1994 (1) TMI 5 - HC - Income Tax

Actual User, Capital Asset, Capital For Purposes, Computation Of Capital, Industrial Undertaking, Special Deduction

Summary

Issues: Challenge to refusal of exemption for interest subsidy, Interpretation of Income-tax Act provisions, Applicability of Central Board of Direct Taxes Circular.

Analysis:
The petitioner-assessee challenged the assessing authority's refusal to grant exemption for an interest subsidy of Rs. 3,556, arguing that it should not be included in taxable income. The assessing authority deemed the interest subsidy as assessable under section 17(2)(iv) of the Income-tax Act, stating that it would have been paid even without the employer's reimbursement. The revisional authority upheld this decision under section 89(1) of the Act. The petitioner contended that the interest subsidy should not be taxable, citing a previous court decision in CIT v. M. K. Vaidya [1997] 224 ITR 186. The Division Bench in that case ruled in favor of the assessee, stating that the Legislature did not intend to treat the interest as a perquisite under section 17(2)(iii) of the Act.

Moreover, the Central Board of Direct Taxes Circular No. 421, dated June 12, 1985, was referenced, which clarified the treatment of interest-free loans or loans at concessional rates of interest as perquisites for salaried taxpayers. The circular highlighted that the Finance Act had omitted the provision regarding such treatment, indicating relief for salaried taxpayers. In light of these legal interpretations and precedents, the court allowed the writ petition, setting aside the inclusion of the interest subsidy in the taxable income of the assessee. The assessing authority was directed to redo the assessment by excluding the interest subsidy amount.