1977 (8) TMI 44 - HC - Income Tax

Summary

Issues:
Interpretation of section 2(24)(iv) of the Income-tax Act, 1961 regarding foreign tour expenditure met by a company on account of the assessee's wife and its treatment as the income of the assessee.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the treatment of foreign tour expenditure of Rs. 10,662 met by a company on account of the assessee's wife. The assessee, a director of the company, went abroad for exploring export possibilities, and the company covered the expenses for both the assessee and his wife. The taxing authorities treated the expenses on the wife's tour as the income of the assessee under section 2(24)(iv) of the Act, stating that the assessee would have been obliged to pay the expenses if not covered by the company. However, the Tribunal held that there was no provision in section 2(24)(iv) to treat the income of a relative of a director as the director's income. The Tribunal concluded that the sum of Rs. 10,662 was not assessable in the assessee's hands.

The crux of the issue lay in the interpretation of section 2(24)(iv) of the Act, which defines "income" to include the value of any benefit or perquisite obtained from a company by a director or a person with substantial interest, or by a relative of such director or person. The provision also includes any sum paid by the company in respect of obligations that would have been payable by the director or the person. The revenue argued that the value of benefits received by a director's relative should be included in the director's income if there was an obligation on the director to pay for such benefits. However, the court rejected this argument, stating that there was no legal fiction or specific provision to support such an interpretation. In this case, it was not evident that the assessee would have been under an obligation to pay for his wife's expenses if not covered by the company. Therefore, without a legal fiction or specific provision, it was deemed difficult to include the value of benefits received by a relative in the income of the director or the person having substantial interest.

Ultimately, the court ruled in favor of the assessee, holding that the foreign tour expenditure met by the company on the assessee's wife was not liable to be treated as the income of the assessee under section 2(24)(iv) of the Act. The question referred to the court was answered in the negative, in favor of the assessee, with costs of the reference to be paid by the revenue.