1984 (8) TMI 113 - AT - Income Tax

Summary

Issues Involved:
1. Whether the interest-free loan granted by Vicks Products Inc. is a benefit within the meaning of section 2(24)(iv) of the Income-tax Act, 1961.
2. Whether the benefit arising out of the interest-free loan is a perquisite within the meaning of section 17(2)(iii) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Interest-free loan as a benefit under section 2(24)(iv) of the Income-tax Act, 1961

The revenue contended that the interest-free loan granted by Vicks Products Inc. (VPI) to the assessee should be considered a benefit within the meaning of section 2(24)(iv) of the Income-tax Act, 1961. The Commissioner (Appeals) held that the benefit by way of an interest-free loan could not be taxed as a perquisite in the hands of the assessee within the meaning of section 2(24)(iv), read with sections 2(32) and 2(41). The Commissioner (Appeals) stated that the provisions of section 2(24)(iv) apply only to a director of a company or a person who has a substantial interest in the company or their relative. Since the assessee was neither a director nor had a substantial interest in VPI, and was not related to any such person, the interest-free loan could not be considered a benefit under section 2(24)(iv).

The Tribunal confirmed the conclusion of the Commissioner (Appeals), noting that the revenue failed to provide evidence that the assessee fell into any of the categories specified in section 2(24)(iv). The Tribunal emphasized that without fulfilling the first condition (the recipient being a director, a person with substantial interest, or a relative of such persons), the provisions of section 2(24)(iv) are not applicable.

Issue 2: Interest-free loan as a perquisite under section 17(2)(iii) of the Income-tax Act, 1961

The Income-tax Officer (ITO) included the value of the interest-free loan as a perquisite under section 17(2)(iii) of the Income-tax Act, 1961. The Appellate Assistant Commissioner (AAC) had earlier deleted these additions, relying on the Supreme Court decision in CIT v. L.W. Russel, which held that perquisites must be sums in regard to which there was an obligation on the part of the employer and a vested right on the part of the employee.

The Tribunal examined whether the value of the interest-free loan was assessable as a perquisite under section 17(2)(iii). The Tribunal considered various judicial precedents, including the decisions of the Madras High Court in CIT v. C. Kulandaivelu Konar and Addl. CIT v. A.K. Lakshmi, and the House of Lords in Hochstrasser v. Mayes. The Tribunal concluded that for a benefit to be considered a perquisite under section 17(2)(iii), there must be a privity of contract between the employer and the employee, resulting in a vested right for the employee.

Since no evidence was provided to show that the interest-free loan was part of the terms and conditions of the assessee's employment, the Tribunal held that the benefit did not qualify as a perquisite under section 17(2)(iii). The Tribunal upheld the AAC's decision to delete the additions made by the ITO under section 17(2)(iii).

Conclusion:

The Tribunal dismissed all eight appeals by the revenue, confirming that the interest-free loan granted by Vicks Products Inc. was neither a benefit under section 2(24)(iv) nor a perquisite under section 17(2)(iii) of the Income-tax Act, 1961.