2014 (6) TMI 351 - AT - Income Tax

Deletion of perquisite u/s 2(24)(vi) - interest free loan to director - assessee is a Director in Chennai Corporate Club Private Ltd. - Revenue contended that the payment of interest by the assessee to the company was an afterthought and therefore should be ignored. Held that - Following VM Salgaocar And Bros. Pvt. Ltd. Versus Commissioner of Income-Tax 2000 (4) TMI 2 - SUPREME Court - There was no specific error in the findings of the CIT(A) could be pointed out by the Revenue - the interest was actually paid by the assessee in respect of advances received by it from the company for the year under consideration Revenue only contended that as the interest was paid in subsequent year, so it was an afterthought and therefore should be ignored the fact that interest was paid on the advance received by the assessee was not denied thus, there was no error in the findings of the CIT(A) that the loan received by the assessee from the company in question was not interest-free loan, but the same was interest bearing loan - no material could be brought on record by the Revenue to show that any interest expenditure was actually incurred by the company in question for or on behalf of the assessee - interest free money in the form of entrance fee and membership fee available with the company was more than the advance received by the assessee from the said company thus, there was no reason to interfere with the order of the CIT(A) Decided against Revenue.

Summary

Issues Involved:
1. Whether the CIT(A) erred in deleting the addition of Rs.18,71,852/- made as a perquisite under section 2(24)(iv) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 2(24)(iv):
The main issue in the appeal is whether the CIT(A) was correct in deleting the addition of Rs.18,71,852/- made by the Assessing Officer (AO) as a perquisite under section 2(24)(iv) of the Income Tax Act. The AO had treated this amount as a perquisite because the assessee, a director in Chennai Corporate Club Private Ltd., received an interest-free loan from the company, which had borrowed funds and paid interest on those loans. The AO added this interest expenditure to the income of the assessee, considering it a benefit.

2. Arguments by the Assessee:
The assessee argued that section 17(2) of the Act, which defines 'perquisite', does not include interest-free loans or loans with concessional interest rates as perquisites. The assessee cited historical amendments and deletions in the Act to support this argument. The assessee also pointed out that the interest liability was recognized in the assessment year 2012-13, and the loan was not interest-free as interest was indeed paid.

3. CIT(A)'s Findings:
The CIT(A) found that the loan was repayable with interest, as evidenced by the return of income filed by Chennai Corporate Club Private Ltd. for the assessment year 2012-13, where the appellant had paid Rs.10,00,000/- as interest. The CIT(A) also noted that the company did not borrow money specifically to advance to the assessee but used funds from members' entrance fees and membership fees. The CIT(A) relied on the Supreme Court's decision in V.M. Salgaocar & Bros. P Ltd. and the Calcutta High Court's decision in CIT Vs. P.R.S. Oberoi, which supported the view that interest-free advances do not constitute perquisites under section 2(24)(iv).

4. Revenue's Arguments:
The Departmental Representative argued that the interest payment by the assessee in the assessment year 2012-13 was an afterthought and should be ignored. The representative also contended that the entrance and membership fees should have been used for the benefit of members and not advanced to the assessee.

5. Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, noting that the Revenue could not provide specific evidence to show that the borrowed funds were used to advance money to the assessee. The Tribunal found that the assessee had sufficient interest-free funds from members' fees to make the advance. The Tribunal also noted that the interest was indeed paid by the assessee, and there was no error in the CIT(A)'s reliance on the Supreme Court and Calcutta High Court decisions. Consequently, the Tribunal dismissed the Revenue's appeal and confirmed the CIT(A)'s order.

Conclusion:
The Tribunal concluded that the CIT(A) was correct in deleting the addition of Rs.18,71,852/- as a perquisite under section 2(24)(iv) since the loan was not interest-free and the company did not incur interest expenditure for the assessee's benefit. The appeal by the Revenue was dismissed.