1984 (2) TMI 127 - AT - Income Tax

Summary

Issues:
Whether interest-free advances taken by the assessee amount to a perquisite.

Analysis:
The case involved the question of whether interest-free advances taken by the assessee, who was a director in a company, would amount to a perquisite. The Income Tax Officer (ITO) had added estimated interest on the advances as perquisites. The Appellate Assistant Commissioner (AAC) upheld this decision, relying on a decision of the Madras High Court. The assessee appealed, arguing that there was no question of perquisites as the company had not borrowed any funds for the advances. The assessee's counsel contended that as the company had not incurred any expenditure in advancing the interest-free loans, there should be no corresponding perquisite in the hands of the assessee. The department's representative argued that the assessee had received a benefit without any cost, which constituted a perquisite.

The Tribunal considered the provisions of section 17(2)(iii) of the Income-tax Act, 1961, which define perquisite to include benefits provided free of cost to employees by a company. The Tribunal rejected the assessee's argument that there was no distinction between perquisites under items (a) and (c) of the provision. It highlighted that under item (a), any benefit from a contract with a company would be considered a perquisite, irrespective of whether it was a service contract. The Tribunal distinguished previous Tribunal decisions related to item (c) as not applicable to the current case.

The Tribunal referenced a decision of the Madras High Court, which held that interest-free advances to employees constituted a perquisite, regardless of whether the funds were borrowed or company-owned. The Tribunal emphasized that the key consideration was whether the employee received a benefit without any cost. It dismissed the assessee's argument that the perquisite value should be nil due to the company not incurring any interest expenses, stating that the absence of rules did not prevent the statutory provisions from applying. The Tribunal concluded that the amount in question had been properly brought to tax, and therefore, the appeals were dismissed.