1986 (1) TMI 171 - AT - Income Tax

Summary

Issues Involved:
1. Justification of ITO in adding sums as perquisite under Section 17(2)(iii) of the IT Act, 1961.
2. Determination of whether the loan was given at a concessional rate.
3. Relevance of the cost of the loan to the bank versus market rate.
4. Applicability of legal precedents and amendments to the IT Act.

Detailed Analysis:

1. Justification of ITO in Adding Sums as Perquisite:
The primary issue in these appeals is whether the Income Tax Officer (ITO) was justified in adding sums of Rs. 7,630 and Rs. 37,807 to the assessee's total income as perquisite under Section 17(2)(iii) of the IT Act, 1961. The ITO contended that the entire loan amount of Rs. 3,03,000 was advanced by the employer bank to the assessee under the 'Banking Housing Loan Scheme', which was available only to permanent employees. Consequently, the ITO argued that the loan was a perquisite since it was provided at a concessional rate due to the employment relationship.

2. Determination of Whether the Loan was Given at a Concessional Rate:
The assessee contended that the loan was not given at a concessional rate as it was not below the cost to the bank. However, the ITO rejected this argument, stating that the market rate should be considered instead of the cost to the bank. The Appellate Assistant Commissioner (AAC) initially upheld the ITO's view that the loan was given due to the employment relationship but disagreed that it was at a concessional rate. The AAC observed that the rate of interest charged was not below the bank's cost, thus no concession was provided.

3. Relevance of the Cost of the Loan to the Bank Versus Market Rate:
The AAC's approach was criticized for comparing the interest rate with the bank's cost rather than the market rate. The Tribunal noted that the correct approach should involve comparing the rate charged to the assessee with the rate charged to normal customers for similar loans. The Tribunal emphasized that the determination of a concessional rate should be based on the interest rate charged to other customers, not the bank's cost of funds.

4. Applicability of Legal Precedents and Amendments to the IT Act:
The Tribunal referred to several legal precedents, including decisions from the Madras High Court, which supported the view that loans given at concessional rates constitute a perquisite. The Tribunal also considered the amendments introduced by the Taxation IT (Amendment) Act, 1984, and their subsequent revocation by the Finance Act, 1985. However, it concluded that these amendments were not relevant for the assessment years in question (1978-79 and 1979-80). The Tribunal upheld the plain language of Section 17(2)(iii) of the IT Act, 1961, which clearly included benefits provided at concessional rates as perquisites.

Conclusion:
The Tribunal restored the matter to the ITO with directions to ascertain the interest rate charged by the bank to its normal customers for similar loans and compare it to the rate charged to the assessee. The difference, if any, would determine the value of the concessional benefit, which should be added to the assessee's total income as a perquisite under Section 17(2)(iii) of the IT Act, 1961. The Departmental appeals were treated as allowed for statistical purposes.