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2012 (12) TMI 608 - HC - Income TaxExemption u/s 10(13A) - deduction from salary - payment of rent for residential accommodation - held that - The ground on which the claim for exemption under Section 10(13A) was rejected by the assessing officer was that the salary receipts by the assessee from M/s Sahara India Mass Communication cannot be assessed under the head salary , but should be assessed under the head income from other sources . The assessing officer has however not brought any material to show that the relationship between the M/s Sahara India Mass Communication and the assessee was not that of a master and servant. - Deduction allowed - Decided in favor of assessee. Principle of netting or set off - Addition on account of interest paid by the assessee on loan taken for purchase of an exempted asset - held that - The right to receive the interest and the liability to pay interest arose in respect of the same period and out of the same event i.e. non-payment of the sale proceeds in time. The delay in payment of the sale proceeds and the delay in repayment of the borrowing are both intertwined; one gives rise to interest income and the other gives rise to interest liability. We are of the view that this affords sufficient nexus between the two so as to justify the applicability of the principle of netting. Judgment of the Supreme Court in CIT vs. Dr.V.P.Gopinathan (2001 (2) TMI 10 - SUPREME COURT) is against the claim of the assessee but a closer look at the facts shows that the judgment of the Supreme Court in Keshavji Ravji & Co. vs. CIT (1990 (2) TMI 1 - SUPREME COURT) is closer to the assessee s case on principle. - The netting principle was adopted in CIT vs. Shri Ram Honda (2007 (1) TMI 86 - HIGH COURT, DELHI). Decided in favor of assessee.
Issues Involved:
1. Assessment of perquisites in the hands of the assessee. 2. Deduction under Section 10(13A) of the Income Tax Act. 3. Deduction of interest paid on loan taken for the purchase of an exempted asset. Detailed Analysis: 1. Assessment of Perquisites in the Hands of the Assessee: The primary question of law in all three appeals concerns the assessment of perquisites provided by the employer to the respective assessees. ITA No. 258/2010: - The assessee was provided several perquisites by his employer, including credit card expenses, club membership, domestic servants, security guards, chauffeur-driven car, telephone/cell phone expenses, and electricity expenses. - The Assessing Officer (AO) considered these as perquisites taxable under Section 17 of the Income Tax Act and brought an aggregate amount of Rs. 2,94,843/- to tax. - The CIT (Appeals) deleted the entire amount on the grounds that the addition was hypothetical and estimated. - The Tribunal upheld this decision, noting that the company did not incur such expenses for providing perquisites to the assessee. The additions were made on an estimated basis without concrete evidence. - The High Court affirmed this decision, stating there was no material to show that the Tribunal's finding was contrary to the record. ITA No. 942/2010 and ITA No. 546/2010: - The assessee was a partner in M/s Sahara India and a director in various Sahara Group companies. - The AO added perquisite values for security guards, gardener, chauffeur-driven car, domestic servants, gas and water charges, and telephone expenses. - The CIT (Appeals) deleted these additions, and the Tribunal confirmed the order. - The High Court upheld the Tribunal's decision, noting that the findings were factual and there was no employer-employee relationship that justified the perquisites under Section 17. 2. Deduction under Section 10(13A) of the Income Tax Act: The second substantial question of law in ITA No. 942/2010 and ITA No. 546/2010 concerns the deduction claimed under Section 10(13A) for House Rent Allowance (HRA). - The AO disallowed the HRA deduction, treating the salary received from M/s Sahara India Mass Communication as "income from other sources" rather than "salary." - The CIT (Appeals) directed the AO to allow the exemption, and the Tribunal upheld this decision. - The High Court affirmed the Tribunal's decision, stating that the AO did not provide material evidence to show that the relationship between the assessee and M/s Sahara India Mass Communication was not that of an employer and employee. 3. Deduction of Interest Paid on Loan Taken for Purchase of an Exempted Asset: The second substantial question of law in ITA No. 258/2010 concerns the deduction of interest paid by the assessee on a loan taken for the purchase of an exempted asset. - The assessee received interest from Sahara India Commercial Corporation Ltd. (SICCL) and claimed a deduction for the interest paid to the same entity. - The AO disallowed this deduction, stating there was no provision in the Act for such an adjustment and referred to the Supreme Court judgment in CIT vs. Dr. V.P. Gopinathan. - The CIT (Appeals) allowed the deduction, reasoning that the transactions were interlinked and had a direct nexus. - The Tribunal upheld the CIT (Appeals)'s decision, stating that the interest paid and received were interconnected. - The High Court affirmed the Tribunal's decision, applying the principle of netting and referencing the Supreme Court judgment in Keshavji Ravji & Co. vs. CIT, which supports the interrelation of transactions for tax purposes. Conclusion: The High Court dismissed all the appeals filed by the Revenue, affirming the Tribunal's decisions on all issues. The substantial questions of law were answered in favor of the assessee and against the Revenue. There was no order as to costs.
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