COMMISSIONER OF INCOME TAX Vs. C KULANDAIVELU KONAR

JUDGEMENT

(1.) THE assessee was the managing director of a company called Chockan Transports (Private) Ltd. (hereinafter referred to as "the company"). He was carrying on business of bus transport. As and from August 19, 1959, the company, which was formed for that purpose, took over the assets and liabilities of this business. After fixing the value of various assets and also taking into account certain liabilities, the result was incorporated by showing certain debits against the assessee. He was periodically depositing various amounts like salary received by him as managing director, rents of certain properties, value received by the sale of paddy and sale of plantain leaves, etc., into this account. He was also drawing out of the account money for his expenses. For the assessment year 1963-64, corresponding to the accounting year ending March 31, 1963, there was an opening debit balance 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disallowed a sum of Rs. 29, 718 which was the amount arrived at, as the interest that would be referable to the amounts withdrawn by and standing to the debit of the assessee.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 of Rs. 16, 692 as the monetary equivalent of benefit derived by the assessee as against the sum of Rs. 29, 718 added by the Income-tax Officer. How he arrived at this figure need not detain us. On further appeal by the assessee, the Tribunal considered the applicability of sections 17(2)(iv) and 17(2)(iii) of the Act. As regards the applicability of section 17(2)(iv), it was of the view that since there was no privity of contract between the creditors of the company and the assessee, there was no obligation on the part of the assessee to pay any interest to the creditors, and that, therefore, the company could not be said to have paid any interest on behalf of the assessee. In that view, the Tribunal held that section 17(2)(iv) would not apply. As regards the applicability of section 17(2)(iii), the Tribunal was of the view that the benefit a amenity contemplated under that provision is only a benefit or amenity which would not be refundable or returnable. In the instant case, the overdrawings in current account would be refundable by the assessee to the company and, therefore, it would not come under section 17(2)(iii). THE Tribunal further observed that the relationship of the assessee and the company in respect of these overdrawings is a debtor and creditor relationship and the non-liability to pay interest on these overdrawings was not the result of any relationship of the assessee as an employee in that company and that in any case the relationship of the assessee as an employee in the company was too remote to consider the non-liability to pay interest as any benefit derived from the company by the assessee. On the foregoing reasonings, the Tribunal held that section 17(2)(iii) was also not attracted. At the instance of the revenue, the following question has been referred "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 16, 692 was not includible under the provisions of section 17(2) of the Income-tax Act, 1961 ?" *We have no doubt that the Tribunal was right in its view that section 17(2)(iv) would not be applicable to the facts and circumstances of this case. As we have already pointed out, the assessee was having a current account in which he had overdrawn. It is not clear from the records as to whether the amount overdrawn was from the amount borrowed by the company. 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 applyLearned 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 have to be included in the income of the assessee under the head "Salary". In this connection, he also invited our attention to section 2(24) of the Act, which defines income "as including, apart from the perquisite or profit in lieu of salary taxable under clause, 2) of section 17, the value of any benefit or perquisite, whether convertible into money or not, obtained from the company either by a director or by a person who has a substantial interest in the company.

(2.) THE question referred to us does not call for a consideration as to whether the sum of Rs. 16, 692 in question would be includible in the assessment as an income falling under section 2(24)(iv). We, therefore, have to confine ourselves to the question whether it would amount to a "perquisite" falling under section, 17(2)(iii)THE import of the word "benefit" had come up for consideration in some of the decided cases which may now be usefully noted. In Owen V. Pook (Inspector of Taxes) Lord Pearce observed that perquisite means a personal advantage, but would not include a mere reimbursement. In St. Aubyn v. Attorney-General, in considering the meaning, of the word "benefit" from a company for purposes of estate duty, Lord Tucker observed that it will have to be understood and given the normal meaning and as not excluding" *other transactions ... which, in the circumstances of particular cases, may clearly confer benefits on the deceased in the natural and ordinary meaning of that word ". THE learned counsel for the revenue also brought to our notice a judgment of this court in Commissioner of Income-tax v. A. R. Adaikappa Chettiar, to which one of us was a party.

(3.) IN none of these cases, there existed any relationship of employer and employee between the persons who waived the benefit and the persons who derived the benefit. They were cases of waiver of managing agency commission by the managing agents and certainly the company cannot be considered to be an employee of the managing agents. IN these circumstances, it was held in those cases that the amount waived could not be considered as a revenue income of the company. So far as the managing agent is concerned, the amount waived was held not assessable as his income. These decisions, therefore, in no way help the contention of the learned counsel that the benefit in this case amounted to a mere waiver and not liable to be assessed as a perquisite. Further, in the present case, it would not be correct to say that the company had desisted, the collection or waived the interest. There was no liability to pay interest and the question of waiver, therefore, does not ariseThe learned counsel then relied on the decision, in Commissioner of INcome-tax v. L. W. Russel, and contended that even if it was a benefit, it could not be included. That was a case where the question for consideration was whether the contributions made by an employer to a non-recognised provident fund can be held to be 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.