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TMI Blog1998 (4) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, Rs. 86,148 for the assessment years 1972-73 and 1973-74 ? 2. Whether, on the materials on record, the Tribunal is correct in estimating the personal expenses of the assessee at Rs. 3 lakhs instead of Rs. 5,41,870 the utilisation of which attracted the application of section 17(2)(iii) ? 3. Whether, the Tribunal is correct in holding that no amount will fall for assessment as benefit or amenity or perquisite under section 17(2)(iii) as the principal amount will have to be assessed as deemed dividend under section 2(22)(e) of the Act ?" Tax Case No. 879 of 1983 (assessment year 1974-75) : "Whether the Tribunal is correct in holding that the interest free use of the company's fund by the assessee-managing director, would not amount to benefit or amenity or perquisite within the meaning of section 17(2)(iii) of the Income-tax Act and, accordingly, in deleting the sum of Rs. 64,359 from the assessment for the assessment year 1974-75 ?" Tax Cases Nos. 1184 and 1185 of 1984 (assessment years 1976-77 and 1979-80) : "Whether, on the facts and in the circumstances of the case, the Income-tax Officer was not justified in assessing the perquisite arising out of the interest free ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisites in various assessment years, but the interest at rates ranging from 7 per cent. to 9 per cent. was determined and additions were made in the individual assessment of the assessee for the various assessment years which are the subject-matter in the present tax cases. The assessee went in appeal before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner went into the matter in detail and, according to him, the assessee was keeping the company's books and in the absence of any specific finding that the moneys were taken by the assessee for her own benefit, the interest cannot be assessed in the hands of the assessee. According to the Appellate Assistant Commissioner, the moneys were kept in her custody and there was nothing to show that the assessee had obtained any loan on which the assessee was obliged to pay interest and the moneys kept by the assessee for the benefit of the company cannot be treated as moneys borrowed by the assessee. Further, according to the Appellate Assistant Commissioner no benefit or advantage was derived by the assessee by employment of these moneys and the concealed profits of the company were lying in the hands of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the assessee could not have spent the entire expenditure for her personal benefit. The Tribunal, therefore, estimated that out of the available amount of Rs. 5,41,870 a sum of Rs. 3 lakhs could be allocated as expenses of the assessee towards her personal use and the balance as pertaining to the company. The Tribunal, therefore, observed that the assessee must be treated as having received the amount of Rs. 3 lakhs which was spent for her personal benefit and to the extent of the amount withdrawn from the company and utilised for own purposes, the amount should be treated as an advance not returned or actual dividend declared. The Tribunal noticed the records for the assessment years 1966-67 to 1968-69 and held a slim of Rs. 17,630, Rs. 42,984 and Rs. 92,026 as amounts advanced to the assessee for the assessment years 1966-67, 1967-68 and 1968-69 and the sum of Rs. 1,47,460 for the assessment year 1969-70 should be treated as dividends under section 2(22)(e) of the Act. The Tribunal also gave a finding that for the assessment year 1969-70 as against a sum of Rs. 1,84,797 treated as dividends, only a sum of Rs. 1,47,460 should be treated as dividends. The Tribunal, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is some evidence to show that it represented business expenditure. It is an admitted fact, according to learned senior counsel, that the entire credits represented the undisclosed income of the company and the normal presumption is that the company would have claimed expenditure out of its disclosed business income and it cannot be presumed that the business expenditure would be met by undisclosed income as it is always advantageous for the company to claim deduction of expenditure against the disclosed income to reduce the profits. The Tribunal, according to learned senior counsel, without any material, came to the conclusion that a portion of the expenditure would be the company's expenditure. According to learned senior counsel, the Tribunal proceeded merely on the basis of assumption and there is no material to support any of its findings. He also submitted that the view of the Appellate Tribunal that once the amounts were assessed as dividend income, the interest income on the loan cannot be assessed under section 17(2) of the Act is plainly erroneous in law. According to learned senior counsel, as per the provisions of section 2(22)(e) of the Act, only for the limited pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56, and submitted that there was no resolution or authorisation in favour of the assessee permitting her to use the money and in the absence of any authorisation by the company, he submitted, even assuming that the money was spent by the assessee for her personal use, it must be taken that she was not authorised to use the money and on the basis of the decision of this court in CIT v. A.R. Adaikappa Chettiar [1973] 91 ITR 90, he submitted, notional interest cannot be assessed in the hands of the assessee. He further submitted that the Department must prove that the benefits had been provided by the company and mere user of the money with the knowledge of the company would not render the assessee liable to be taxed under section 17(2) of the Act. He also submitted that under the provisions of section 2(22)(e) of the Act, when an amount is treated as dividend and once it is taxed under the head "Other sources", it is not permissible to tax the same amount as notional interest under some other provisions of the Act. He, therefore, submitted that the Tribunal has not rendered any finding with reference to the question whether the assessee had either authorised or unauthorised use of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticed that the Income-tax Officer had bifurcated the transactions in the book holding all the receipts to be that of the company and the expenditure as that of the individual assessee and gave a finding that the company itself did not claim under the Voluntary Disclosure Scheme any of the expenditure which would mean that it did not correlate with the expenditure. But the fact remains that the company had not claimed any of the expenditure as its own in the petition filed under the Voluntary Disclosure Scheme. As rightly observed by learned senior counsel for the Revenue, the company filed the petition under the Voluntary Disclosure Scheme after the account books were seized both from the company premises and the residential premises of the assessee and when the entire picture was clear and when all the materials came into the possession of the Department, the company came forward with the disclosure under the Voluntary Disclosure Scheme and it was not the case of the company at that point of time or at any later point of time that the expenses were incurred by or on behalf of the company and in the absence of any material or evidence or even claim by the company, the criticism mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the book unless there is evidence to show that in entirety or a pail of it represents business expenditure of the company. Fourthly, the assessee has not even pleaded that there was an independent source of income which was not disclosed to meet her personal expenditure. The Tribunal, only on the basis of assumption that it would be difficult to imagine that she could have spent nearly Rs. 50,000 in a month, seems to have drawn its own conclusion and estimated that the sum of Rs. 3 lakhs could alone be allocated as expenses of the assessee towards her personal expenditure and the balance as having been that of the company. This view of the Appellate Tribunal, in our opinion, is not based on any material and it is not a reasonable one on the facts of the case. The view of the Appellate Tribunal that the sum of Rs. 3 lakhs was withdrawn by the assessee from the company and utilised by the assessee for her personal expenses, and it could not be assessed as perquisite or benefit under section 17(2) of the Act as the amount was assessed as dividend income is also not correct in law. The Tribunal was considering the assessment years 1972-73 and 1973-74 and it has no jurisdiction to g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the shareholder and if it is otherwise, then, the question of set off would not arise at all. Therefore, the view of the Appellate Tribunal that the deemed dividend under section 2(22)(e) of the Act became the income of the shareholder is unsustainable in law. The decision of the Supreme Court in the case of CIT v. C. P. Sarathy Mudaliar [1972] 83 ITR 170 supports our conclusion. In C. P. Sarathy Mudaliar's case [1972] 83 ITR 170, the Supreme Court was dealing with a case of a loan granted to a Hindu undivided family and the question that arose before the apex court was whether the loan could be treated as dividend income of the family or that of the registered shareholder and in that context, the Supreme Court made the following observations which are pertinent to the facts of the case : "Section 2(6A)(e) gives an artificial definition of 'dividend'. It does not take in dividend actually declared or received. The dividend taken note of by that provision is a deemed dividend and not a real dividend. The loan granted to a shareholder has to be returned to the company. It does not become the income of the shareholder." The above observation of the Supreme Court makes it cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r personal purposes and that part of the order of the Appellate Tribunal has become final. We have already held that in so far as the balance of Rs. 2,41,870 is concerned, there is no material for the Appellate Tribunal to come to the conclusion that the expenses were that of the company. We have already held that the view of the Appellate Tribunal that there was no obligation on the part of the assessee to return the amount is not correct in law and we have also held that there is no provision under the Act to treat the advance as the property of the assessee. The Appellate Tribunal, therefore, has not considered the question whether the interest amount can be treated as perquisite for any assessment year in question. Since we are holding that the view of the Appellate Tribunal that the amount once taxed as dividend under section 2(22)(e) of the Act is the property of the assessee is erroneous, it is necessary for the Appellate Tribunal to consider the question whether any interest accrued, though notional, on the amount said to have been advanced by the company to the assessee, can be regarded as perquisite or not. Mr. Jayaraman, learned senior counsel for the Revenue, relied u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orised. Therefore, it is for the Appellate Tribunal to find out the facts and on the basis of such a finding, the question whether the interest on the loan advanced by the company to the assessee can be regarded as perquisite or not, has to be decided in one way or the other. Therefore, we direct the Appellate Tribunal to decide the question whether the loan granted by the company in favour of the assessee is authorised or unauthorised. We have already noticed that the Appellate Tribunal has recorded a finding that a sum of Rs. 3 lakhs which was withdrawn by the assessee from the company and spent by the assessee for her own use could be treated as an advance. We also noticed that the assessee has not challenged that part of the order of the Appellate Tribunal, and that the finding regarding the advance to the extent of Rs. 3 lakhs has become final and only with reference to the balance of Rs. 2,41,870, the Tribunal has to decide the question whether there was any advance by the company to the assessee and with reference to the entire amount of Rs. 5,41,870 whether it was an authorised loan or unauthorised loan. It is now necessary to consider the submission made by learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indication that if any dividend has been paid by the employer and if it is set off against the deemed dividend to the extent to which it is set off, the amount paid as dividend is not treated as dividend. The above provision gives an indication that the deemed dividend is not a dividend for all purposes of the Act, but only for the purpose of making an assessment on the amount of loan advanced by the company in favour of the shareholder, to the extent of the accumulated profits of the company. Therefore, if the deemed dividend is also the dividend in the normal sense, the question of set off of the deemed dividend against the actual dividend would not arise at all. Therefore, we are of the view that it is incorrect to state that the amount is treated as dividend for all purposes of the Act. Thirdly, the question raised by learned counsel for the assessee is also academic, because during the assessment years 1972-73 and 1973-74, no amount was assessed as deemed dividend under section 2(22)(e) of the Act and only perquisite on the interest of the loan was assessed under section 17(2) of the Act. Since the amount had not been assessed under section 2(22)(e) of the Act, the further q ..... X X X X Extracts X X X X X X X X Extracts X X X X
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