1990 (4) TMI 80 - AT - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 4,00,000 received by the assessee from the company through his relatives constitutes income under Section 2(24)(iv) of the Income-tax Act, 1961.
2. The applicability of Section 2(24)(iv) to the transactions in question.
3. The timing of the debt write-off and its relevance to the assessment year 1980-81.
4. The relevance of the benefit or perquisite concept under Section 2(24)(iv) in the context of the transactions.

Issue-wise Detailed Analysis:

1. Whether the sum of Rs. 4,00,000 received by the assessee from the company through his relatives constitutes income under Section 2(24)(iv) of the Income-tax Act, 1961:

The Income-tax Officer included the sum of Rs. 4,00,000 in the total income of the assessee under Section 2(24)(iv), which defines income to include "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." The CIT(Appeals) upheld this view, stating that the transactions were structured to confer a benefit of Rs. 4,00,000 from the company's funds to the assessee. However, the Tribunal found no justification for treating the sum as income under Section 2(24)(iv), as the assessee was merely repaying what he had lent to the company, and the benefit of the debt write-off accrued to the relatives, not the assessee.

2. The applicability of Section 2(24)(iv) to the transactions in question:

The Tribunal examined whether the assessee obtained any benefit from the company that could be construed as income under Section 2(24)(iv). It concluded that the liability created in favor of the assessee in the company's books was not without consideration, as the assessee had lent the sum to the company. The Tribunal emphasized that the benefit from the debt write-off accrued to the assessee's relatives, not the assessee himself. The Tribunal cited the Bombay High Court decisions in CIT v. Ramnath A. Podar and CIT v. M. R. Ruia, which held that benefits received by a relative of a director or a person with substantial interest in the company could not be treated as the income of the director or such person unless there was a legal fiction or deeming provision to that effect.

3. The timing of the debt write-off and its relevance to the assessment year 1980-81:

The Tribunal noted that the debts were written off on 30-4-1980, while the previous year under consideration ended on 31-3-1980. Therefore, the Tribunal questioned how the income derived from the benefit of the debt write-off could be assessed for the assessment year 1980-81. This timing issue further weakened the Department's case for including the sum as income for the relevant assessment year.

4. The relevance of the benefit or perquisite concept under Section 2(24)(iv) in the context of the transactions:

The Tribunal analyzed whether the loan transactions could be construed as a benefit or perquisite under Section 2(24)(iv). It found that the payments received by the assessee were not without consideration, as there was a promise to repay the amount. The Tribunal emphasized that the loan itself could not be treated as income under Section 2(24)(iv), as the assessee was not richer by the amount received due to the liability to repay. The Tribunal distinguished the provisions of Section 2(24)(iv) from Section 2(22)(e), which taxes loans as deemed dividends. The Tribunal concluded that only the value of the actual benefit obtained by the assessee from the company could be taxed as income under Section 2(24)(iv), and since there was no such benefit in this case, the sum of Rs. 4,00,000 could not be regarded as income.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting the addition of Rs. 4,00,000 from his income. The Tribunal held that the transactions did not confer any benefit on the assessee that could be taxed under Section 2(24)(iv) and that the timing of the debt write-off further precluded its inclusion in the assessment year 1980-81.