TMI Blog1992 (6) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... n was a benefit which should be valued as a perquisite. The statement of the case actually does not indicate the basic question which was raised by the assessee before the assessing authority as well as before the Appellate Commissioner to the effect that the interest free loan cannot be valued as a "perquisite" under section 17(2). However, both learned counsel admitted before the court that this question does arise and that is how the matter was fought out throughout and referred to the assessment order and the order of the Appellate Commissioner. It was contended on behalf of the Revenue that the interest-free loan is a benefit which should be treated as a "perquisite" under section 17(2)(iii) and for the purpose of computation rule 3(g) is attracted and that the principle underlying clause (vi) inserted in section 17(2) by the Taxation Laws (Amendment) Act, 1984, could be looked at for this purpose. Section 17(2)(iii) reads-- " 'perquisite' includes--... (iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases-- (a) by a company to an employee who is a director thereof ; (b) by a company to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a site or for purchasing a motor car, and either no interest is charged by the employer on such loan or interest is charged at a rate which is lower than the rate of interest which the Central Government may specify in this behalf by notification in the Official Gazette, an amount calculated on the following basis shall be regarded as 'perquisite' received by the employee and charged to tax accordingly :-- (a) in a case where such loan is advanced without charging any interest, the amount of interest (calculated in the prescribed manner) on such loan at the rate so notified ; (b) in a case where such loan is advanced by charging interest at a rate which is lower than the rate so notified, the amount of the difference between the interest (calculated in the prescribed manner) on such loan at the rate so notified and the interest charged by the employer. In notifying the rate of interest for the purposes of this provision, the Central Government shall have regard to the rate of interest charged by it from its employees on loans for similar purposes granted to them. The proposed new provision will not apply to employees of the Central Government or any State Government or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o enact clause (vi) in the year 1984. Clause (vi) was to be in operation from April 1, 1985, however, it was omitted while enacting the Finance Act, 1985. Clause 20 of the Memorandum explaining the provisions of the Finance Bill, 1985, states that, as a measure of relief to salaried taxpayers, the Bill seeks to omit clause (vi) from section 17(2) with effect from the date of its insertion (i.e., 1st April, 1985). The Central Board of Direct Taxes issued circulars incorporating those objectives sought to be achieved by the omission of clause (vi), in Circular No. 421, dated June 12, 1985. Paragraph 13.1 of this circular reads : " Discontinuance of the provision for taxation of perquisites represented by interest-free loans or loans at concessional rate of interest to employees. 13.1 Under sub-clause (vi) of clause (2) of section 17 of the Income-tax Act, inserted by the Taxation Laws (Amendment) Act, 1984, where the employer has advanced any loan to an employee for building a house or purchasing a site or a house and a site or for purchasing a motor car, and either no interest is charged by the employer on such loan or interest is charged at a rate which is lower than the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otor car and either no interest is charged by the employer on such loan or interest is charged at a rate which is lower than the rate of interest which the Central Government may specify in this behalf by notification in the Official Gazette, an amount calculated on the following basis shall be regarded as perquisite received by the employee and charged to tax accordingly : (a) In a case where such loan is advanced without charging any interest, the amount of interest (calculated in the prescribed manner) on such loan at the rate notified ; (b) in a case where such loan is advanced by charging interest at a rate which is lower than the rate so notified, the amount of difference between the interest (calculated in the prescribed manner) on such loan at the rate so notified and the interest charged by the employer. 4.3 In notifying the rate of interest for the purposes of this provision, the Central Government shall have regard to the rate of interest charged by it from its employees on loans for similar purposes granted to them. 4.4 The new provision will not apply to employees of the Central Government or any State Government or an employee (not being a director of a compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be traced and considered to understand its scope ; for example, this proposition was applied by the Supreme Court to consider the scope of rule 19A and the contents of section 80J in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308. The courts are permitted to travel beyond the words used in a statute, to find out the purpose for which a particular provision is enacted ; for this purpose, even the speech of the Finance Minister, while introducing the particular fiscal legislation could be looked into (vide K. P. Varghese v. ITO [1981] 131 ITR 597 (SC)). While stating this principle, the Supreme Court further observed : " This is in accord with the recent trend in juristic thought not only in Western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. " (emphasis supplied). In the same decision, the circular issued by the Central Board of Direct Taxes was also referred to understand the scope and object of the particular section of the Act involved therein. The circulars issued by the Central Board of Direct Taxes were not only binding on the Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a facility to obtain a loan without paying any interest could be considered as a beneficial facility in its larger sense, having regard to the inherent difficulty involved in working out the value of the benefit, Parliament must have thought it unwise to rope in the subject of house building loans to the employees, while taxing perquisites. It is also likely that the need to encourage house building activities, in this country, where there is acute shortage of houses, would have influenced the law-making authorities in this regard. It is difficult to assume that the normal rate of interest chargeable on a house building loan is the rate of interest charged by the Central Government, to its employees ; the only source of authority for such an assumption is clause (vi) enacted in the year, 1984. Now it is necessary to deal with the decisions cited before us by learned counsel. In CIT v. C. Kulandaivelu Konar [1975] 100 ITR 629 (Mad), the assessee was the managing director of a company. He had the benefit of depositing and withdrawing monies for his personal purposes, from the company. In his account, a debit balance of certain sums were found for the assessment year 1963-64. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and employee, in such circumstances, is the primary reason for grant of such benefit to the employee. We have, therefore, no doubt that the benefit was not derived by the employee de hors his status as an employee. " The further discussion at page 636 shows that the Bench considered that every advantage or privilege granted to an employee as an incident of service by a company is a perquisite and the same could be valued by resorting to rule 3(g) of the Rules. A similar question again came up before another Bench of the Madras High Court in Addl. CIT v. A K. Lakshmi [1978] 113 ITR 368. The Bench pointed out that, ordinarily, a borrowing can be had only by incurring a liability to pay interest and it is difficult if not impossible to borrow amounts for one's use without having any liability for payment of interest, the amount of interest being a matter of agreement between the lender and the borrower. Therefore, if for any reason whatsoever, amounts are advanced by an employer to an employee without any obligation to pay any interest, the employee would be deriving a benefit in that he gets the use of the monies belonging to the employer without any liability to pay interest th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that various allowances, such as house rent allowance, city compensatory allowance and dearness allowance, do not form the income of the employees and could not be included in the computation of the income under the Act. The Bench held that : " .... a 'perquisite' is an advantage received by the holder of an office over and above the salary. Any benefit received incidental to employment in excess of salary is a 'perquisite'. Perquisite postulates relationship of employer and employee. Perquisite is a benefit attached to the office. We have no hesitation in holding that city compensatory allowance, house rent allowance and dearness allowance are benefits attached to an office and incidental to the employment. 'Perquisite' is what is received by an employee over and above the salary. Any additional benefit incidental to employment is a perquisite. " The Bench thereafter held that whereas house rent allowance was only a perquisite within the meaning of section 17(2), city compensatory allowance and dearness allowance may be "perquisite" within the meaning of section 17(2) and also 'profits in lieu of salary' under section 17(3)(ii) being profits in addition to the salary. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to provide relief to salaried taxpayers. 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 to treat 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 without charging any interest or by charging interest at a concessional rate amounts to a benefit for the purposes of section 17(2)(iii) of the Act, 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. The subsequent omission of the said sub-clause by the Finance Act of 1985 with effect from the date of its proposed insertion was also made with a view to give relief to salaried taxpayers. It is to be noticed that Explanation 2(b) to section 40A(5) of the Act defines a perquisite to mean, inter alia, any benefit or amenity granted or provided free of cost or at a concessional rate to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laried taxpayers by treating the interest-free loan or loan for which interest is charged at a concessional rate and where the loan is advanced to enable the construction of a house by the employee (as a perquisite). This provision is again deleted with a clear statement that the deletion was necessary to grant relief to the salaried taxpayers. In other words, the law-makers thought that but for clause (vi), there was no provision to treat such a loan as a benefit and a perquisite and section 17(2)(iii) would not cover the subject. If the contention of the Revenue is accepted, even after April 1, 1985, salaried taxpayers would have to be taxed by treating interest-free loans or loans bearing low rate of interest as a perquisite under section 17(2)(iii), which would defeat the very objectives sought to be advanced while deleting clause (vi). Mr. H. Raghavendra Rao strongly relied on a recent decision of this court in CIT v. V. M. Salgaocar and Bros. P. Ltd. [1992] 198 ITR 738 (I. T. R. C. No. 20 of 1989, decided on February 7, 1992). The case arose in respect of the assessment year 1979-80. The assessee was a company which was borrowing large sums by paying interest at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he directors without compensating the assessee-company, without paying any interest, and the Bench was not concerned with section 17(2). We are inclined to agree with this contention. On the facts of the said case, where the company borrowed large sums of money by paying interest at 15 per cent. and claiming it to be a deductible expenditure, it will be too much of a generosity to say that the company could at the same time advance to its directors monies without collecting any interest from them. The observations of the Bench while construing section 40A(5) in the said case were in the context of the facts of the said case. Learned counsel for the assessee contended that interest-free loans or loans obtained at a low rate of interest were never intended to be treated as a "perquisite" and this is very clear from the legislative history of section 17(2). If actually it was a benefit, it was entirely unnecessary for Parliament to insert clause (vi) by the Taxation Laws (Amendment) Act, 1984, and again to delete it through the Finance Act, 1985. This legislative exercise read with the relevant statement of objects and the circulars issued by the Central Board of Direct Taxes cann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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