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TMI Blog1981 (7) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... he object of the house loan was to enable employees to put 20% of outlay which was necessary for approaching L.I.C. for an 80% loan mortgage for house purchase. The object of the share loan was apparently to keep employees to "put aside funds". It is clear that it was to encourage employees participation in corporate management. It was made clear that the employee company in respect of share purchase loan did not "offer any guarantee of performance" by the company and it was "a purely commercial transaction and at your own risk". Both loans were to be considered only on formal application. Both the loan carried the normal condition of a commercial loan. For example, housing loan was on second mortgage while share certificates under share purchase loan scheme was to be in the custody of the company by way of pledge. The employer retained a further lien on amounts due on retirement etc. in respect of outstanding loan. Simple interest was chargeable at 4% per annum in respect of both schemes. These are the broad features of the two schemes and both the appellants availed of loans under the two schemes and paid interest in respect of them. The ITO was of the opinion that 4% was a conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eadily going up, does it mean that the assessable income of these Government servants who had borrowed at a lower rate should go up? It is pointed out that no such attempt is made by the authorities to tax such " perquisites", thought the rate prevailing for Government housing loan at the time of formation of the housing scheme by assessees s employer was not much different. There is no reason, it was claimed, why these assessees should now be singled out for this treatment when no action is presumably taken against Government servants. Income cannot be notional. Even a perquisite has to be a positive one. It is pointed out that there are comprehensive circulars from the Board on perquisites which are taxable and are not so taxable. Such notional "perquisites", or loans is not listed therein. Obviously it was not the intention to tax such secondary benefits, if any. If there was any benefit, such is not measurable with any degree of precision by any objective standards as there is nothing like market rate of interest on loans which are, by and large, personal both to lender and/or borrower. It could not be the intention to tax such vague and unascertainable relationship. Heavy reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations may possibly be different and assessee s task more difficult. The fact that the employer is a lender and not a third party cannot convert such a commercial transaction into a "perquisite". As pointed out at page 310 of 7th Edition of Kanga Palkhivala s Law and Practice of Income-tax, Vol. I, "But in order that a payment may be taxable as salary it is not enough that an employee would not have received it unless he had been an employee, the payment must be a reward or return for his acting as an employee: The Court must be satisfied that the service agreement was the Cause causans and not merely the cause sine quo non quo non of the receipt of profit". (Hochstrasser vs. Mayers 38-TC-673 HL). House of lords in this decision held that an indemnity granted by the employee for loss on sale of house built on housing assistance provided by employer consequent on transfer of employee was held not taxble as profits of employment. No doubt, here we are dealing with perquisites as defined in the Act, but the fact that assistance, if any, is due to collateral arrangement and not in pursuance of service agreement is relevant for the purpose of s. 17(2) also. As pointed out earlier, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r lendings is also not supported with any factual date inspite of a specific request to the ld. Deptl. Rep. to give material in support of his stand. Even if a higher return was obtained by the company from some other in vestments, our conclusion cannot possibly be different as "perquisite" value in the hands of the assessee s cannot possibly depend upon what alternative avenues were available to the employer for investing its surplus funds. Since both the decisions of the High Court dealt with cases of interest-free loans where the extent of concession was admittedly measurable with an objective rate of interest(not disputed) cannot apply to the case before us. Again, it is precisely for this reason that s. 17(2) (vi) cannot also apply, because what would have been paid by the assessee as interest if employer had not given the loan is a matter of speculation and not easily ascertainable as there is no ready market or price as when man can go and get a loan as he could get his groceries, gas or electricity. Again, the attempt to treat loan as benefit was sought to be justified with reference to the decision of the House of Lords in St. Aubyn vs. Attorney General (1951) 2 All ER 473 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or amenities should apply to assessee s cases. when there are such a large number of amenities listed, it is inconceivable that loan either interest-free or at concessional interest was intended to the included though specifically not listed either in the statute or Rules though it has not been an uncommon practice for employers to give such loans to employees. In fact, government itself has been giving such loans at an interest lower than the bank lending rate and if the intention was to tax such "concession", it would have been specifically provided at least under the Rules for purposes of evaluation of the same for tax purposes. In this context it must be remembered that it is not the Government s view that all perquisites, even clear ones should be taxed. Some perquisites payable while in service outside India, leave travel concession, certain awards etc. are specifically exempt u/s. 10. Perquisites, except those listed in s. 17(2)(i) nd (ii) if not exempt u/s. 10, will not be taxed in the hands of employees drawing salary below Rs. 18,000 per annum. Even in respect of employees with higher income not all perquisites are taxed. For example, medical facilities, refreshments du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence of such guidelines it is not now possible to tax such "concessions" allegedly embodied in "loans" from employer to employees. Having taken such a public stand and having decided to wait for amendment to tax such loan assistance and to provide for a basis for making such assistance by stipulating guidelines for such measurement with reference to loans government servants, we do not think that it is open to the authorities to tax the employees on the basis of law at present with reference to a notional 12% which is certainly arbitrary in the facts of the case. In view of this development, we will not be justified now in following the decision of this tribunal in the ex-parte order in ITA No. 270 (Mds)/79 dt. 30th June, 1979. 7. To sum up, we will state our conclusions briefly as under: (1) The loans were in pursuance of collateral agreements between the employer and the employee and therefore employment was not causa causans but only causa sine quo non. These loans were commercial in character as they were given on mortgage at stipulated interest, the rate of which was not much lower at the time of formation of the scheme in 1972 than the rate at which Government was lendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss" interest brought to tax. Such interest was received from the recognised Provident Fund of which they are contributing on accumulated balances standing to their credit. Sec. 80L provides for relief, inter alia, in respect of interest on bank deposits etc. where the gross total income of the assessee, if an individual etc. includes such income. The amounts so included and on which relief is claimed are Rs.1,836 and Rs.4,808 for appellant Shri D.D. Khavilkar and Rs. 2,182 and Rs.5.674 in the case of Shri M.C. Muthanna for asst. yrs. 1977-78 and 1978-79 respectively. The claim was disallowed following the decision of the Special Bench of the Tribunal in I.T.A. Nos. 1172 1173/Mds/77-78 (D-Bench) dt. 25th February,. 1978. The stand of the department was that such interest was taxable under the head "salaries" and not under other sources. Second argument was that the interest on bank deposits was earned by the Trustees of the Provident Fund out of Trust Funds and that it cannot therefore be said that the interest credited to assesses accounts is assessees interest out of his funds invested in bank and other deposits. The Special Bench accepted the first contention of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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