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Issues Involved:
1. Taxability of concessional loans as perquisites under Section 17(2)(iii) of the Income Tax Act. 2. Eligibility for relief under Section 80L of the Income Tax Act for interest received from the Provident Fund. Issue-wise Detailed Analysis: 1. Taxability of Concessional Loans as Perquisites under Section 17(2)(iii): The core issue in these appeals is whether the concessional loans provided to employees by the employer can be considered taxable perquisites under Section 17(2)(iii) of the Income Tax Act. The appellants argued that the loans were purely commercial transactions and not a benefit or amenity arising from employment. They contended that the interest rate of 4% was not concessional at the time the schemes were initiated, and there was no diversion of higher-interest-bearing borrowed funds by the employer to finance these loans. The loans were available only to senior staff who met specific criteria and were secured by mortgages or pledges, making them commercial transactions rather than employment benefits. The Income Tax Officer (ITO) had added the difference between the assumed market interest rate of 12% and the concessional rate of 4% as a perquisite value, which was upheld in the first appeal. The appellants challenged this addition, arguing that the ITO's assumption of a 12% investment return by the employer was incorrect and unsupported by evidence. The Tribunal found that the loans were not part of the employment contract but collateral agreements with specific conditions. The Tribunal noted that the loans had to be repaid with interest and were secured by mortgages or pledges, indicating a commercial nature. The Tribunal also distinguished the case from previous High Court decisions where interest-free loans to directors were considered taxable perquisites due to the diversion of borrowed funds. The Tribunal concluded that the concessional loans did not constitute a perquisite under Section 17(2)(iii) as they were commercial transactions with stipulated interest rates and security measures. The Tribunal also noted the absence of guidelines for evaluating such loans as perquisites and the government's public stance that such loans were not currently taxable under the law. 2. Eligibility for Relief under Section 80L: The second issue concerned the eligibility of the appellants for relief under Section 80L for interest received from the Provident Fund. The appellants claimed relief for interest credited to their accounts from the Provident Fund, arguing that it should be considered interest on bank deposits eligible for relief under Section 80L. The department had disallowed this claim, arguing that the interest was taxable under the head "salaries" and not "other sources," and that the interest was earned by the Trustees of the Provident Fund, not directly by the assessees. The Tribunal referred to a Special Bench decision that accepted the interest income retained its character as interest income despite being assessed as "salary." However, the Special Bench had also held that the interest credited to the assessees' accounts was not directly from bank deposits but from the Provident Fund's investments, which the Trustees managed. The Tribunal considered a subsequent High Court decision in CIT vs. Smt. Shakunthala Banerjee, which held that a beneficiary of a trust is entitled to relief if the trust itself would have been eligible for such relief. The Tribunal concluded that the interest income in the hands of the assessees retained its character as interest income from bank deposits, making them eligible for relief under Section 80L. Conclusion: The appeals were allowed on both points. The Tribunal held that the concessional loans were not taxable as perquisites under Section 17(2)(iii) and that the appellants were eligible for relief under Section 80L for the interest received from the Provident Fund. The ITO was directed to determine the precise extent of relief under Section 80L while giving effect to this order.
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