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TMI Blog1996 (3) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... ified in deleting the addition of ₹ 52,600 on the ground that the provisions of section 2(24)(iv) of the Income-tax Act, 1961, are not applicable in the assessee's case ? " T. C. No. 1259 of 1982: " 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the price paid by the assessee for the acquisition of four vehicles from Seethapathi Transports (P.) Ltd., at a consideration which is admittedly lower than the true market value is not a benefit within the meaning of section 2(24)(iv) of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in deleting the addition of ₹ 82,200 on the ground that the provisions of section 2(24)(iv) of the Income-tax, 1961, are not applicable in the assessee's case ? " In the case of Shri S. Varadarajan, for the assessment year 1975-76, the relevant accounting year being the financial year, the original assessment was completed on a total income of ₹ 51,640. Subsequently, it came to the notice of the Income-tax Officer that the assessee, who was a director of one Seethapat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed (RS) 1 MDT 6584 4,000 1,700 2 MDT 9248 16,000 7,000 3 TWT 1364 62,500 28,500 4 TNT 2453 1,00,000 46,000 Total 82,200 The Income-tax Officer processed the assessments of both the assessees together. The plea of the assessees before the Income-tax Officer was that there was no income, which could be included within the meaning of section 2(24)(iv). The assessees contended that the action of the Income-tax Officer in the case of the company in invoking section 52(2) was the subject of appeal and further it was urged that since the transport industry was facing a crisis due to impending nationalisation, there would have been no third party willing to purchase the vehicles, and, therefore, the prices at which the purchases were effected, did not result in any benefit to the assessees. The Income-tax Officer stated that the assessees had shown profits in the subsequent year and it was, therefore, clear that the trade was lucrative. Further, according to the Income-tax Officer it was common knowledge that the written down value arrived at by a lowing depreciation of 30 per cent. annually was much lower than the real market value. The Income-tax Officer also ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lower price paid could not be construed as benefit within the meaning of section 2(24)(iv). On the other hand, the Revenue contended that the buses being transferred on the written down value, which was much lower than the market value, the assessees had received a benefit, which was taxable. According to the Tribunal, there is nothing to link the transfer to the assessees at the written down value as an incident of the services rendered as director. Actually, the transfers were effected in view of the impending nationalisation. By transferring at a price which was lower than the market value as computed by the Income-tax Officer, there is no outgoing from the company and no receipt in the hands of the assessees. The assessees had only paid a lesser amount. Therefore, in the absence of a receipt, there can be no amount to be brought to tax under the general concept of income. Even if the assessees had derived a benefit, it is clearly in respect of a capital asset acquired. In the hands of the company it was held by the Tribunal that the provisions of section 52(2) did not apply because it was shown that no extra consideration has actually passed. Therefore, the finding cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the company. In order to tax the benefit received by the director from a company under section 2(24)(iv), it is also not necessary that the payment by the company is to its detriment. For these reasons, it was submitted that the Tribunal was not correct in holding that the difference between the price paid by the assessees on the basis of the written down value and the fair market value, cannot be taxed as benefit derived by the director of the company, under section 2(24)(iv) of the Income-tax Act, 1961. On the other hand, learned counsel appearing for the assessees, while supporting the order passed by the Tribunal, submitted that in the case of the company it was held that the provisions of section 52(2) of the Act were not applicable. According to learned counsel, the difference between the written down value paid by the assessees and the fair market value determined by the Income-tax Officer cannot be treated as benefit derived by the director, when the transaction was not done between the director of a company and the company. In fact, what happened was that the vehicles sold by the company were purchased by persons, who happened to be the directors of the company. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel appearing for the assessees submitted that the Tribunal was correct in deleting the additions made by the Income-tax Officer, by resorting to the provisions under section 2(24)(iv) of the Income-tax Act, 1961. We have heard the rival submissions. The fact remains that the assessees are directors of a transport company, known as Seethapathy Transports (P.) Ltd. They have purchased the buses sold by the company. The buses were sold at the written down value. The difference between the written down value and the fair market value was considered to be the benefit derived by the directors of the company under section 2(24)(iv) of the Income-tax Act, 1961. The written down value, the market value and the difference between both in respect of each of the buses are already stated in detail. Section 2(24)(iv) of the Income-tax Act, 1961, stated as under : " 'Income', includes-- (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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate company, had taken loans from the company for purchasing the shares in that company. The company debited interest to the assessee's account in its books. At the request of the assessee, the board of directors of the company passed a resolution dated March 28, 1957, to the effect that the amount due from the assessee be written off and the shareholders in the general meeting held on March 31, 1957, affirmed the board's resolution. The salary and dividends he received from the company as well as the interest payable by him were entered in the account books maintained by him. The previous year in these accounts ended on September 30. The question was, whether the amount written off by the company was a benefit or perquisite obtained from the company and could be assessed in the hands of the assessee as deemed income under section 2(6C)(iii) of the Act of 1922. While answering this question, the Delhi High Court held as under : " (i) as a result of the resolution of the company writing off the amount, the assessee had obtained a benefit within the meaning of section 2(6C)(iii) of the 1922 Act, corresponding to section 2(24)(iv) of the 1961 Act, and the benefit was as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29,793 was liable to income-tax in the hands of the assessee. The Legislature, when it dealt with the words "business, profession, vocation or occupation" intended to bring in all aspects of a person's activity as distinct from a chance pursuit. According to the facts arising in D. M. Neterwalla v. CIT [1980] 122 ITR 880 (Bom) from September, 1946, till September 30, 1956, the assessee was a whole-time director and manager of W. I. T. Ltd. On this date, he gave up the appointment with a view to work for a new concern proposed to be formed, viz., C. F. M. (P.) Ltd. The assessee was the proposed director-in-charge of the new company. On October 11, 1956, the assessee and four other persons as promoters applied to the Controller of Capital issues. The Controller of Capital Issues authorised the issue of capital and formation of the company, and sanctioned the issue of 600 shares, which were to be free of payment. The company was thereafter incorporated on December 7, 1956, with seven directors, one of whom was the assessee. The board of directors of the said company met on February 27, 1957 and appointed the assessee as director-in-charge on certain remuneration. The bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands of the assessee and brought the same to tax. On these facts, a question arose, whether the Tribunal was right in law in holding that the sum of ₹ 16,692 was not includible under the provisions of section 17(2) of the Income-tax Act, 1961. While answering this question, this court held that in cases where the company permits an employee to utilise its funds for his own benefit, it shall be deemed to have given a personal benefit to such employee and the benefit was not derived by the employee de hors his status as an employee. The assessee was, therefore, granted a benefit within the meaning of section 17(2)(iii), which could be added to the assessee's income. In CIT v. G. Venkataraman [1978] 111 ITR 444 (Mad), while considering the provisions of section 2(6C)(iii) of the Indian Income-tax Act, 1922, this court held that the benefit or perquisite contemplated in section 2(6C)(iii) cannot be money itself as (a) if it is money, the question of its value being taken into account or the benefit or perquisite being converted into money will not arise, and (b) the same section makes a distinction between "benefit or perquisite" on the one hand and "any sum p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the director or employee, as the case may be. 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 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 a benefit or perquisite for the purposes of section 2(24)(iv) of the Act. " In CIT v. Prem Narain Aggarwal [1982] 136 ITR 407 (Delhi), a question arose as to whether bonus or rights shares received by a director in respect of shares owned by him can be taxed as perquisite under section 2(24)(iv). While answering this question, the Delhi High Court held that even in the personal assessment of a director or a managing director rights or bonus shares received by him in respect of his own shares would not be perquisite within the meaning of section 2(24)(iv) of the Income-tax Act, 1961. There is a difference between rights shares and income. The bonus or rights shares are not received for nothing. In the case of a director or managing director, his personal position qua the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l) No. 7705 of 1980 filed by the Department against the judgment, on March 30, 1983. Our attention was drawn to a decision of the Calcutta High Court in CIT v. Salkia Transport Associates [1983] 143 ITR 39. According to the facts arising in this case, the assessee-firm took on hire 23 buses from a transport agency under an agreement dated March 29, 1963, with the object of plying the buses. Clause 10 of the agreement provided that the assessee shall keep the motor vehicles in good running condition, and, if necessary, shall replace the motor vehicles at its own cost, keeping the owners informed about it and that the vehicles replaced would be the property of the assessee. The assessee replaced five of the worn out buses by five new buses. The assessee paid to the transport agency a sum of ₹ 1,76,172 as part of the consideration representing the cost of one chassis and the cost of building bodies of the 23 buses and claimed deduction of the amount as revenue expenditure. On these facts, the Calcutta High Court held that when lump sum payments were made by the assessee-firm for taking the buses on hire, the expenditure was treated by the Department to be of capital nature and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services. It appears to me to correspond very closely in substance to a case where a company might have sold 1,000 tons of its product, if the company were a colliery company, to a director who was in the coal trade, at a price which was one-third of the market price of the day. There no question could arise that the person was receiving a profit in the nature of money's worth and he was receiving that profit in the nature of money's worth to the extent of the difference between the price he could get for it and the price he had actually paid. " A plain reading of the decisions cited supra would go to show that if a director is an employee, the value of any benefit or amenity granted by the company would be taxable as salary. If the director is not an employee and his remuneration is assessable under section 56 as income from other sources, the value of the benefit or perquisite would still be assessable as income within the meaning of section 2(24)(iv) of the Income-tax Act, 1961. According to the facts arising in the present case, there is difference between the written down value of the buses, which were sold to the assessee by the company and the fair market valu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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