1. This appeal has been filed by the assessee against the order dated 4-5-1981 of the AAC relating to the assessment year 1974-75, the previous year of which ended on 31-3-1974.
2. The assessee is an individual. He is an employee of Tata Engineering & Locomotive Co. Ltd. He derives income from salary.
3. The employer of the assessee made a housing loan scheme in order to encourage its employees to have living accommodation of their own within the precincts of Greater Bombay. The object of the scheme has been stated in the scheme itself to facilitate the purchase of flats on ownership basis by the employees for residential accommodation. For this purpose, the employer framed a scheme under which loans were given to the employees to buy residential accommodation. It has been made clear in the terms of the scheme that the loans would be granted entirely at the discretion of the employer and no employee shall be entitled to the loan as a matter of right. The maximum amount of loan that can be granted to an employee is laid down. The rate of interest to be charged from the employee was 4 per cent per annum. The loan was to be repaid over a maximum period of twenty years in equal monthly instalments together with the interest as aforesaid. The employee has to authorise the employer to deduct the monthly instalments from his salary. Further, the employee has to sign a promissory note in favour of the employer for the full amount of the loan. In addition, the employee has to give a letter of authority to the employer to collect from the provident fund or gratuity payable to the employee, the amount of outstanding loan with interest due to the employer at the time of the termination of the employment. If the employee leaves the services of the employer, the whole outstanding balance of the loan together with the interest would become payable forthwith. The employee should undertake not to sell or otherwise dispose of the flat without obtaining the employer's prior consent in writing. The employer also reserved to itself, the right to alter or amend the aforesaid scheme at any time as it may deem necessary.
4. The assessee before us applied for a loan under the above scheme as per his letter dated 13-6-1973. He executed the necessary promissory note and the letters of authority in favour of the employer. Then he was granted a loan of Rs. 24,200 for the specific purpose of utilising the same in acquiring residential accommodation for himself and his family.
5. The ITO came to hold the view that the assessee got a perquisite under Section 17(2)(iii) of the Income-tax Act, 1961 ('the Act').
According to the ITO, the normal rate of interest at which the assessee could have got the loan was 12 per cent per annum as against the rate of 4 per cent at which he got the loan. Hence, he determined the value of the aforesaid perquisite at 12 per cent minus 4 per cent, i.e., at 8 per cent on the amount of the loan. Purporting to act under Rule 3(g) of the Income-tax Rules, 1962 he added a sum of Rs. 1,136 as perquisite to the salary income of the assessee and made the assessment, accordingly.
6. The assessee appealed to the AAC and contended that he got no benefit whatsoever by taking the aforesaid loan and so, the ITO was not justified in treating the aforesaid loan as a perquisite and calculating its monetary value in the way he has done. The assessee, therefore, requested for the deletion of the addition of Rs. 1,136 made by the ITO. The AAC did not agree. He referred to the decision dated 24-3-1981 of the Tribunal in the case of O.P. Khanna [IT Appeal No. 533 (PN) of 1980, dated 24-3-1981], wherein a similar point has been decided in favour of the department. It may be stated that the ITO had referred in his assessment order the decision of the Madras High Court in the case of Addl. CIT v. Late A.K. Lakshmi  113 IRT 368.
Relying on the above decisions, the AAC confirmed the action of the ITO and dismissed the appeal.
7. Aggrieved by the above decision of the AAC, the assessee is in appeal before us. Shri N.A. Palkhivala, the learned representative for the assessee, urged before us that the revenue authorities erred in their decision. He stated that the scheme of giving loan to the employees for the specific purpose of helping them to acquire residential accommodation was a part of the staff welfare programme of the company introduced on essentially humanitarian grounds. The importance of having a roof over one's head in a city like Greater Bombay for the middle class families is very great and this fact is well known to all. Hence, he urged that the whole issue has to be seen from a broad and humanitarian point of view instead of from a narrow technical view. However, he hastened to add that the case of his client did not rest on the above ground alone. He stated that the meaning of any particular provision in a statute has to be understood in the context and in the setting in which it appears. The particular context in which the definition of 'perquisite' appears in Section 17(2) is the taxation of salaries in the hands of employees. He pointed out that the assessee's case could come only within item (c) of Section 17(2)(iii) as he was neither a director nor a shareholder having substantial interest in the company. His case came under item (c) only because his salary just exceeded the sum of Rs. 18,000 (the salary income was, in fact, Rs. 19,179). He stated that the sum of Rs. 18,000 is not a big figure considering the value of money in real terms. In any case, the definition of 'perquisite' in terms of benefit or amenity granted by the employer to the employee has to be understood in that context.
Evidently, one cannot take a too technical view and start taxing every type of advantage or petty favours (like subsidised tea, tiffin or meal) under the definition of 'perquisite' because the intention was not to do so. The definition of 'perquisite' contained in Section 17(2), according to Shri N.A. Palkhivala, is to tax substantial perquisites which are given by the employers instead of cash, so much so, that those substantial benefits or amenities could be reasonably regarded as a part of the remuneration for the services rendered by the employee in accordance with his service agreement. He explained that this section was meant to bring to tax the payment of salary in kind instead of cash. In order to be regarded as salary paid in kind, a payment should be substantial and can be reasonably considered to be so, taking all the facts and circumstances of the case into consideration. His point was that in the case before us, the granting of the loan by charging 4 per cent interest was not meant to be a part of the salary or payment for the services rendered by the employee in accordance with his service contract. The loan was granted in accordance with separate agreement for a specific purpose which has nothing to do with the service agreement. There are several restrictive conditions for granting the loan. It is not interest-free. It is true that the rate of interest is 4 per cent per annum, which is somewhat lower than the interest that could be obtained from the banks. But, he pointed out that the Government as well as some other public sector undertakings also give loans at lower interests and the interest charged by the employer in the case before us is not much lower than those interests. In any case, the actual amount of interest is a matter of contract between the parties and since interest at 4 per cent was actually charged in this case, it cannot bs equated with a case where a lower interest or no interest at all was charged.
8. Then he referred to the decision of the Madras High Court in the case of Late A.K. Lakshmi (supra), which in turn, had followed the decision of the same High Court in the case of CIT v. C. Kulandaivelu Konar  100 ITR 629. He stated that the said case was distinguishable on facts, inasmuch as that was a case of a director who withdrew the company's funds without paying any interest for her own purposes. Further, she was not liable to repay the principal within any fixed time, nor was she subject to any of the various restrictive conditions laid down in the scheme of the employer of the asaessee before us. It has also been held in that case that the advantage received by the employee must have a legal origin and any unauthorised advantage taken by the employee would not amount to a benefit or advantage for the purpose of Section 17(2)(iii). However, in that case it was held that the director had authority to withdraw. In view of those distinguishing features, Shri N.A. Palkhivala contended, the decisions therein went against the assesses. He urged that the facts in the case before us are quite different and so the revenue authorities were not justified in relying on the said decision of the Madras High Court in the case of Late A.K. Lakshmi (supra).
9. Then he referred to the decision dated 24-3-1981 of the Tribunal in the case of O.P. Khanna (supra) relied on by the learned AAC. He also referred to two other decisions of the Tribunal which have gone against the assessees. Those decisions are the one dated 10-2-1982 in the case of ITO v. M.G. Bagrecha Udhna  1 ITD 292 (Ahd.) and the other dated 3-7-1982 in the case of ITO v. Charanjit Singh  2 ITD 530 (Delhi). He pointed out that these decisions have followed the Madras High Court decisions in the cases of Late A.K. Lakshmi (supra) and C.Kulandaivelu Konar (supra). He stated that several factual features which distinguished those Madras High Court decisions and enumerated above, were not brought to the notice of the Tribunal when those cases were heard. In contrast thereto, he pointed out that four other decisions of the Tribunal, where the issue similar to that raised in the instant appeal, have been decided in favour of the assessees. These decisions are (i) dated 13-7-1981 in the case of D.D. Khavilkar, (ii) dated 15-7-1982 in the case of M.C. Muthanna v. ITO  3 ITD 46 (Mad.), (iii) dated 6-5-1982 in the case of B.C. Shah, and (iv) dated 20-12-1982 in the case of M.H. Lobo. Shri N.A. Palkhivala took us through the aforesaid orders and in particular the order dated 6-5-1982 in the case of B.C. Shah (supra), wherein the Tribunal has considered all the aspects of the matter including the two Madras High Court decisions as well as the other decisions of the Tribunal which were decided earlier in favour of the department and finally, came to the conclusion that in a case where the loan was given to an employee, who is not a director, and the loan was not interest-free and was given on the basis of a separate agreement apart from the service agreement and was not a part of the remuneration paid for the services rendered, then in such cases, the aforesaid Madras High Court decisions were not applicable and the employee concerned did not get any amenity or benefit that can be taxed as 'perquisites' under Section 17(2)(iii). He strongly relied on the aforesaid decisions of the Tribunal.
10. Finally, he referred to the Commentary on Income-tax Law by N.A.Palkhivala and B.A. Palkhivala, Volume I, page 310 (Seventh edition).
He took us through the decision in the case of Hochstrasser (Inspector of Taxes) v. Mayes  42 ITR 457 (HL). He emphasised the fact that the House of Lords held in that case that there could be no perquisites where the employee enters into a collateral agreement in order to get something quite unrelated to his service agreement. He pointed out that this crucial fact has also been taken into account by the Tribunal in their order in the case of B.C. Shah (supra).
11. Shri C. Perianayagam, the learned representative for the department, on the other hand, supported the order of the AAC. He strongly relied on the aforesaid Madras High Court decisions as well as the decisions of the Tribunal which have gone in favour of the department. He referred to a later decision of the Madras High Court in the case of CIT v. S.S.M. Lingappan  129 ITR 597 for the proposition that even in the case of a collateral agreement, the advantage can be taxed as perquisite. He then took us through the language of Section 17(2). He contended that once the relationship of employer and employee is established and a benefit or an amenity is granted by the employer to the employee free of cost or at concessional rate, Section 17(2) comes into play. According to him, the assessee before us did receive a benefit in the form of concessional rate of interest for the loan granted to him by his employer. Consequently, he urged that the order of the AAC deserved to be upheld.12. Shri N.A. Palkhivala replied that it is very difficult to call the loan taken by the assessee, on payment of interest and after agreeing to very stringent conditions, a benefit or amenity. He pointed to the statement of facts filed by the assessee before the AAC, wherein it is stated that the assessee could never have thought of having his own house if the loan granted by the employer was not available. He pointed out that all the employees have not availed of this scheme which showed that those employees who did not avail the same, evidently did not regard it as a benefit or amenity because of the very strict and difficult conditions attached to the loan.
13. We have carefully considered the contentions of both the parties as well as the facts on record. We have already stated the admitted facts earlier. The assessee has taken a house building loan from his employer at 4 per cent interest after agreeing to several stringent conditions regarding the purpose for which the loan was to be used as well as the manner it has to be repaid. The question that is raised before us is whether the assessee can be said to have enjoyed a benefit or an amenity that can be taxed as a perquisite under Section 17(2)(iii). We may make it clear at this stage that the case of the department is based only on Section 17(2)(iii)(c) No other case for the department has been made out either in the assessment order or in the appellate order. We have gone through the three decisions of the Tribunal which have gone against the assessee. We find that, they are based on the Madras High Court decisions in the cases of Late A.K. Lakshmi (supra) and C. Kulandaivelu Konar (supra). No arguments distinguishing the Madras High Court decisions on facts were advanced before the Tribunal or considered by them in those cases. On the contrary, we find that all the four decisions cited by the assessee, which have gone in favour of the assessee, have specifically considered not only the aforesaid Madras High Court decisions but also the decisions of the Tribunal that had gone against the assessee. This is true especially of the decisions in the cases of D.D. Khavilkar (supra) and B.C. Shah (supra). The learned representative for the assessee had poined out to us that in the case of M.C. Muthanna (supra), the Tribunal had recorded a finding that the decision in the case of D.D. Khavilkar (supra) has become final inasmuch as no reference was asked for by the department on that point. Be that as it may, we are inclined to agree with the learned Counsel for the assessee that the facts of the case before us are different from those considered by the Madras High Court in the aforesaid two decisions and that they are more similar to the decisions in the cases of D.D. Khavilkar (supra) and B.C. Shah (supra). In these two latter cases also, the loan was given on stringent conditions regarding its use and repayment at an interest of 4 per cent per annum.
We have gone through the aforesaid orders in detail and we are in respectful agreement with the same. We have considered the decision in the case of S.S.M. Lingappan (supra) relied on by the learned representative for the department, but, we find that the only principle laid down there in is that even if a benefit is conferred unilaterally without the aid of any agreement between the parties, the benefit could be a perquisite under Section 17(2)(iii). This is a principle which does not affect our conclusion already arrived at. This decision merely states that even in the absence of a collateral agreement, there can be a perquisite. This decision does not say that the presence of a collateral agreement will not make any difference as to whether the employee received any benefit or advantage which can be called a 'perquisite'. Hence, we do not find anything in this judgment which helps the department, or which requires any modification in the conclusion already arrived at by us.
14. We also find force in the contention of the learned representative for the assessee that the issue before us should be understood in the context in which the words 'perquisite' and 'benefit or amenity' have been used in Section 17(2). This principle is well established in construing the statutes vide the decision of the Supreme Court in the case of CGT v. N.S. Getti Chettiar  82 ITR 599. The definition of 'perquisite' as given in Section 17(2) is an inclusive one. It consists of not only the ordinary meaning of 'perquisite', which, according to the dictionary, is 'something which goes into one's pocket'; but, also the special items enumerated in the definition. One such item is benefit or amenity. Assuming but not admitting that the assessee before us got a benefit when he took the loan upon the terms and conditions on which it was granted to him, yet, in our opinion, it will not come under the particular sense in which 'benefit' has been used in Section 17(2). That particular sense is that the benefit concerned should accrue because of the service contract between the assessee and the employer. This is what was meant by the House of Lords in the case of Hochstrasser (supra) when they said that the service agreement should be the causa causans and not merely the causa sine qua non of the receipt of the amount. In other words, the benefit must spring out of the service contract and not from any other separate agreement de hors the service agreement. This is what the learned representative for the assessee meant when he urged that the benefit, if any, even if it is assumed to have accrued to the assessee before us, did not arise out of his service agreement because it was not paid as a part of the remuneration for his normal services and so it goes outside the purview of Section 17. The reason for the above is obvious. An employee may receive several amounts from his employer. Some receipts may be in the nature of rent for the use of the employee's house by the employer, which cannot obviously be taxed under the head 'Salary' because it has to be taxed under the head 'Income from house property'. Similarly, interest received by the employee for a loan by him to his employer cannot evidently be taxed under the head 'Salary' but has to be taxed under the head 'Income from other sources'. In this connection, we see that there is a provision under the head 'Profits and gains of business or profession', namely, Section 28(iv) of the Act, which says that any benefit or perquisite arising from the business or the exercise of a profession has to be taxed under the head 'Profits and gains of business or profession'. No such corresponding provision is there in Section 17. Consequently, it is not enough that the benefit should arise to an employee from his employer. In addition to the above, the benefit should be relatable to his contract of service, i.e., it should be a part of the remuneration for the normal services rendered by him.
We find indirect support for this conclusion of ours in the decision in the case of T.T. (P.) Ltd. v. ITO  121 ITR 551 (Kar.). Hence, the assessee before us cannot be said to have received any benefit for the purpose of taxation as perquisite under Section 17. This leads us to the question as to whether it can be taxed under the head 'Income from other sources'. For this, we have to look into the inclusive definition of 'income' under Section 2(24)(iv) of the Act. However, on going through the language of Section 2(24)(iv), we find that it does not apply to an employee like the assessee before us. Further, it cannot be said that the assessee would have been obliged to pay a higher rate of interest had not his employer given the loan at 4 per cent interest because, as pointed out by the assessee himself, he would not have even thought of building a house by taking a loan in the absence of the house building loan scheme of his employer.
15. For the above reasons, we hold that in the facts and circumstances of the case, the assessee derived no benefit or amenity which can be taxed as a perquisite under Section 17(2)(iii). Hence, we direct that the sum of Rs. 1,136 be deleted from the total income of the assessee.