1983 (9) TMI 130 - AT - Income Tax

Summary

Issues Involved:
1. Whether the interest-free loan granted by M/s Pure Drinks (New Delhi) Pvt. Ltd. to the assessee constitutes a "perquisite" under Section 17(2) of the IT Act, 1961.
2. Whether the amount in question is taxable under Section 2(24)(iv) of the IT Act, 1961.

Detailed Analysis:

1. Interest-Free Loan as a Perquisite under Section 17(2):

The Revenue challenged the CIT(A)'s decision to delete the addition of Rs. 1,19,158 made by the ITO under Section 17(2) of the IT Act, 1961. The ITO had originally considered the interest-free loan as a perquisite, arguing that the benefit or amenity provided by the company to the employee-director should be taxable. The ITO cited that the interest-free loan constituted a benefit emanating from the employer company and passed on to the employee, thus falling within the provisions of Section 17(2).

The assessee contended that the company had sufficient internal resources and did not incur any cost for the interest-free loan, arguing that the provisions of Section 17(2)(iii) were not applicable. The CIT(A) upheld the assessee's argument, citing the judgments in CIT vs. A.R. Adaikappa Chettiar and CIT vs. G. Venkataraman, which supported the view that unless there was a contractual obligation for the company to provide interest-free loans, no amount could be taxed as a perquisite.

The Tribunal agreed with the CIT(A) and the assessee, noting that the company had ample reserves and surpluses, and the interest on borrowings had been allowed as a business expenditure. Therefore, the provisions of Section 17(2)(iii) were not applicable as the company did not incur any cost in providing the loan.

2. Taxability under Section 2(24)(iv):

The Revenue also raised an alternative ground that the amount should be taxable under Section 2(24)(iv) of the IT Act, 1961. The Tribunal admitted this legal ground but ultimately held that the amount in question was not taxable under Section 2(24)(iv). The Tribunal reasoned that the words "obtained from a company" imply a legal basis for a benefit or perquisite. Since there was no legal basis for obtaining the interest-free loan, the provisions of Section 2(24)(iv) were not applicable.

The Tribunal further distinguished the case from other judgments cited by the Revenue, such as CIT vs. Kulandaivelu Konar and Addl. CIT vs. Late A.K. Lakshmi & Ors., noting that in those cases, there was a disallowance in the company's case, which was not present in the current case. The Tribunal also found that the judgments in Lakshmipat Singhania vs. CIT, UP and CIT, Delhi vs. Nar Hari Dalmia were not applicable to the facts of this case.

Conclusion:

The Tribunal confirmed the order of the CIT(A) and dismissed the Revenue's appeal, holding that the interest-free loan granted by M/s Pure Drinks (New Delhi) Pvt. Ltd. to the assessee did not constitute a perquisite under Section 17(2) and was not taxable under Section 2(24)(iv) of the IT Act, 1961.