TMI Blog1983 (9) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... ribution to all members of such scheme be given to him as per rules of the company". The previous year for the asst. yr. 1976-77 ended on31st March, 1976. The balance-sheet of M/s Pure Drinks (New Delhi) Ltd., Patiala as Rs. 45,66,214.31 p. due from Directors and companies under the same management (as per Schedule C annexed). Schedule C disclosed that as on 31st Oct., 1975 a sum of Rs. 9,95,917.75 p. was due by the assessee to the aforesaid company and similarly a sum of Rs. 6,34,732.28 p. was due by S. Daljit Singh, brother of the assessee and whole-time Director-Chairman of the said company. The assessee had more than one account in the books of the aforesaid company as per details given below: Plant NO. I Account No. I Dr. Rs. 2,864.50 Plant No. II Account No. II Dr. Rs. 5,93,926.00 Plant No. II Account No. II Dr. Rs. 4,46,254.25 . . Cr. Rs. 10,43,044.75 . . Rs. 27,005.59 Plant No. II Account No. I Rs. 10,16,039.25 Though the assessee s account stood overdrawn to the extent of Rs. 10,16,039, as indicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any transactions and as such, the question of treating the interest not charged as "perquisite" under s. 17(2) of the Act in the hands of the assessee does not arise. We may also submit for your kind consideration that on the day when the above referred payments were made by the Company on behalf of S. Charanjit Singh, there were cash balances on hand to the extent of more than Rs. 3 lakhs. The Company has common pool in the form of daily cash collections and the bank balances and it is not possible to bifurcate as to which money has been passed on to the director free of interest. Under the circumstances, explained above, the provisions of s. 17(2) of the IT Act cannot be made applicable in this case". Before the ITO it was also submitted that the aforesaid company had general reserves and surplus amounting to Rs. 1,41,15,702 and as such the amount advanced to the assessee was out of the company s own earnings and there was no law which prohibited interest-free loans being advanced to an employee director of the company. It was also argued that the system of paying interest on borrowings and charging interest on advances made was not followed by the company in respect of inter-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed action to bring to tax the debit balance in the account of the assessee in the books of the aforesaid company as divided under s. 2(22)(e) was dropped by the ITO himself. It was then submitted that the grant of interest-free loan to the assessee by the aforesaid company would not be covered by the provisions of s. 17(2)(iii) were also not applicable in the case of the assessee because M/s Pure Drinks (New Delhi) Pvt. Ltd. had not entered into any undertaking to grant advances free of interest by virtue of the contract of the assessee s employment with the said company as a Director. According to the learned counsel for the assessee, in the absence of a contract between the said company and the assessee for the grant of interest-free loans, no amount could be said to have been advanced, granted or provided by the company to the assessee and no amount, therefore, could be taxed as a perquisite in his hands. The use of the words ".....granted or provided free of cost or at concessional rate" occurring in s. 17(2)(iii) was emphasised and it was argued that the granting or providing of a facility had to be a deliberate act on the part of the company. It was submitted that if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New Delhi) Pvt. Ltd. He emphasised the fact that the assessee was a member of the Employees Provident Fund and Gratuity Scheme. He submitted that the grant of an interest-free loan by M/s Pure Drinks (New Delhi) Pvt. Ltd. to the assessee was a valuable benefit and this benefit or amenity was definitely a perquisite taxable within the meaning of that term under s. 17(2)(iii)(a). According to the learned Departmental Representative, the CIT(A) erred in following the judgments in CIT vs. A.R. Adaikappa Chettiar and CIT vs. G. Venkataraman. He made an alternative submission that if the amount in question was not held to be taxable under s. 17(2)(iii), it should be brought to tax under s. 2(24)(iv). He sought permission to raise the following additional ground of appeal" "That alternatively the addition made by the ITO may be sustained under s. 2(24)(iv) of the IT Act, 1961". He referred to the Commentary by Chaturvedi Pithisaria on IT Law , Third Edition at pages 656 and 657 under the heading benefit or amenity to certain employees s. 17(2)(iii)". According to the learned Departmental Representative, the loan given by the aforesaid company to the assessee was not unauthorised. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nity had a particular price and the assessee provided the same benefit or amenity at a concessional rate. He submitted that the provisions of s. 17(2)(iii) were, therefore, not applicable. He also submitted that the CIT(A) had rightly referred to the judgments in CIT vs. A.R. Adaikappa Chettiar and CIT vs. G. Venkataraman. He submitted that unless there was a contractual obligation between the company and the assessee, no amount should be considered as taxable in the hands of the assessee either under s. 17(2)(iii) or under s. 2(24)(iv). He submitted that the judgments in Lakshmipat Singhania vs. CIT, UP, and CIT vs. Nar Hari Dalmia, were distinguishable. He also submitted that in CIT vs. C. Kulandaivelu Konar, there was a nexus between the money borrowed by the company and the advances made to the director. He referred to the following observations at page 634 of the report: "Learned counsel for the assessee faintly suggested that in this case also there is nothing to show that the assessee was permitted legally or by any resolution of the company to overdraw in his account. But, unfortunately, for the learned counsel, this point was not raised before any of the authorities of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be said to have been granted or provided free of cost, then the same amount in the hands of the company should have been secured by the company by incurring cost. It is further his submission that so far as the company is concerned, whether loans were taken should have been accepted as having been taken for purposes of business and no interest has been disallowed. It is also his submission that it was out of its own funds that the company granted loans to the assessee as well as Shri Daljit Singh. A chart has been filed giving the following details for different years: Year ended General Reserve Surplus Bank Loans cash on hand Deposits with banks 1 2 3 4 5 31-10-1965 17,95,237 5,59,921 2,97,639 70,266 31-10-1966 29,69,340 3,98,247 1,49,963 6,64,239 31-10-1967 39,65,406 13,04,518 1,61,118 59,320 31-10-1968 57,06,833 13,25,963 3,15,203 Dr.74,165 31-10-1969 96,09,434 16,60,227 3,30,379 24,58,961 31-10-1970 1,30,60,217 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney to the Director without charging any interest. Since the reserves and surpluses were the company s own moneys and it does not cost the company anything in terms of interest, the provisions of s. 17(2)(iii) would not be applicable. The provisions of s. 2(24)(iv) would also not be applicable for providing interest-free loans to the Directors. Thus there was no contractual obligation between the company and the Directors. The judgments in CIT vs. A.R. Adaikappa Chettiar and CIT vs. G. Venkataraman support the assessee s case. 10. The judgments in CIT vs. Kulandaivelu Konar and Addl. CIT vs. Late A.K. Lakshmi Ors. would appear to support the Revenue s case but on a careful consideration of these judgments, they are distinguishable. In CIT vs. C. Kulandaivelu Konar the assessee was a Managing Director of a company called Chockan Transports (Pvt.) Ltd. He was carrying on business of bus transport. As and from19th Aug., 1959the company which was formed for that purpose, took over the assets and liabilities of this business. After fixing the value of various assets and also taking into account the liabilities, the result was incorporated by showing certain debits against the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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