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income-tax Officer Vs. Tukaram S. Pai - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1983)3ITD589(Bang.)
Appellantincome-tax Officer
RespondentTukaram S. Pai
Excerpt:
.....bank, he should have paid interest at the rate of 18 per cent.thus, he held that the assessee had derived benefit by not paying interest to the company. thus, he brought to tax rs. 15,238 under section 2(24)(iv).2. the assessee appealed to the aac. the aac held that the assessee withdrew a sum of rs. 1,05,000 from the company without proper authorisation and there was no resolution passed by the board of directors of the company as it is clear from the minutes book. he held that the ito is not justified in bringing to tax an amount of rs. 15,238 being the value of benefit or perquisite obtained by the assessee from the company under section 2(24)(iv). against the same, the revenue has come up in appeal.3. the learned departmental representative strongly urged that the assessee has been.....
Judgment:
1. The assessee is a director of Century Hotels (P.) Ltd. During this year, the assessee has been given interest-free advance of Rs. 1,05,000. The ITO was of the view that under Section 2(24)(iv) of the Income-tax Act, 1961 ('the Act'), the value of any benefit obtained from a company by adirector is assessable to tax.The assessee has not paid any interest on the advance taken. If he had taken any advance from any bank, he should have paid interest at the rate of 18 per cent.

Thus, he held that the assessee had derived benefit by not paying interest to the company. Thus, he brought to tax Rs. 15,238 under Section 2(24)(iv).

2. The assessee appealed to the AAC. The AAC held that the assessee withdrew a sum of Rs. 1,05,000 from the company without proper authorisation and there was no resolution passed by the board of directors of the company as it is clear from the minutes book. He held that the ITO is not justified in bringing to tax an amount of Rs. 15,238 being the value of benefit or perquisite obtained by the assessee from the company under Section 2(24)(iv). Against the same, the revenue has come up in appeal.

3. The learned departmental representative strongly urged that the assessee has been given interest-free advance of Rs. 1,05,000 and thus, derived benefit. Hence, the value of benefit obtained from the company by the assessee who is a director is income assessable to tax. He referred to Section 2(24)(iv) under which the value of any benefit obtained from a company by a director is income assessable to tax. He placed reliance on the decisions reported in Lakshmipat Singhania v.CIT [1974] 93 ITR 162 (All.) and CIT v. C. Kulandaivelu Konar [1975] 100 ITR 629 (Mad.). He submitted that merely because there is no resolution passed by the board of directors it cannot be said that the assessee has not derived any benefit. He also submitted that impliedly it could be construed that the loan has been authorised by the company even though resolution as such is not passed. The learned counsel for the assessee strongly urged that any unauhorised advance taken from a company cannot constitute a benefit or perquisite. Any benefit or .advantage taken by director without any claim or right has to be returned to the company. There should be legal and equitable claim for the benefit of a perquisite. Since the board of directors did not pass any resolution to advance the amount to the assessee as is clear from the minutes book, the unauthorised advantage derived by the assessee by taking the amount cannot constitute benefit. In this connection, he placed reliance on the decisions reported in the cases of CIT v. A.R.Adaikappa Chettiar [1973] 91 ITR 90 (Mad.) and M.M. Mehta v. CIT [1979] 117 ITR 362 (Cal.).

4. I have considered the rival submissions. The assessee is a director of Century Hotels (P.) Ltd. He has drawn an amount of Rs. 1,05,000 from the said company and no interest has been charged by the company. The question for consideration is whether the assessee has received the value of any benefit or perquisite from the company. Section 2(24)(iv) reads as under: (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 ; In my view, the assessee has derived benefit by drawing a sum of Rs. 1,05,000 free of interest from the company. In the statement of case filed before the AAC it is stated that the appellant was given interest-free advance of Rs. 1,05,000. It was contended in the said statement as well as the grounds of appeal that mere advance or loan by itself would not result in any benefit obtained by the director. Thus, it is clear from the statement of case as well as the grounds of appeal before the AAC that the assessee was given an advance of Rs. 1,05,000 free of interest but the assessee by letter dated 6-2-1982 contended that the unauthorised advance taken by the assessee from the company cannot constitute a benefit or perquisite in his hands. In my view, even though no resolution was passed by the board of directors, still from the facts, it could be implied that an advance of Rs. 1,05,000 was given by the company to the assessee free of interest. If it was an unauthorised drawing by the assessee, the company would have certainly taken steps by issue of legal notice, but no such action has been taken.

5. Tn the case of Kulandaivelu Konar (supra), the assessee who was the managing director of a company was drawing out of his account the money for his expenses. There was a debit balance in his account. No interest was charged in respect of debit balance. The question for consideration was whether the assessee derived any benefit or perquisite. The Madras High Court held that as the assessee had a current account with the company right from 1959 it has to be assumed that the overdrawing in his account was not unauthorised and to the extent the company allowed the assessee to use its funds without any obligation to pay interest thereon, the company should be deemed to have granted a benefit to him.

It was held that the company allowed the assessee to withdraw the money without any obligation to pay interest and so the company should certainly be deemed to have granted benefit to the assessee. In this case also, there was no resolution of the board, but it was implied that as the account was being operated from 1959, the overdrawings were not unauthorised. In this case, the decision in Adaikappa Chettiar (supra) relied on by the assessee's counsel has also been noticed. This decision has again been followed by the same Court in Addl. CIT v. A.K.Lakshmi [1978] 113 ITR 368. It was held therein that the employee would be deriving a benefit by the use of the moneys belonging to the company or any other employer, without having any liability to pay interest. In Lakshmipafs case (supra) it was contended for the assessee that the value of perquisite or benefit under Section 2(6C) of the 1922 Act is taxable as income only if the same is received by the director under an enforceable right. It was held that no such requirement is contemplated by Section 2(6C) itself and it is in absolute terms. A director would be liable to assessment in respect of value of any benefit or perquisite received by him from the company of which he is a director under all circumstances without exception. The ratio laid down in the above cases squarely apply to the instant case.

6. The decision in the case of Adaikappa Chettiar (supra) was considered by the same High Court in Kulamdaivelu Konar (supra) which we have already referred. This decision reported in the case of Adaikappa Chettiar (supra) was followed by the Calcutta High Court in the case of MM. Mehta (supra). Those are not the cases where any advance or loan has been given by the company to the director. They are cases of use of car by the director. Hence, they are distinguishable.

In fact, the decisions to which I have referred to above reported in the cases of Kulandaivelu Konar (supra), A.K. Lakshmi (supra) as well as the decision reported in the case of Lakshmipat (supra) are directly on the point. I prefer to follow those decisions. Thus, in my view, the assessee has derived benefit by taking advance of Rs. 1,05,000 free of interest and it is taxable. The ITO was right in taxing Rs. 15,238 and the AAC was wrong in deleting the same. I set aside the order of the AAC and restore the order of the ITO in taxing Rs. 15,238.

7. In the Tribunal's order dated 7-5-1982 in the case of P. Dayananda Pai [IT Appeal No. 534 (Bang.) of 1979], no decision has been given on merits. That was only restored to the AAC. Hence, that order will not have any bearing.


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