TMI Blog2014 (6) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... ow that any interest expenditure was actually incurred by the company in question for or on behalf of the assessee - interest free money in the form of entrance fee and membership fee available with the company was more than the advance received by the assessee from the said company – thus, there was no reason to interfere with the order of the CIT(A) – Decided against Revenue. - I.T.A. No. 668 /Mds/2013 - - - Dated:- 4-9-2013 - Shri N. S. Saini And Shri Vikas Awasthy,JJ. For the Appellant : Shri S. Das Gupta, JCIT D.R. For the Respondent : Shri N. Quadir Hoseyn, Advocate ORDER Per N. S. Saini, Accountant Member: This is an appeal filed by the Revenue against the order of CIT(A)-IX, Chennai dated 21.12.2012. The Revenue has raised the following grounds of appeal. 1. The order of the learned Commissioner of Income Tax(A) is contrary to law and facts and circumstances of the case. 2. The CIT(A) erred in deleting the addition of Rs.18,71,852/- made as perquisite under section 2(24)(iv) of the Act. 2.1.The CIT(A) erred in holding that the Assessing Officer was not justified in treating the interest of Rs.18,71,852/- as perquisite as the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 18,71,852/- as interest loan. The Assessing Officer therefore treated this amount of interest expenditure of Rs.18,71,852/- debited in the books of the company as perquisite in the hands of the assessee by invoking the provisions of section 2(24)(iv) of the Act and added the same in the income of the assessee. 4. Being aggrieved by the said order of the Assessing Officer , the assessee filed an appeal before the CIT(A). The assessee submitted that Section 17(2) of the Act purports to include certain benefits and amenities in the term perquisite . There is no exhaustive definition of the term perquisite for the purposes of section 17. Section 17(2)(iv) was inserted by the Taxation Laws (Amendment) Act, 1984, with the particular object to tax salaried taxpayers by treating as a perquisite interest free loans or loans for which interest charged is at a concessional rate, where the loan is advanced by the employer to enable the construction of a house by the employee. But very soon after its introduction this provision was deleted by section 6 of the Finance Act, 1985, with a clear statement that deletion was necessary to grant relief to salaried taxpayers. It was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. It was further submitted that clause (24) of section 2 of the Act gives an inclusive definition of income. Under sub-clause (iv) thereof, 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 their relatives, is treated as income. The intention of the Legislature seems to be very clear, that the expression benefit and/or perquisite does not include the enjoyment of loan or credit, free of interest or at a concessional rate. The very fact that the statute had to be amended at the first instance to bring the said item within the purview of the expression perquisite and it later sought to delete the same from the date of its insertion clearly shows that Parliament does not intend treating interest free loan or loan at a concessional rate as any benefit or perquisite granted or provided by the lender company 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 with effect from the date of their insertion, namely, April 1, 1985. Clause 20 of the memorandum explaining the provisions of the Finance Bill, 1985 [1985] 152 ITR (st.) 91, 162), stated that as a measure of relief to salaried taxpayers, the Bill sought to omit the aforesaid provision with effect from the date of its proposed insertion, namely April 1, 1985. The CBDT circular No.421 dated June 12, 1985, incorporating the objectives sought to be achieved by omission of clause (vi). 4.4. It was submitted that in the case of V.M.Salgaocar Bros. P Ltd. (243 ITR 383) (SC), the Hon ble Supreme Court observed that for the assessment year, the A.O. found that the assessee was borrowing large sums apparently without interest while the company was paying interest for on funds borrowed by it. The interest was offered by the company as deductible expenditure. Therefore, it was held that to the extent of the interest that the company could have charged, a benefit was granted to the directors and hence the said amount of notional interest on the amount advanced to the directors was not to be deducted as an expenditure in view of section 40A(5) of the Act. The CIT(A) confirmed this on appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the company and brought the same to tax in the hands of the assessee director. The High Court held in favour of the assessee director. The Department appealed to the Supreme Court. Dismissing the Department s appeal, the Supreme Court held that non charging of interest could not be regarded as a perquisite in the hands of the employeedirectors who were advanced interest free loans by the company. V.M.Salgaocar Bros. P Ltd. (243 ITR 383) (SC). 5. The CIT(A) after considering the submissions of the assessee held that the Assessing Officer was not justified in treating the interest of Rs.18,71,852/- as perquisite under section 2(24)(iv) of the Act as the assessee had taken funds from the Chennai Corporate Club Private Ltd. which are repayable with interest. This was evident from the return of income filed by the Chennai Corporate Club Private Ltd. for assessment year 2012-13 wherein the appellant had paid interest to the tune of Rs.10,00,000/-. In other words, the assessee has not taken interest free advances and it is also seen that the Chennai Corporate Club Private Ltd. has not borrowed any money for making advance to the assessee. The assessee has drawn the advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor. He further referred to the fixed asset schedule of the assessee of Chennai Corporate Club Private Ltd. and submitted that Rs. 3.03 crores were utilized by it for making addition to the fixed assets of the company during the year. He submitted that the assessee had borrowed funds of Rs. 49.66 lakhs in bank OD account and Rs. 45.50 lakhs in banks term loan account and unsecured loan of Rs.99.197/-totaling to 96.16 lakhs and the same was utilized by the assessee in acquisition of fixed assets during the year under consideration. He thus submitted that no borrowed funds was utilized in advancing the amount to the assessee and also pointed out that advance was given to the assessee on interest and the assessee had paid Rs. 10 lakhs interest as evidenced by the return of income filed by the Chennai Corporate Club Private Ltd. for assessment year 2012-13 and therefore, supported the order of the CIT(A) in deleting the addition of Rs.18,71,852/-. 8. We have heard the rival submissions and perused the orders of lower authorities and materials available on record. In the instant case, the Assessing Officer treated Rs.18,71,852/- as perquisite taxable in the hands of the assessee as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest was actually paid by the assessee in respect of advances received by it from the company for the year under consideration. The only contention was that as the interest was paid in subsequent year, so it was an afterthought and therefore should be ignored. The fact that interest was paid on the advance received by the assessee was not denied. Thus, we do not find any error in the findings of the Ld. CIT(A) that the loan received by the assessee from the company in question was not interest-free loan, but the same was interest bearing loan. Further no material could be brought on record by the Revenue to show that any interest expenditure was actually incurred by the company in question for or on behalf of the assessee. It has not been disputed by the Department that interest free money in the form of entrance fee and membership fee available with the company in question was more than the advance received by the assessee from the said company. Further no error in the order of the CIT(A) in following 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) was pointed out by the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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