9911796707
TMI Blog1990 (4) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Sai Prasanna, the sister of the assessee, and she in turn advanced the amount to the assessee. The assessee again advanced the amount to the company and the company in turn advanced the amount to Smt. Vijayalakshmi Raman, another sister of the assessee and she in turn advanced the amount to the assessee. The assessee again advanced the amount to the company and the company in turn advanced the amount to Smt. Geetha Latha, another sister of the assessee, and she in turn advanced the amount to the assessee. All these transactions, excepting the first one of lending of Rs. 1,00,000 by the assessee to the company, took place on the same day, i.e., on 9-1-1980. The first transaction of lending of Rs. 1,00,000 by the assessee to the company had taken place on 3-1-1980. On 30-4-1980, the company wrote off the debts due to it from the mother and three sisters of the assessee. The Income-tax Officer was of the view that the sum of Rs. 4,00,000 which the assessee had received was liable to be considered as the income of the assessee under the provisions of sec. 2(24)(iv) of the Income-tax Act, 1961 and he hence included the same in the total income of the assessee. The assessee felt aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the company on the assessee. It was not for nothing that the company had become indebted to the assessee. The liability created in favour of the assessee in the books of the company was not without consideration having been received by the company. The assessee had lent the sum to the company and what the company was to pay was only by way of paying back what it had received from the assessee. Therefore, by the company's becoming liable to pay a sum of Rs. 4,00,000 to the assessee, it cannot be said that any benefit came to be obtained by the assessee from the company, since the assessee was only going to get what he had earlier parted with. It is true that the overall effect of the various transactions was that the company had lost a sum of Rs. 4,00,000, since it had written off the debts due to it from the mother and the sisters of the assessee. But the benefit had gone to those whose debts were written off and not to the assessee. Unless the assessee derives the benefit, there is nothing to be taxed in his hands. The liability in favour of the assessee in the books of the company was built up in the manner that the company lent to the relatives of the assessee, who in turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relative of the director or of such person having a substantial interest in the company. There is no warrant for treating the value of any benefit or perquisite received by the director's relative or the relative of a person having a substantial interest in the company, unless there is some legal fiction or a deeming provision by which the value of such benefit or perquisite received by a relative of the director or by a relative of a person having a substantial interest in the company is to be regarded as the income of the director or of such person having a substantial interest in the company. " 6. The above decision was subsequently followed by the Bombay High Court in CIT v. M. R. Ruia [1988] 170 ITR 512. 7. Respectfully following the above mentioned decisions of the Bombay High Court, it is held by us in the instant appeal that the " benefit " on account of the write off of the debt was the income of the person whose debt was written off and there was no justification for assessing the amount in the hands of the assessee. 8. In case the relatives of the assessee had also in turn written off the debts due to them from the assessee, then perhaps there would have been a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sec. 2(24)(iv) of the Income-Tax Act, 1961 is obviously misplaced. What may constitute a good reason for bringing a receipt to tax under sec. 2(22)(e) of the Income-tax Act, 1961 may not be so for invoking sec. 2(24)(iv). As per the provisions of sec. 2(6A)(e) of the Income-tax Act, 1922, any payment by a company, not being a company, in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who has a substantial interest in the company, or any payment by any such company on behalf of, or for the individual benefit, of any such shareholder, is to be regarded as dividend to the extent the company possesses accumulated profits. In the case decided by the Madras High Court, the company had accumulated profits and the assessee was one who had substantial interest in the company. The company lent money to someone who in turn lent money to the assessee. If the company had directly lent money to the assessee, there would have been no difficulty in invoking sec. 2(6A)(e) and thus in taxing the loan as deemed dividend, because in that case the transaction would have come within the mischief of the expression " any payment by a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the meaning of sec. 2(24)(iv). What is the " benefit " which the payment has confirmed on the assessee. The payment which the assessee has received is not without consideration. There is promise to pay the amount back. What has come to the assessee is by way of loan. The assessee is not richer by what he has received. There is the liability to pay the amount back. Under the circumstances, what " benefit " can the assessee be said to have obtained. It seems to us to be ludicrous to suggest that a loan received by the Director of the company can be treated as income under sec. 2(24)(iv). The word " benefit " can be used in many senses. For example, a company may spare its funds for the benefit of its directors who want to construct houses, in the form of house building advance, at a nominal rate of interest. Can it be said that when the director took the advance from the company, the amount of the advance obtained was the benefit, in the sense contemplated under sec. 2(24)(iv), that accrued to the Director. Certainly not. The advance was for the benefit of the Director. But, it will be an erroneous conclusion to say that the amount of loan was taxable as income, being " benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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