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TMI Blog2014 (6) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer that as per the Company's balance sheet, the total amount of secured and unsecured loans is Rs.96,16,128/- but the loan amount granted to the assessee is larger in magnitude compared to the quantum of borrowed funds and therefore the company need not have incurred interest cost but for the diversion of funds to the assessee. 2.3. The CIT(A) ought to have appreciated that in this case, there is clear evidence brought out to prove that borrowed funds have been diverted for the benefit of the director and therefore, the facts of the case are distinguishable from that of V.M.Salgaocar & Bros. P Ltd. (243 ITR 383) (SC) and hence inapplicable to the facts of the case. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored." 2. The Departmental Representative submitted that the sole issue involved in the appeal of Revenue is that the CIT(A) erred in holding the addition of Rs.18,71,852/- made as perquisite under section 2(24)(iv) of the Income Tax Act, 1961 (herein after referred to 'the Act'). 3. Brief facts of the case are that the assessee is a Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by clause (iii) of section 17(2). In fact, Circular No.421 dated June 12, 1985 conveyed the meaning that these loans are not to be included in the concept of 'perquisite' under section 17(2), as a measure of relief to the salaried taxpayers. The clear intention of the CBDT behind this circular issued by it will have to be respected and implemented by the income tax authorities. It was further argued that in the present case of the assessee, there is no interest free loan and actually interest liability has been crystallized and recognized in Assessment Year 2012-13consequent to an agreement reached with the club as evidenced by the minutes. Notwithstanding this unassailable position on record, if the loan granted to an employee without charging any interest or by charging interest at a concessional rate amounts to a benefit for the purpose of section 17(2)(iii) of the Act, then there was no need for Parliament to introduce, by the Taxation Laws (Amendment) Act, 1984, the new sub-clause (vi) in section 17(2) of the Act and then omit it subsequently by the Finance Act of 1985 with effect from the date of its proposed operation. This was done with a view to give relief to salaried ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that in the present case, there was nothing on record to show that the club borrowed any money for making advance to the assessee and/or paid any interest on the overdrawn amount which, but for such payment, should have been paid by the assessee. It is also clear that an arrangement existed between the assessee and the said club to charge interest in terms of resolution of the board of directors and a loan agreement and further the club had received substantial membership fees on which it never paid any interest and from which the impugned advance was given. The interest bearing amount obtained by the assessee from the club were not benefits or perquisites within the meaning of section 2(24)(iv) of the Act. It was argued that Hon'ble Calcutta High Court in CIT Vs. P.R.S.Oberoi 183 ITR 103(Cal.) had held that interest free advances by itself cannot be held to be a 'perquisite'. 4.3. It was further argued that in V.M.Salgaocar & Bros. P Ltd. (243 ITR 383) (SC) it was held that where the employer has advanced any loan to the employee and either no interest is charged by the employer on the amount of such loan or interest is charged at a rate lower than the rate of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diverted for the benefit of the directors, non-charging of interest on the debit balance in the running account would amount to providing perquisite. The High Court observing that it was impossible to expect the Revenue to prove that the monies lent to the directors were from the borrowed monies because ordinarily the funds borrowed by a company would fall within the hotchpot and intermingle with its own funds, held in favour of the Department, although, by an earlier forder in the case of the same company for the assessment year 1980-81, the High Court had confirmed the deletion of the addition made under section 40A(5) on account of non-charging the deletion of interest on debit balances of the directors. The assessee company appealed to the Supreme Court against the judgement of the High Court for the assessment year 1979-80. The Apex Court held allowing the appeal, that the High Court was wrong in brushing aside the consideration of the Amending Act, 1984, and its subsequent repeal by the Finance Act, 1985, by terming them of no consequence. In observing that it was impossible to expect proof from the Revenue that the monies that were advanced to directors were monies that were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.18,71,852/-. 6. Ld. D.R argued that the appeal is for the assessment year 2008-09. The order of assessment was passed on 26.12.2011. The assessee has paid interest in the assessment year 2012-2013, which was an after-thought. He further argued that the assessee company has paid interest to bank of Rs.18,71,852/- borrowed from the bank. If the Chennai Corporate Club Private Ltd. would not have advanced this large sum of money to the assessee, it would not have been required to pay any interest to the bank. Therefore the Assessing Officer was justified in treating the same of Rs.18,71,852/- as a perquisite in the hands of the assessee and adding the same to the income of the assessee. He further submitted that the amount of entrance free and membership fee should have been utilised for the benefit of members and not given as interest free advance to the assessee. 7. On the other hand, the Authorised Representative of assessee argued that no material was brought on record by the Assessing Officer to show that the borrowed funds were utilized by the Chennai Corporate Club Private Ltd. to give advance to the director of the company. Without proving the nexus of borrowed funds havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer as this interest expenditure was an obligation to the assessee, which was met by the company, therefore, the said interest expenditure of the company should be treated as income of the assessee under section 2(24)(iv). 9. On appeal, Ld. CIT(A) found that the loan taken by the assessee was repayable with interest as evident from the return of income of Chennai Corporate Club Private Ltd. for the assessment year 2012-13 wherein the assessee had paid interest of Rs. 10 lakhs. Further Ld. CIT(A) found that the said company, Chennai Corporate Club Private Ltd. has not borrowed any amount for advancing money to the assessee and the assessee had received the amount in question from members entrance fees and members membership fees. Further, Ld. CIT(A) relying upon the decision of Hon'ble Supreme Court in the case of V.M.Salgaocar & Bros. P Ltd. (supra) and of Hon'ble Calcutta High in CIT Vs. P.R.S.Oberoi (supra) held that the addition of Rs.18,71,852/- as perquisite was not justified and accordingly deleted the same. 10. The Revenue is in appeal before us against the above order of the Ld. CIT(A). Ld. Departmental Representative contended before us that the payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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