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TMI Blog1972 (7) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... eholders as well as the directors of the said Venkatesa Mills Ltd. Subsequently, the firm was reconstituted under a partnership deed dated December 11, 1959, with fourteen partners including the above four persons who continued to be the shareholders as well as directors of the company. The company in its assessment had claimed allowance for the expenses incurred by it during the assessment years 1957-58 to 1962-63 for the maintenance of its motor cars. The Income-tax Officer, Coimbatore, who made the assessment on the company for the said years disallowed a portion of the company's claim on the ground that the cars were partly used by the managing agents of the company for their private purposes. The amounts so disallowed by him were as under : Rs. 1957-58 13,135 1958-59 16,390 1959-60 12,725 1960-61 12,500 1961-62 7,000 1962-63 8,000 This allowance was made under section 10(4A) of the Income-tax Act, 1922, and section 40(c) of the Income-tax Act, 1961. The Income-tax Officer, Coimbatore, communicated this information to the Income-tax Officer, Karaikudi, where the respondents in T. C. No. 314 of 1966 resided, with a view to include the proportionate share of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he validity of the reassessment proceedings under section 34(1)(b) of the Act of 1922 and under section 147 of the Act of 1961, but only questioned the legality of the inclusion of the proportionate expenses in the income of the assessees under section 2(6C)(iii) of the old Act and under section 2(24)(iv) of the new Act. The Tribunal posed for itself the following two questions for its consideration: " (1) Whether the amounts in question were benefits or perquisites obtained by the assessees from the company ? and (2) Whether the assessees came within the category of the persons described in section 2(6C)(iii) of the Indian Income-tax Act. 1922, or section 2(24)(iv) of the Income-tax Act, 1961 ?" With regard to the first question the Tribunal was of the view that the use of the cars by the assessees for their private purposes could not have been under an arrangement with the company, that the unauthorised use of the company's cars by the assessees could not be called a benefit or perquisite obtained from the company within the meaning of section 2(6C)(iii) of the old Act, and section 2(24)(iv) of the new Act and that the fact that a portion of the car expenses were disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney or not, obtained from a company either by a director or by any other person who has a substantial interest in the company (that is to say, who is concerned in the management of the business of the company, being the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent. of the voting power), and any sum paid by any such company in respect of any obligation which but for such payment would have been payable by the director or other person aforesaid." Section 2(24) of the new Act, which is the correct provision, reads : " 'Income' includes- (i) profits and gains ; (ii) dividend ; (iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17 ; (iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as found that the cars have been partially used by the assessees, but that the company has not authorised the user of the same by the assessees, and that even unauthorised user will constitute a benefit under section 2(6C)(iii) of the old Act. The learned counsel for the revenue, though concedes that the assessee cannot be brought in under section 2(6C)(iii) as "any other person who has a substantial interest in the company (that is to say, who is concerned in the management of the company, being the beneficial owner of the shares, carrying not less than 20 per cent. of the voting power)" submits that they would squarely come under that section as directors who had obtained a benefit from the company. As regards the contention of the assessee that without reopening the assessment of the managing agency firm and including the disallowed portion of the expenditure on cars in the income of the firm, it is not possible for reopening the assessments of the partners, the learned counsel for the revenue contends that the said point was not raised before the authorities below at any earlier stage, and that, therefore, such a point should not be allowed to be raised now. In the face of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the four partners made equal use of the company's cars for their private purposes without any material was not justified. Though there is no specific finding that the assessees had made use of the company's cars partly for their private purposes, the Tribunal proceeded to dispose of the case on the basis that the user, if any, should have been unauthorised and that such an unauthorised user will not constitute a benefit or perquisite as contemplated in section 2(6C)(iii) of the old Act. We also propose to dispose of the case on the basis that the assessees had made use of the company's cars for their own purposes but that such user was without authority of the company for purpose of considering the question as to whether section 2(6C)(iii) of the old Act or section 2(24) of the new Act will stand attracted in this case. We are not inclined to go into the question of fact as to whether the assessees had in fact used the company's cars for their private purposes. Though the assessees would contend before us that the authorities below were in error in assuming that the disallowance of a portion of the expenditure on cars in the company's assessment will automatically establish the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany by such director or other person. If there is an unauthorised taking of an advantage or a benefit by a director from the company without its authority or knowledge, the company can always insist on the restitution of such advantage or benefit taken by a director and enforce the same legally in a court of law. In such cases there is a definite legal obligation to restore the advantage or benefit taken by a director without the authority of the company and it is not possible to hold that such advantage or benefit can be brought to charge. Before a person could be said to have obtained a benefit or perquisite from a company there should be some legal or equitable claim, even though it be contingent or contested in nature. A mere receipt of money or property which one is obliged to return or repay to the rightful owner as in the case of a loan or credit, cannot definitely be taken as a benefit or perquisite obtained from the company. The benefit or advantage which might have been taken by a director or other person from a company without any claim of right has to be repaid or returned to the company discovers the unauthorise taking and seeks to enforce its restitution. The pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The employer's contribution towards the premiums were not perquisite allowed to the employee by the employer or amounts due to him from the employer within the meaning of section 7(1) read with clause (v) of the Explanation thereof." Though the observations in the said case were made in a slightly different context, they apply with equal force to the situation on hand. The words "benefit or perquisite" occurring in section 2(6C)(iii) of the old Act can only take in those authorised by the company. It is not possible to treat both authorised and unauthorised benefits alike as urged by the revenue. We are, therefore, of the view that the uiiauthorised user of the company's car by the assessees will not attract section 2(6C)(iii) as it will not constitute a benefit or perquisite obtained from the company. The leaned counsel for the assessee then contends that the only ground for disallowed given given by the Income-tax Officer at the time when he disallowed the expenditure on cars in the company's assessment was that the managing in agency have used the cars and that, therefore, without taxing the managing agency firm the partners cannot straightaway be taxed in respect of such d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer which formed the basis for the reopening of the assessments of the assessees and to assume that the assessees had made use of the cars of the company only in their capacity as directors. There were many other directors apart from the assessees. Therefore, it is not possible for us to hold that the assessees had made use of the company's cars in their capacity as directors of the mills. It must, therefore, be held that section 2(6C)(iii) cannot be brought in aid in this case where the unauthorised user of the cars of the company, if any, was by the assessees as managing agents of the mills and not in their capacity as directors. As already stated, the Income-tax Officer and the Appellate Assistant Commissioner who made the reassessments had only proceeded on the basis that the assessees used the cars in their capacity as managing agents. In our view, it is not open for the revenue now to change the front and say that the use of the cars by the assessees was as directors, merely because they could not be brought in under that section as persons who have substantial interest in the company. We, therefore, accept the view taken by the Tribunal in this case as correct. The questions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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