus submitted that either the sum of Rs. 1,19,158 should be held to be taxable as a perquisite under Section 17(2)(m) or it should be held to be income within the provisions of Section 2(24)(iv), after admitting the additional ground of appeal.

7. The learned counsel for the assessee objected to the additional ground of appeal being admitted. He referred to the provisions of Section 253(2) of the Act wherein the words ' ... he objects . . . ' are used and submitted that the provisions of Section 2(24)(iv) could not be invoked as it would not be within the postulate of Section 253(2). He referred to the judgment in CIT v. Anand Prasad [1981] 128 ITR 388 (Delhi) wherein it has been held that the word 'objects' must signify that there is some error or mistake or defect in the AAC's order. The very nature of an appeal is to bring to light errors or defects in the decision under appeal. There can be no error or defect on a point which is not urged, and, hence, normally a new point is not to be permitted to be raised. He further submitted that the disputed amount of interest was rightly held to be not a perquisite either under Section 17(2)(iii) or 17(2)(iv). He referred to the judgment in CIT v.B.C. Srinivasa Setty [1981] 128 ITR 294 (SC), wherein it has been held as under : ... For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains. All transactions encompassed by Section 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by Section 45 to be the subject of the charge . . . (p.

299) He submitted that there were only two provisions which could, at best, be invoked by the revenue and these provisions were Sections 17(2) and 28(iv) of the Act. He submitted that these two provisions were not at all applicable and, therefore, no amount was liable to be taxed in the hands of the assessee on the ground that he had received a benefit by way of interest-free loans from the aforesaid company. He submitted that if the said amount could not be taxed either under Section 17(2) or under Section 28(iv), then it could not be taxed under any other provisions of the Act. He relied on the arguments in the case of CIT v.Smt. T.P. Sidhwa [1982] 133 ITR 840 (Bom.). He referred to the judgment in CIT v. L.W. Russel [1964] 53 ITR 91 (SC), for the submission that Section 17 itself would not be applicable to the facts of this case. He pointed out that in Adaikappa (supra) the Madras High Court had followed the judgment in L.W. Russel (supra). He also referred to the judgment in G. Venkataraman (supra). He submitted that in the absence of a specific provision in Section 17 treating interest-free loan as a perquisite, there was no benefit on the facts and circumstances of the case and the assessee could not be taxed on a vague and ambiguous concept of benefit. He also referred to The Law and Practice of Income-tax by Kanga & Palkhivala, 7th edition, Vol. II, page 486, wherein under Rule 3 the method of calculation of perquisite is given.

In the said rule, it is stated that for the purpose of computing the income chargeable under the head 'Salaries' the value of the perquisites (not provided for by way of monetary payment to the assessee) mentioned below shall be determined in accordance with the clauses mentioned therein. The point that he made was that no valuable perquisite could be ascertained as nothing was provided by way of monetary payment to the assessee. He explained that only that amount could be considered as a perquisite which was provided to an assessee otherwise than by way of monetary payment. He thus supported the order of the Commissioner (Appeals) and made a fervent plea that no interference was called for.

8. In reply, the learned departmental representative submitted that the judgment in Anand Prasad (supra), referred to by the learned counsel for the assessee, was distinguishable on facts. He reiterated his submission that the additional ground raised by him should be admitted and the amount of interest in question should be considered to be a perquisite either under section l7(2)(iii) or should be considered as income under Section 2(24)(iv).

9. We have carefully considered the rival submissions. The learned counsel for the assessee had submitted that the amount that the revenue seeks to tax in this case could, at best, be taxed by invoking either of the provisions under Section 17(2) or Section 28(vi), but none of these provisions was applicable to this case. We may immediately state that it is not the revenue's submission that the provisions of Section 28(iv) are applicable. The provisions of Section 28(iv) had neither been invoked by the ITO nor have been referred to by the Commissioner (Appeals) and, therefore, it is unnecessary to refer to the provisions of Section 28(iv).

10. We would agree with the Commissioner (Appeals) that the provisions of Section 17(2)(iv) are not applicable for the purpose of holding that the benefit granted by the aforesaid company by way of interest-free loan, amounts to a perquisite. In CIT v. C. Kulandaivelu Konar [1975] 100 ITR 629 (Mad.), it has been held that as the assessee had nothing to do with the company's borrowings and as there was no private of contract between the creditors of the company and the assessee, he was not obliged to pay any interest to the creditors of the company which could have been paid by the company and, hence, Section 17(2)(iv) will not be applicable to the instant case. This judgment supports our view that the provisions of Section 17(2)(iv) are not applicable to the facts of this case.

11. The further question that is required to be considered is whether the benefit or amenity in the shape of interest-free loan granted by the aforesaid company to the assessee can be considered to be a perquisite under Section 17(2)(iii). In holding that the benefit or amenity in the shape of interest-free loan granted by the aforesaid company to the assessee did not amount to a perquisite under Section 17(2)(iii), the Commissioner (Appeals) has referred to the two judgments of the Madras High Court in Adaikappa (supra) and G.Venkataraman (supra). In the case of Adaikappa (supra), the question for consideration by the High Court was whether the unauthorised use of certain vehicles by a director could be considered to be a benefit or perquisite obtained by the assessee from the company and whether such amounts were taxable either under Section 2(6C)(iii) of the 1922 Act [corresponding to Section 2(24)(iv)]. This judgment was specifically referred to by the Madras High Court in C. Kulandaivelu (supra) and after referring to this judgment it was, inter alia, held that in cases where the company permits an employee to utilise its funds for his own benefit, it shall be deemed to have given a personal benefit to such employee and the benefit was not derived by the employee de hors his status as an employee. The assessee was, therefore, granted a benefit within the meaning of Section 17(2)(iii), whose value could be added to the assessee's income. It may be stated that in that case also, the managing director of a company had a large amount of debit balance in his current account and the benefit in the shape of interest-free loan or advance was considered to be a perquisite under Section 17(2)(iii).

The Commissioner (Appeals) also referred to the judgment in G.Venkataraman (supra) wherein the judgment in Adaikappa (supra) was, inter alia, referred to. In that case during the previous year relevant for the assessment year 1960-61, the late R had drawn moneys to the extent of Rs. 5,90,705 from a company in which he was a director and when after the death of R this matter was brought to the notice of his brother, V, who was the karta of the assessee-family, V accepted the liability of the estate to the extent of Rs. 4,50,000. The ITO treated this amount as dividend for the assessment year 1960-61 under Section 2(6A)(e) of the 1922 Act as advance or loan paid to a shareholder and assessed the same to the extent of accumulated profits of the company, namely, Rs. 3,21,173. The High Court ultimately in Venkataraman (supra) held that as the amount had been criminally misappropriated by the director from the company, it did not represent any loan or advance by the company to the assessee and, consequently, held that the amount was not assessable. Meanwhile, the ITO reopened the assessments of the assessee-company for 1960-61 and 1961-62 under Section 147(b) of the Act, and included for assessment sums of Rs. 45,000 and Rs. 63,000 as income under Section 2(6C)(iii) of the 1922 Act on the ground that these were the amounts of interest on borrowed moneys disallowed in the hands of the company, relatable to the extent of Rs. 4,50,000 not used for the company's business but withdrawn by the director. According to the ITO, the assessee had derived a benefit, namely, interest-free loans and, hence, a part of the interest paid by the company on the loans which were diverted to the family was taxable under Section 2(6C)(iii) of the 1922 Act. The sum of Rs. 3,21,173 assessed in the original assessment for 1960-61 was also included for assessment in the reassessment order. The AAC on appeal deleted the addition of Rs. 3,21,173, as had been done in the appeal against the original assessment order, and also set aside the assessments on Rs. 45,000 and Rs. 63,000 in the view that there was no loan or payment by the company but there was only an embezzlement by the late director and the question of paying interest and computing the benefit or perquisite will arise only in the case of legal payment or bonafide loan advanced.

The Tribunal also agreed with this view. On a reference to the High Court at the instance of the department, it was first held that the benefit or perquisite contemplated in Section 2(6C)(iii) cannot be money itself as (i) if it is money, the question of its value being taken into account or the benefit or perquisite being converted into money will not arise, and (ii) the same section makes a distinction between 'benefit or perquisite' on the one hand and 'any sum paid,' on the other indicating that the 'benefit or perquisite' contemplated by the section is other than money. It was also held that even assuming that money can be considered to be benefit or perquisite as contemplated by that section, it should have been obtained from the company but, in view of the finding of the AAC and the Tribunal that the amount in question was embezzled by R, which finding was agreed to by the High Court, it cannot be said that the amount was obtained by R from the company, nor can it be said that the family availed of an interest-free loan from the company. The provisions of Section 2(6C)(iii) were also not, therefore, attracted. It will be noticed that this judgment does not deal with the provision of Section 17(2)(iii).

Even otherwise the facts of that case are entirely different. We may give the facts of a later judgment reported in Addl. CIT v. Late A.K.Lakshmi [1978] 113 ITR 368 (Mad.). In that case the assessee, a director in a private limited company, had a current account in the books of the company and entries were made therein towards the remuneration due to be paid to him by the company and also towards amounts withdrawn by him for his personal use. The account showed overdrawings by the assessee but the company did not charge any interest on such overdrawings though it had raised loans and was paying interest thereon. The ITO being of the view that by not charging interest on the sums advanced to the assessee out of the interest-bearing borrowings made by the company, the company had provided perquisite to the assessee, worked out the interest attributable to the amounts overdrawn by the assessee and included the same for assessment as perquisite in the hands of the assessee under Section 17(2)(iii). The Tribunal, however, held that Section 17(2)(iii) had no application and held that the amount in question could not be treated as perquisite within the meaning of Section 17(2). On a reference to the High Court at the instance of the department, it was held that the interest chargeable on the average advances was a benefit that had accrued to the assessee without cost, attracting the definition of the term 'perquisite' falling under Section 17(2)(iii)(a) and includible in the hands of the assessee. Respectfully following the judgments of the Madras High Court in Kulandaivelu (supra) and in Late A.K. Lakshmi (supra), we would hold that the benefit granted by the aforesaid company to the assessee in the shape of interest-free loan or advance, comes within the definition of the term 'perquisite' under Section 11(2)(iii)(a). It is not controverted before us that the assessee is an employee-director of the aforesaid company.

12. The learned counsel for the assessee had submitted that the provisions of Section 1l(2)(iii) can only be applied if the loan to the assessee was an authorised loan by the aforesaid company. No resolution of the company as such, authorising any loan to the assessee, has been placed before us. The fact, however, remains that the assessee being a managing director has been in a position to obtain a substantial loan from the aforesaid company. We have, therefore, to proceed on the basis that loan to the assessee was not unauthorised. Such a basis was adopted by the Madras High Court in Kulandaivelu (supra).

13. The learned counsel for the assessee had also submitted that Pure Drinks had reserve surplus as on 31-10-1975 to the extent of Rs. 1,52,20,483 and the loans to the directors, namely, S. Daljit Singh and S. Charanjit Singh, could be considered to have been advanced out of the reserves. No evidence has been led to establish any nexus between the sum of Rs. 1,52,20,483 available under the head 'Reserve and Surplus' and advances made to the directors. The reserve and surplus include a sum of Rs. 10,54,152 on account of development rebate reserve and we doubt whether any part of this amount could have been advanced by way of a loan to any of the directors. The profit and loss account shows a debit of Rs. 9,13,369 on account of interest and bank charges.

Thus, the position is clear that the assessee has obtained loans on which interest has been paid, whereas the company has also advanced interest-free loans to the directors on which no interest had been charged. The benefit of interest-free loans given to be assessee is certainly a perquisite which falls under Section 17(2)(iii)(a).

14. The learned counsel for the assessee had also submitted that if any interest was due to be payable to Pure Drinks, then such interest would be allowable as a deduction while determining the income under the head 'Income from house property' because the substantial part of the amount withdrawn was utilised in the construction of a property. From the assessment order, we cannot even find out as to how such income from property has been taxed in the hands of the assessee and there is also no material available on record to show as to how much money out of the total amount which was a loan from the said company was invested in the house property. Such an agrument was not taken by the assessee before the lower authorities. In the absence of any material, therefore, we are not in a position to consider this argument raised on behalf of the assessee.

15. The learned counsel for the assessee had referred to the judgment in Srinivasa (supra), for the submission that the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. In other words, the submission made was that if the alleged benefit in the shape of interest-free loan received by the assessee from the said company was not taxable either under Section 17(2) or Section 28(iv), then, no amount could be taxable at all. He had also referred to the judgment in Smt. T. P. Sidhwa (supra). We do not dispute the proposition of law laid down in these judgments but none of these judgments deal with the term 'perquisite' referred to under Section 17(2).

16. We have to further consider whether the additional ground raised by the revenue should be admitted. In our view, the additional ground raised by the revenue is required to be admitted because the ground raised is purely a legal ground. We may also state that the Commissioner (Appeals) himself has referred to the provisions of Section 2(24)(iv) in paragraph 16.1 of his order, wherein he has held that the ratio of the two Madras High Court judgments in Adaikappa (supra) and G. Vankataraman (supra) would be applicable in construing the provisions of Section 17(2)(iii) read with Section 2(24)(iv) as also Section 2(6C)(iii) of the 1922 Act. We have already held that the benefit or interest-free loan received by the assessee from the aforesaid company in which he is a director, is a perquisite under Section 17(2)(iii). Section 17(2) is specifically mentioned in the inclusive definition of the term 'income' under Section 2(24)(iii).

Thus, the perquisite is taxable as income under Section 2(24)(iii).

After holding that the perquisite in the shape of interest-free loan from the company in which the assessee is a director is taxable under Section 17(2) which is mentioned in Section 2(24)(iii), we cannot say that the same amount would be taxable as income under Section 2(24)(iv) also. The head of income includible as income under Section 2(24)(iv) may be different from the head of income in respect of the income includible under Section 2(24)(iii). Another point to be noticed is that the words used in section '2(24)(iv) are 'the value of any benefit or perquisite . . .obtained from a company . , .'. The words 'obtained from a company' would indicate that there must be a legal basis for a benefit or a perquisite. Though the company is not debarred from giving a loan to its employees, the provisions of Section 2(24)(iv) can be made applicable only if there is a legal basis for obtaining an interest-free loan. In our opinion, therefore, the provisions of Section 2(24)(iv) are not applicable to this case.

17. We may state that the calculation of the figure of perquisite at Rs. 1,19,158 was not assailed before us in any manner.

18. For the aforesaid reasons we reverse the order of the Commissioner (Appeals) and hold that the sum of Rs. 1,19,158 is taxable as the income of the assessee under Section 17(2)(m) read with Section 2(24)(iii).


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //