1. As a common point is involved in both these appeals by the revenue for the assessment years 1978-79 and 1979-80, they were heard together and are disposed of by a consolidated order.
2. The assessee is a working director of National Chemical Industries Ltd. which is a closely-held company. The assessee drew salary from the said company of Rs. 13,000 in the assessment year 1978-79 (account year ending 31-3-1978) and of Rs. 14,500 in the assessment year 1979-80 (account year ending 31-3-1979). He was also allowed by the company free use of the car, for which the JAC determined the value of the perquisite at the rate of Rs. 3,600 in each of the two years.
3. The controversy before us is regarding the value of the benefit derived by the assessee on account of the debit balance in his account with the said company. In the assessment year 1978-79, the opening balance as on 1-4-1977 was a debit of Rs. 35,813 which was reduced to Rs. 20,799 as on 31-3-1978. The IAC took the average of the opening and the closing balance at Rs. 28,306 and estimated the interest thereon at the rate of Rs. 4,245 which is held to be the benefit derived by the assessee from the said company and deemed to be the assessee's income under Section 2(24)(iv) of the Income-tax Act, 1961 ('the Act').
Similarly, in the assessment year 1979-80 in the absence of the assessee's account in the said company, the IAC estimated the benefit under Section 2(24)(iv) at Rs. 5,000.
4. The assessee carried the matter in appeal and the AAC in the assessment year 1978-79 following the order of the Commissioner (Appeals) for the assessment year 1976-77 deleted the addition. In the assessment year 1976-77, the Commissioner (Appeals) had held that where a director had withdrawn the funds of the company for his personal purposes and not for the purposes of business of the company in an unauthorised manner without express or implied concurrence of the company, such interest-free advance was not a benefit or perquisite within the meaning of Section 2(24)(iv) (we have not been told whether the matter was carried further in appeal to the Tribunal and with what result). In the assessment year 1979-80, the Commissioner (Appeals) again deleted the addition taking the same line of reasoning that if the assessee had used the employer company's funds in an unauthorised manner without express or implied concurrence of the company, it was not a benefit or perquisite obtained by the director from the company within the meaning of Section 2(24)(iv). For coming to this conclusion, the Commissioner (Appeals) relied on CIT v. A.R. Adaikappa Chettiar  91 ITR 90 (Mad.). The Commissioner (Appeals) also referred to CIT v. G, Venkata-raman 111 ITR 444 (Mad.) where the Court had approved the decision in A.R. Adaikappa Chettiar's case (supra) on the interpretation of the word 'obtained' occurring in Section 2(6C)(iii) of the Indian Income-tax Act, 1922 ('the 1922 Act'). The Commissioner (Appeals) distinguished the decision in Addl. CIT v. A.K. Lakshmi  113 ITR 368 where the Madras High Court under the similar circumstances held that the benefit obtained by the director on account of interest-free advances by the company was assessable as a perquisite under Section 17(2)(iii)(a) of the Act.
At the hearing before us, the learned departmental representative relied on Lakshmipat Singhania v. CiT  93 ITR 162 (All.) where the Court observed that Section 2(6C) was in absolute terms and as soon as a person receives a benefit from the company and he happens to be a director of the company, the value of such benefit was deemed to be his income and there was no further requirement of any kind and it was not necessary that the benefit should have been received by him under an enforceable right.
5. The learned Counsel for the assessee besides relying on the aforesaid Madras High Court decisions, which had found favour with the Commissioner (Appeals), also relied on MM. Mehta v. CIT 117 ITR 362 (Cal.) where free use of car by the managing director without any contractual obligation by the company to provide use of car to the managing director was held to be not a benefit or perquisite. The Calcutta High Court took the same view as was taken by the Madras High Court in the decisions mentioned above, that before a person can be stated to have obtained a benefit or perquisite from the company, he should have some legal or equitable claim for such benefit or perquisite and any benefit or advantage taken by a director without a claim or right had to be returned to the company. The learned Counsel for the assessee also drew our attention to the discussion in para 7 of the Commissioner (Appeals), order for the assessment year 1979-80 referring to the litigation between the directors and the company's liquidation as a result thereof in February 1981. It was urged that the said facts showed that the directors of the company were withdrawing amounts from the company at their discretion and the said drawings by the directors were unauthorised. However, no details of the said litigation had been filed before us to show that the account of the assessee director Gurmukh Singh in the said company was also subject-matter of the said litigation. We also note that on 24-10-1977 there was a settlement between the directors inter se which was filed before the High Court and the company's petition was disposed of accordingly. It, however, appears that in 1978, there was again a dispute regarding the drawings from the company's bank account in the State Bank of India, Najafgarh Road, New Delhi. However, here again in the absence of any documents before us, we cannot infer that assessee-director Gurmukh Singh's account in the said company was the the subject-matter of litigation in the High Court.
6. We have carefully considered the submissions of both the parties. We find that the Madras High Court in CIT v. S.S.M. Lingappan  129 ITR 597 has explained its earlier decision in A.R. Adaikappa Chettiar's case (supra) to apply only to those cases where there was an unauthorised benefit enjoyed by a director from the company and further observed that even if the benefit had been conferred unilaterally without the aid of any agreement between the parties in the light of the Madras High Court decision in CIT v. C. Kulandaivelu Konar  100 ITR 629, the employee could be taxed on the perquisite under Section 17(2)(iii) and (iv). The Court approved the view taken by the Allahabad High Court in Lakshmipat Singhania's case (supra) where it was held that it was not necessary that the benefit should have been received by the assessee under an enforceable right. The aforesaid decision in S.S.M. Lingappan's case (supra) has 'thus' reconciled the decisions of the Madras High Court in A.R. Adaikappa Chettiar's case (supra) and its decision in A.K. Lakshmi's case (supra) where the interest-free advance was held to be a benefit and the interest attributable to overdrawings was held to be assessable as a perquisite under Section 17(2)(iii). In this connection, we may also note that the Madras High Court in CIT v. P.R. Ramakrishnan  124 ITR 545 had made a departure from its earlier decision in A.R. Adaikappa Chettiar's case (supra).
7. The learned Counsel for the assessee has urged that the loans to directors could be given only after obtaining the previous approval of the Central Government under Section 295 of the Companies Act, 1956, as the employer here was a public limited company. However, this contention was not raised before the lower authorities and we have no evidence one way or the other to verify whether any previous consent of the Central Government for advancing the loan to the assessee was obtained. Even otherwise, even if a loan is given to the assessee by the company in infringement of Section 295, that is not relevant when the limited questions before us is whether any benefit was obtained by the assessee from the employer company.
8. We have already noted in para 3 above, the position of the assessee's account in the company's books in the assessment year 1978-79 which showed opening debit balance as on 1-4-1977 of Rs. 35,813 which was reduced to Rs. 20,799 on 31-3-1978. The account for the financial year 1978-79 was not filed before the ITO despite requisition. On our requisition, the counsel for the assessee has filed the account for the period 1-4-1978 to 31-3-1979 where the opening debit balance of Rs. 20,799 on 1-4-1978 increased to Rs. 78,058 on 31-3-1979. The assessee has also filed before us account for the period 1-4-1979 to 31-3-1980 (which year is not in appeal before us). The closing debit balance as on 31-3-1980 was of Rs. 77,695. On perusal of the account for the aforesaid two years, it is seen that the account is a running account where the petrol expenses, electricity bills, telephone expenses, car expenses, etc., are debited/credited in this account. The facts in the assessee's case are comparable to C.Kulandaivelu Konar's case (supra) where the Madras High Court noted that the assessee had a current account with the company right from 1959 and, therefore, it had to be assumed that the overdrawings in the director's account was not an unauthorised act and to the extent the company allowed the assessee to use its funds without any obligation to pay any interest thereon, the company should be deemed to have granted a benefit to him and where the company permitted an employee to use 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 and, therefore, the assessee was granted a benefit within the meaning of Section 17(2)(iii). Similar were the observations of the Madras High Court in A.K. Lakshmi's case (supra) where non-charging of interest by the employer company on the current account of the director was held to confer a benefit on the employee. We have already noted above in paragraph 4 the view of the Allahabad High Court in Lakshmipat Singhania's case (supra) that when a person received benefit from the company as a director, the value of the benefit was deemed to be his income and there was no further requirement of any kind and it was not necessary that the benefit should have been received by him under an enforceable right.
Respectfully following the view taken, we hold that the assessee did obtain benefit by receiving interest-free advances from the company and the notional interest was, therefore, assessable in his hands both under Section 2(24)(iv) and 17(2)(iii). We are fortified in taking this view by the decision of the Tribunal, Bangalore Bench in ITO v. Tukaram S. Pai  3 ITD 589 and the decision of the Bombay Bench 'C of the Tribunal in the case of Virendra Madhavlal v. ITO [IT Appeal Nos. 3602, 4834 and 4835 (Bom.) of 1983 dated 27-2-1984] since reported in  8 ITD 666 (Bom.). Under these circumstances, we vacate the orders of the AAC/Commissioner (Appeals) and restore that of the ITO/IAC.