TMI Blog1975 (1) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ance against the assessee in a sum of Rs. 3,00,611 and a closing debit balance of Rs. 3,59,912. The company was borrowing moneys in respect of which it was paying interest at 9 per cent. The Income-tax Officer considered that to the extent of the debit balance against the assessee, there had been a diversion of money for non-business purposes. In the assessment of the company, therefore, the Income-tax Officer disallowed a sum of Rs. 29,718 which was the amount arrived at, as the interest that would be referable to the amounts withdrawn by and standing to the debit of the assessee. While making assessment of the assessee, he was of the view that the sum of Rs. 29,718 represented the amount of interest (paid by the company to its creditors) which, but for the company's paying, the assessee would have had to pay and that, therefore, it would amount to a " perquisite " within the meaning of section 17(2)(iv) of the Income-tax Act, 1961. In that view, he added back the sum of Rs. 29,718 to the salary income of the assessee. On appeal by the assessee, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer, except that on a recalculation he arrived at the sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. Further, the assessee had nothing to do with the borrowings of the company and there was absolutely no privity of contract between the creditors of the company and himself. Certainly, therefore, the assessee was not obliged to pay any interest to the creditors which could have been paid by the company. As the interest was not payable by the assessee to the company's creditors, there was no payment by the company in respect of any obligation of the assessee within the meaning of section 17(2)(iv). Clearly, therefore, the provisions of section 17(2)(iv) would not apply. Learned counsel for the revenue then relied on section 17(2)(iii)(a), which reads as follows : " For the purposes of sections 15 and 16 and of this section,--- (2) '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..." The learned counsel submitted that to the extent he was not obliged to pay any interest on the overdrawings, the assessee had derived a benefit or in advantage and that, therefore, the value of such benefit would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without the authority of the company or against its wishes, they will be governed by the above provision, and that both authorised and unauthorised benefits taken or received are to be treated alike for the purpose of this section. If the contention of the revenue is accepted, it will mean that an advantage taken by a director or other person without the authority of the company or against the wishes of the company will constitute a benefit or perquisite obtained from the company by such director or other person. If there is an unauthorised taking of an advantage or a benefit by a director from the company without its authority or knowledge, the company can always insist on the restitution of such advantage or benefit taken by a director and enforce the same legally in a court of law. In such cases there is a definite legal obligation to restore the advantage or benefit taken by a director without the authority of the company and it is not possible to hold that such advantage or benefit can be brought to charge. " The learned counsel pointed out that " the benefit or perquisite obtained " which was the language used in section 2(6C)(iii) of the Indian Income-tax Act, 1922, not o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to anybody for use without any obligation to pay interest. The company in this case allowed the assessee to withdraw the money, but without any obligation to pay interest. To the extent it allowed the assessees to use the funds of the company without any obligation to pay interest thereon, the company should certainly be deemed to have granted a benefit to the assessee. It was next contended by the learned counsel for the assessee that, in order to attract the provisions of section 17(2), the benefit granted or provided should arise directly out of the relationship of employer and employee. In other words, it was the contention of the learned counsel that there is a relationship of debtor and creditor between the assessee and the company and the benefit, if at all, was derived by him only as a debtor and not by virtue of his being an employee of that company. It is true that the company had given such an interest-free loan to a debtor; but, in cases where in addition to the debtor and creditor relationship there exists a relationship of employer and employee and such employee is a director of the employer, the provisions of section 17(2)(iii) would be directly attracted. It is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a benefit derived by the employee. It was held that it could not be included as income of the employee ; but that was on the ground that until the employee attained the age of superannuation, he did not acquire any vested right in the employer's share of the contributions and that what he had was only a contingent right to receive the total contributions made by the employer on the happening of a contingent event. This decision is, therefore, not of any assistance to the assessee. In this connection, we may also refer to a decision in Wright (H. M. Inspector of Taxes) V. Salmon, which is very near to the point for consideration in this case. In that case, the assessee was the managing director of a limited company and under the service agreement he was entitled to a fixed salary. In addition to this salary, the directors of the company each year by resolution gave the assessee the privilege of applying for certain unissued shares in the company at the par value which was considerably less than their current market value. The shares which he applied for were duly alloted to him. Though in the earlier years there were resolutions reciting that this privilege was granted having rega ..... X X X X Extracts X X X X X X X X Extracts X X X X
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