2007 (7) TMI 436 - AT - Income Tax

Summary

Issues:
Appeal against deletion of additions made in block assessment for assessment years 1996-97, 1997-98 & 1998-99 on account of perquisite value of interest on interest-free loan received by the assessee.

Analysis:
The case involved an individual who received an interest-free loan of Rs. 30 lakhs from his former employer, which he used for purchasing a flat and advancing to another entity. The Assessing Officer treated the interest-free loan as a perquisite, valuing it based on reduced balance outstanding against the assessee. The CIT(A) deleted the addition, arguing that tax should be levied on actual income, not notional income, and that the valuation of perquisite is subjective and cannot be considered in block assessment. The CIT(A) also noted that there was no provision in the Income-tax Act for calculating notional interest on such loans. The Department contended that the loan was given by the promoter company of the assessee's current employer and that the CIT(A) had confirmed a similar interest income in a subsequent assessment year. The assessee argued that the interest-free loan came from the former employer and was not taxable, and that the rate of notional interest was debatable and outside the scope of block assessment.

The Tribunal observed that the substance of the transaction was crucial, not just the form, and considered the loan from the promoter company as equivalent to receiving it from the employer. The Tribunal noted that the Department seized the purchase deed during the search, and since the interest income and perquisite value were not disclosed, they could be treated as undisclosed income. The Tribunal interpreted the inclusive definition of "undisclosed income" broadly, allowing for assessment of any income not disclosed to the Department. Section 17(2) defines "perquisite" inclusively, and the Tribunal held that the interest-free loan had a tangible value despite being labeled notional by the CIT(A). The Tribunal reinstated the Assessing Officer's valuation of the perquisite, considering it reasonable and based on recognized principles.

In conclusion, the Tribunal allowed the Department's appeal, upholding the Assessing Officer's treatment of the interest-free loan as a perquisite and the subsequent valuation for tax purposes.