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TMI Blog2007 (8) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... : ASHIM KUMAR BANERJEE., TAPAS KUMAR GIRI. JUDGMENT ASHIM KUMAR BANERJEE J.-Is a loan given by a company to its director without any interest taxable under the provisions of the Income-tax Act, 1961 (hereinafter referred to as the "said Act of 1961")? These two appeals involve the above moot question to be answered by us in this judgment. The facts of the two appeals are identical. Hence, we are disposing of both appeals by this common judgment. Facts of the case The appellants in both the appeals are assessed to income-tax for the relevant assessment year. After the assessment was complete notice under section 148 was issued for reopening the assessment on the ground that they derived benefit out of interest-free loan granted by two companies. It was alleged that the assessee Ishran Devi Oberoi obtained benefit of the loan granted to her husband Shri Mohan Singh Oberoi by two companies namely M/s. Hotels 1938 Limited and M/s. Northern India Caterers Pvt. Ltd. free of interest. According to the Revenue, since the concerned assessee obtained benefit of such loan through her husband free from interest such benefit should be treated as income and should have been reflect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... another assessment years, the learned single judge of this court, relying on the decision in the case of CIT v. P. R. S. Oberoi [1990] 183 ITR 103 and V. M. Salgaocar and Brothers P. Ltd. v. CIT [2000] 243 ITR 383 allowed the writ petition by the judgment and order reported in Ishran Devi Oberai v. ITO [2001] 250 ITR 362 (Cal). Dr. Pal in support of his contention also relied upon the decisions in the cases of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in [2007] 291 ITR 500 and Lily Thomas v. Union of India reported in [2000] 6 SCC 224. Contention of the Revenue Mr. Deepak Kumar Shome, learned senior counsel appearing for the Revenue on the other hand contended that the facts involved in CIT v. P. R. S. Oberoi [1990] 183 ITR 103 (Cal) and V. M. Salgaocar and Brothers P. Ltd. v. CIT [2000] 243 ITR 383 (SC) were totally different than that of the present appeals. Mr. Shome further submitted that the reason for reopening the assessment was detailed in the affidavit-in-opposition filed by the Revenue before the learned single judge. No affidavit-in-reply was filed to confront such allegation. Hence, the contentions of the Revenue as stated in the affidavit-in-oppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 'benefit' and/or 'perquisite' did not include the enjoyment of loan or credit, free of interest or at a concessional rate. This aspect has been recognised by the statute itself and to bring such items in the net of taxation, the law was amended by the Taxation Laws (Amendment) Act, 1984. By this amendment, as already indicated, a new sub-clause (vi) was inserted in section 17(2) and, similarly, another sub-clause (vi) was inserted in clause (b) of Explanation 2 to section 40A(5). The effect of these amendments, which were made effective from April 1, 1985, was to ensure treatment and taxation as perquisite of the value of an amount calculated on a particular basis in a case where an employee receives loan for certain prescribed purposes either free of interest or at a rate which was lower than the specified rate. However, subsequently, the Finance Act, 1985, omitted the aforesaid amendments made by the Taxation Laws (Amendment) Act, 1984, with effect from the date of its insertion, namely, April 1, 1985, with a view to provide relief to salaried taxpayers. The very fact that the statute had to be amended at the first instance to bring the said item within the purview of the expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of loan to the employee without charging any interest does not amount to any benefit for the purposes of section 17(2) of the Act. The omission of sub-clause (vi) in section 17(2) and also subclause (vi) of Explanation 2(b) to section 40A(5) of the Act from the date of its proposed insertion also was to give relief to salaried taxpayers so that granting of-loan to an employee without charging any interest would not be treated as benefit for the purposes of section 17(2) of the Act. Section 17(2) of the Act by an inclusive definition, sought to include loans given by an employer to its employee for purchase of a building or site or a site with building or for purchase of a motor car without charging any interest or at a concessional rate, as perquisite. The word 'includes' is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. It is a cardinal rule of interpretation that it by an inclusive definition, the meaning of the word is to be enlarged, it would receive a strict interpretation. It is also a cardinal rule of construction of a fiscal statute that even if two views are possible, the view which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the specific purpose of providing loans to its directors but does not charge interest from them, or where the financial condition of the company is such that utilisation of the funds of the company by its directors in the form of loan without payment of interest to the company will be detrimental to the interest of the company, in such cases, grant of interest-free loan to the directors may be regarded as a benefit provided by the company to its directors." In the case of V. M. Salgaocar [2000] 243 ITR 383 the Supreme Court quoted with approval the relevant observations of the Division Bench in P. R. S. Oberoi [1990] 183 ITR 103 (Cal). The Supreme Court put emphasis on the finding of the Tribunal that no evidence was produced by the Revenue to show that the borrowed funds were directly diverted for the benefit of the directors. According to the Supreme Court, the High Court was not correct to go beyond such finding and the appeal of the assessee was accordingly allowed. Following the aforesaid two decisions being P. R. S. Oberoi [1990] 183 ITR 103 (Cal) and V. M. Salgaocar [2000] 243 ITR 383 (SC), the learned single judge in Ishran Devi Oberai [2001] 250 ITR 362 (Cal), held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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