2007 (8) TMI 266 - HC - Income Tax

Whether loan given by a company to its director without any interest taxable under the provisions of the Income-tax Act, 1961? Held that - Under section 2(24)(iv), income includes the value of any benefit or perquisite whether convertible into money or not, obtained from a company either by a director or a person, having substantial interest in the company or relative of a 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. The aforesaid notices had been issued presumably to rope in the assessee under section 2(24) (iv). The Division Bench held that the interest-free loan could not be said to be income . Such finding was noted with approval by the Supreme Court. We do not find any scope of disagreement on that score. Hence, the impugned notices are liable to be quashed and set aside. Appeal allowed.

Summary

Issues Involved:
1. Taxability of interest-free loans given by a company to its directors under the Income-tax Act, 1961.
2. Validity of notices issued under section 148 for reopening assessments based on interest-free loans.

Detailed Analysis:

1. Taxability of Interest-Free Loans:
The primary issue was whether an interest-free loan given by a company to its director could be considered taxable under the Income-tax Act, 1961. The appellants argued that even if such a loan was considered a "benefit," it could not be translated into taxable income. They relied on the precedent set by the Division Bench in CIT v. P. R. S. Oberoi [1990] 183 ITR 103, which was approved by the Supreme Court in V. M. Salgaocar and Brothers P. Ltd. v. CIT [2000] 243 ITR 383.

The court reviewed these precedents, noting that the Division Bench had previously held that interest-free loans could not be included in the definition of "benefit" or "perquisite" under section 2(24)(iv) of the Act. The court emphasized that subsequent legislative amendments, which aimed to include such loans as perquisites, were withdrawn, indicating that Parliament did not intend to treat interest-free loans as taxable benefits.

2. Validity of Notices Issued Under Section 148:
The second issue was the validity of the notices issued under section 148 for reopening assessments based on the interest-free loans. The appellants contended that all relevant queries had been addressed during the original assessment, and there was no new information to justify reopening the assessments. The learned single judge dismissed the writ petitions, stating that reopening the assessments would not prejudice the appellants.

The court found that the notices were issued under the presumption that the interest-free loans could be considered taxable income under section 2(24)(iv). However, based on the precedents set by the Division Bench and the Supreme Court, the court held that such loans could not be considered "income." Therefore, the notices issued under section 148 were deemed invalid.

Conclusion:
The court concluded that interest-free loans given by a company to its directors could not be considered taxable income under section 2(24)(iv) of the Income-tax Act, 1961. Consequently, the notices issued under section 148 for reopening the assessments were quashed and set aside.

Order:
The appeals were allowed, and the judgment and order of the learned single judge were set aside. The notices issued under section 148 of the Income-tax Act, 1961, were quashed and set aside. The appeals were disposed of without any order as to costs.

Agreement:
The judgment was concurred by both judges, with TAPAS KUMAR GIRI J. agreeing with the conclusions and reasoning provided.