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TMI Blog2011 (11) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... held that such loan cannot be construed as benefit or a perquisite within meaning of Explanation 2(b)(iii) to section 40A(5) or section 17(2)(iii). Thus, interest on interest free loans advanced to the assessee by the Company cannot be treated as deemed income in terms of Section 2(24)(iv) - Decided against the Revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to assessee's income, as a deemed benefit under Section 2 (24)(iv) of the Act. The explanation of the assessee was not found to be satisfactory and the interest at the rate of 21% was brought to tax on account of deemed benefit under Section 2(24)(iv) of the Act. Such order was affirmed by the Commissioner of Income Tax (Appeals). But the Income Tax Appellate Tribunal (for short "the Tribunal") allowed the appeals by relying upon its earlier order passed in case of Varinder Gupta in ITA No.82/Chandi/96 decided on 09.12.1999 whereby interest on such interest free loans was not treated as deemed income. In the aforesaid order, the reliance was placed on a judgment of Calcutta High Court reported as CIT Vs. P.R.S. Oberoi 183 ITR 103. Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the personal use of its employees without charging interest is a benefit granted by the Company. The Court held to the following effect: "..…We have no doubt that his section is not intended to restrict the discretion of the right of the company to advance amounts to its employees with or without interest or at any specified rate of interest. But the question would still arise whether granting amounts of the company for the personal use of its employees without charging interest would be the grant of any benefit. Our answer here must be in the affirmative. It is well known that it is difficult, if not impossible, to borrow amounts for one's own use without having any liability to pay interest. Putting it positively, ordinarily bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a motor car and either no interest is charged by the employer on the amount of such loan or interest is charged at a rate lower than the rate of interest, which the Central Government may, having regard to the rate of interest charged by it from its employees on loans for such purpose granted to them, such benefit will be regarded as "perquisite". But such amendment was repealed in the very next year. In view of the said amendment, the Court held to the following effect: "…..The question therefore arises whether the enjoyment by the assessee of interest-free credit an be treated as a "benefit or perquisite" within the meaning of section 2(24) (iv) of the Incometax Act, 1961. The intention of the Legislature seems to be very clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The question, however, remains as to whether non-charging of interest will also fall within the purview of section 2(24)(iv) of the Act. For the purposes of applying section 2(24) (iv) of the Act, the same test as to what constitutes a benefit or a perquisite has to be applied. If the loan granted to an employee or a director or a person who has a substantial interest in the company without charging any interest or at a substantial interest in the company without charging any interest or at a concessional rate of interest does not constitute any benefit for the purposes of Explanation 2(b)(iii) to section 40A (5) or section 17(2)(iii) of the Act, by the same yardstick, such loan cannot also be construed as benefit or a perquisite for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to inclusion of Sub Clause (vi) in Clause (2) of Section 17. Moreover, the High Court in the impugned judgment did not consider the amendments made by the Amending Act, 1984 on the ground " it is difficult to see how this amendment can have any bearing upon the interpretation of the then existing provisions of the Act.". We do not think this approach was also correct. An amending provision can certainly give guidance to interpretation of the existing provisions. The judgments of the Madras High Court which were relied upon by the High Court in the impugned judgment were for the period prior to the 1984 amendment and the Madras High Court had no occasion to consider the impact of the amendments to section 17(2) and section 40A(5) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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