COMMISSIONER OF INCOME TAX Vs. RAMNATH A PODAR

JUDGEMENT

(1.) THE question that has been referred to us for determination in this reference under S. 256(1) of the IT Act, 1961, runs thus:

(2.) THE question relates to the asst. year 1963 64, the relevant accounting year being the year ended 31st March,1963, and it arises out of these facts: Assessee, Shri Ramnath A. Podar, an individual, is a director of M/s Podar Sons (P) Ltd., which company is the managing agent of certain textile mills. During the accounting year relevant for the assessment year in question as well as in the accounting year for 1958 59 assessment, the assessee went abroad for exploring the possibility of further exports. The company met the assessee's expenditure for both the years. It appears that the assessee persuaded the board of the company to meet the expenditure of his wife who accompanied him on both the occasions. The resolution passed by the company's board on May 16, 1957, ran thus :

(3.) IT must be borne in mind that S. 2(24)(iv) is merely a definition section and the particular clause merely defines the expression "income" and, ordinarily, the value of any benefit or perquisite received by any of the persons falling within the four categories mentioned in that clause would become the income of such person ; in other words, if the benefit or perquisite is received by a director it will be the income of the director ; if the benefit or perquisite is received by a person who is substantially interested in the company it will be the income of such person having substantial interest in the company ; if the same is received by a relative of the director or if the same is received by a relative of such person having substantial interest in the company, it will be the income of the relative of the director or of such person having a substantial interest in the company, and that would be the proper scope of the definition section and on a reading of the entire provision there does not appear to be any warrant to construe 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 as the income of the director or of such person having substantial interest in the company. Unless, therefore, 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 income of the director or of such person having a substantial interest in the company, it would not be possible to include the value of such benefit in the assessment of the director or such person having a substantial interest in the company. Mr. Joshi appearing for the Revenue has, however, placed reliance upon the latter part of that provision, which runs thus: "...and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid" and relying upon this provision it was sought to be urged by Mr. Joshi that what was intended by the legislature was that the value of the benefit or perquisite so received by a relative of the director or a relative of the person having a substantial interest in the company was intended to be included in the assessment of the director or such person, inasmuch as the provision clearly suggests that if the director or the person having substantial interest was under an obligation to pay the value of the benefit, the same should be treated as the income of such director or of such person having substantial interest in the company. It is not possible to accept this submission of Mr. Joshi for the simple reason that there is nothing either on the facts of the case or even under the latter provision of the section to suggest that in every case there would be an obligation on the part of the director or the person having substantial interest to suffer the value of the benefit or perquisite that had been received by the director's relative or the relative of the person having substantial interest in the company. In the instant case, for example, it would be very difficult to say that if the company had not met the foreign tour expenses of the assessee's wife it would be the assessee who was or would be under an obligation to meet those expenses. The assessee's wife herself, who has been assessed to income tax separately as an individual, would have and could have met those expenses. In our view, therefore, in the absence of any legal fiction or specific provision in that behalf it would be difficult to interpret the provisions of S. 2(24) (iv) of the Act so as to include the value of the benefit or perquisite received by the relative in the income of the director or of such person. In our view, the Tribunal was right in coming to the conclusion that the item of Rs. 10,662 was not liable to be treated as the income of the assessee under S. 2(24)(iv) of the Act.