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2001 DAILYLAW 1453 (DEL)

SOHAN SINGH v. COMMISSIONER OF INCOME-TAX

2001-08-01

Arijit Pasayat, D K Jain

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Delhi High Court (August 1, 2001) 2001 (TLS)125438 2001-AD (Del)-6-583 :: 2002-ITR-253-331 SOHAN SINGH Vs. Commissioner of Income-tax ARIJIT PASAYAT ( 1 ) THESE three reference applications involve identical issues and, therefore, we dispose of them by this common judgment. At the instance of assessee, following questions have been referred for opinion of this Court under Section 256 (1) of the Income-tax Act, 1961 by the income-tax Appellate Tribunal Delhi Benches B and E (in short the tribunal ): for Assessment year 1979-80 "whether on the facts and in the circumstances of the case the Tribunal was right in sustaining the addition of rs. 26,000/- as income of the assessee u/s 2 (24} ( iv) of the Act?"for the Assessment years 1978-79 and 1978-79 and 1980-81 "whether on the facts and in the circumstances of the case, the Appellate tribunal was Justified in law in holding that the income of Rs. 24,750/- and rs. 5,000/- were assessable under the provisions of Section 2 (24) (iv) and 17 (2) (iii) in the assessment years 1979-79 and 1980-81 respectively ?"dispute relates to the assessment years 1978-79, 1979-80 and 1980-81. ( 2 ) FACTUAL position in nut-shell is as follows: assesssee was one of the directors of National Chemical industries Limited, New Delhi. His account in the books of account maintained by the aforesaid company was a debit balance as on the end of the accounting period relevant. The company did not charge any interest on the amount standing to the debit of the assesses. Income-tax Officer required the assessee to explain why the amount, on which interest should have been charged, should not be treated as income in terms of Section 2 (24) (iv) of the Act. It was noticed that the company was paying interest @ 15% to the banks from whom it had borrowed funds. Assessee s explanation was that the amount in question cannot be covered under Section 2 (24) (iv) of the Act. But the Assessing Officer did not accept the explanation and calculated interest payable @ 12% and worked outsit/final amount which was taken as value of the benefit and as such to be deemed income of the assessee under Section 2 (24) (iv) of the Act. But the Assessing Officer did not accept the explanation and calculated interest payable @ 12% and worked outsit/final amount which was taken as value of the benefit and as such to be deemed income of the assessee under Section 2 (24) (iv) of the Act. Assessee preferred appeals before the Commissioner of income-tax (Appeals) who accepted assessee s stand and deleted the additions for the assessment year 1979-80 and 1980-81 but for 1978-79, action of the Assessing officer was maintained. Revenue carried the matter in appeal before the Tribunal for the assessment years 1979-80 and 1980-81 while assessee preferred appeal for the assessment year 1978-79. It was contended that withdrawals made by the assessee from the company were duly entered in the books of the company and were incorporated in the annual audited statement of accounts which implied, tacit if not expressly, the approval of the company to the waiver of interest. Accordingly it was held that the amount in question was rightly brought to tax by the Assessing Officer as income of the assessee. On being moved for reference, questions as set out above have been referred for opinion of this court. ( 3 ) WE have heard learned counsel for Revenue. There is no appearance on behalf of the assessee in spite of notice. ( 4 ) THE Apex Court had occasion to consider a similar question in V. M. Salgaocar and Bros. Pvt. Ltd. Commisioner of Income-tax (2000) 243 ITR 383. It was inter alia held as follows; "sections 17 (2) and 40a of the Income-tax act, 1961, were amended by the Taxation Law (Amendment) Act, 1984. ( 4 ) THE Apex Court had occasion to consider a similar question in V. M. Salgaocar and Bros. Pvt. Ltd. Commisioner of Income-tax (2000) 243 ITR 383. It was inter alia held as follows; "sections 17 (2) and 40a of the Income-tax act, 1961, were amended by the Taxation Law (Amendment) Act, 1984. sub-clause (vi) of clause (2) of Section 17 of the Act, as inserted by the Amendment Act of 1984, provided 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 which the Central Government may specify, then, (a) where the loan is advanced without charging any interest, the interest calculated in the prescribed manner on such loan at the rate so specified, and (b) where the loan is advanced by charging interest at a rate lower than the rate so specified, the difference between the rate of interest calculated in the prescribed manner on such loan at the rate so specified and the interest charged by the employer, shall be deemed to be a perquisite. An amendment on similar lines was made in section 40a of the Act to provide that the amount of interest referred to in item (a) or item (b) as the case may be, of sub-clause (vi) of Section 17 (2) of the Act, shall be regarded as perquisite provided by the assessee to his employee for the purposes of section 40a (5) of the Act. These amendments were intended to take effect from April 1, 1985. However,, subsequently, the Finance Act, 1985, sought to omit both the aforesaid provisions 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 (see [1985] 152 ITR (St.) 91, 162) stated that as a measure of relief to salaried tax-payers, the Bill sought to omit the aforesaid provision with effect from the date of its proposed insertion, namely. April 1, 1985. The Central Board of direct Taxes issued a circular dated June 12, 1985 incorporating the objectives sought to be achieved by omission of clause (vi ). Earlier, the Central Board of Direct Taxes had issued a circular explaining the objectives in inserting clause (vi ). April 1, 1985. The Central Board of direct Taxes issued a circular dated June 12, 1985 incorporating the objectives sought to be achieved by omission of clause (vi ). Earlier, the Central Board of Direct Taxes had issued a circular explaining the objectives in inserting clause (vi ). By the 1984 Amendment Act, Parliament wanted to carve out a particular exception from the otherwise exclusionary clauses for the purposes of computation of income-tax. This provides a clear direction to interpret the provision of sections 17 (2) and 40a (5 ) before ; insertion of clause (vi ). The circulars of the Central Board of Direct taxes also provide as to how the Revenue itself understood the effect of the amendment and what was the law before the amending Act, 1984. "above being the law laid down by the Apex court, Tribunal s view cannot maintained. The questions referred, therefore, have to be answered in the negative, in favour of the assessee and against Revenue. The references stand disposed of accordingly. --- *** --- .