Commissioner of Income Tax vs Gurdial Singh

R.C. Lahoti, J.—These nine references made at the instance of the revenue seek opinion of the High Court on the following common questions of law arising in the same background of facts :

"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that no income within the meaning of section 2(24)(iv) of the income tax Act, 1961 is assessable in the hands of the assessee ?"

The assessees Shri Gurdayal Singh and Shri Tara Singh were directors of Green Finance (I) (P.) Ltd. in the relevant years, namely, the assessment years 1971-72, 1972-73 and 1975-76 in the case of Gurdayal Singh and in the assessment years 1969-70 to 1972-73, 1975-76 and 1976-77 in the case of Tara Singh. The personal accounts of the said two directors in the said company showed debit balances on which no interest was charged by the said company from the aforesaid two directors. The ITO held that the directors having derived benefit from the said company to the extent of 10 per cent interest on the said debit balances were assessable on the said income u/s 2(24)(iv) of the income tax Act, 1961. This finding was upheld by the AAC.

In the appeals preferred by the assessees, the Tribunal deleted the said addition made u/s 2(24)(iv).

The learned counsel for the revenue has relied on a Division Bench decision of the Madras High Court in ADDITIONAL COMMISSIONER OF Income Tax, MADRAS-I Vs. LATE A. K. LAKSHMI AND OTHERS., . The facts of the case bear a close resemblance to the fact of the case at hand. During the course of its judgment the Division Bench has observed :�

"...if either due to magnanimity or with a view to help an employee any amounts are advanced by an employer to an employee without an obligation to pay any interest, we have no hesitation in coming to the conclusion that the employee would be deriving a benefit in that he gets the use of the monies belonging to the company or any other employer, without having any liability to pay interest...." (p. 375)

So is the view taken in yet another Division Bench decision of the Madras High Court in Commissioner of Income Tax, Madras Vs. S.S.M. Lingappan, . In this case the Division Bench has gone on to hold that even if the benefit has been conferred on the director unilaterally without the aid of any agreement between the parties, the benefit could be taxed as a perquisite u/s 17(2)(iii) of the Act. We find ourselves in respectful agreement with the view so taken by the Madras High Court. We may, however, state that no decision to the contrary has come to our notice. For the foregoing reasons, the question is answered in the negative, i.e., in favour of the revenue and against the assessee.