1992 (6) TMI 1 - HC - Income Tax

Summary

Issues Involved:
1. Whether the difference in interest rate between Government loans and the loan obtained by the assessee should be treated as a perquisite.
2. Interpretation of section 17(2)(iii) and the applicability of rule 3(g) for valuation of perquisites.

Summary:

Issue 1: Treatment of Interest Rate Difference as Perquisite
The primary issue was whether the interest-free loan provided by the employer to the assessee for house building should be treated as a "perquisite" u/s 17(2)(iii) of the Income-tax Act, 1961. The Revenue contended that this interest-free loan constituted a benefit and should be treated as a "perquisite" under section 17(2)(iii), invoking rule 3(g) for its valuation. The court examined the legislative history and amendments to section 17(2), noting that the insertion and subsequent deletion of clause (vi) by the Taxation Laws (Amendment) Act, 1984, and the Finance Act, 1985, respectively, indicated that Parliament did not intend to treat interest-free loans for house building as perquisites. The court concluded that the legislative intent was to exclude such loans from the ambit of perquisites to provide relief to salaried taxpayers.

Issue 2: Interpretation of Section 17(2)(iii) and Rule 3(g)
The court analyzed the scope of section 17(2)(iii) and its application to interest-free loans. It was observed that if clause (iii) already covered interest-free loans, the insertion of clause (vi) would have been redundant. The court also referred to various circulars issued by the Central Board of Direct Taxes (CBDT), which clarified that the deletion of clause (vi) was intended to relieve salaried taxpayers from the burden of taxation on such loans. The court held that the valuation of perquisites should be done as per the rules, and in the absence of a specific rule covering interest-free loans, it would be inappropriate to treat them as perquisites under section 17(2)(iii).

Case Law References:
The court referred to several precedents, including:
- CIT v. C. Kulandaivelu Konar: Held that the benefit of interest-free drawings from a company was a perquisite under section 17(2)(iii).
- Addl. CIT v. A. K. Lakshmi: Reiterated that interest-free loans granted by an employer to an employee constituted a benefit and could be valued under rule 3(g).
- CIT v. Vazir Sultan Tobacco Co. Ltd.: Discussed the applicability of section 40A(5) concerning concessional loans.
- CIT v. P. R. S. Oberoi: Concluded that interest-free loans did not constitute a benefit under section 17(2)(iii) due to the legislative amendments and subsequent deletions.

Conclusion:
The court concluded that the legislative history, circulars, and the specific amendments to section 17(2) indicated that interest-free loans for house building purposes were not intended to be treated as perquisites under section 17(2)(iii). Therefore, the question was answered in the affirmative, and the Revenue's contention was rejected.