Decided on October 26,1982



S. Rajaratnam, Accountant Member - (1.) THIS is an appeal filed by Shri A.K. Chellani of Secunderabad against the order of the AAC, E.D. Range, Hyderabad, upholding an addition of Rs. 6,100 as proposed, in respect of a purchase of a car by the assessee from his employer in the assessment for the assessment year 1978-79.
(2.) The assessee is an individual and is the managing director of India Leaf Spring Mfg. Co. (P.) Ltd. He purchased an ambassador car, 1969 model, on 26-11-1969 from his employer at Rs. 3,900 which was the book value as per the books of account of the company and an air-conditioner at Rs. 2,464 which also represented the company's book value. The ITO was of the view that the price was understated to the extent of Rs. 10,000 in the case of car and Rs. 1,000 in the case of air-conditioner and made an addition of Rs. 11,000 as perquisite taxable in the assessee's hands. The AAC was of the view that the market value may not differ as high as Rs. 10,000. He was of the view that the market value of the car was only Rs. 10,000 and sustained the difference of Rs. 6,100 as the value of perquisite includible in the assessee's hands. He deleted the addition in respect of the air-conditioner. The assessee is not satisfied with the relief and has come up in second appeal. It is the assessee's case that the employer gave the assessee a car at book value for the consideration of services rendered by him and it is further expected that he would continue to use the same for official duties. In other words, there was a restriction inasmuch as the assessee was expected to use the car for company's purposes and that this reduces the market value. The assessee tried to justify the price fixed on this basis. It was also claimed that there was no perquisite element even otherwise. It was argued that even if there be any benefit, it does not come within the scope of Section 17(2) of the Income-tax Act, 1961 ('the Act'). It was pointed out that a similar addition made in the hands of the company under Section 40A(5) of the Act was deleted by the first appellate authority in appeal and the Commissioner has not preferred an appeal on this point though he did prefer an appeal on other points. It was claimed that the department's stand in the assessee's case could not be different from the one in the employer's case. It was also stated that the transaction between the employer and the assessee in this case was in an altogether different capacity as a seller and a buyer. The assessee produced a copy of a letter issued by the CBDT to one of the assessees wherein it was stated that loans given by the company for purposes of house building at low rate of interest would not constitute a perquisite, vide F. No. 200/65/1977-IT(A-1), dated 8-8-1977. A decision of the Madras Bench of this Tribunal in respect of concessional loans in the case of D.D. Khavilkar v. ITO, reported at page 70 of Selected Orders of ITAT was relied upon for the purpose of showing that not all the benefits received by an employee from the employer would automatically be taxable under Section 17. The learned departmental representative claimed that a plain reading of the definition of the word 'perquisite' would clearly make the benefit taxable. It was argued that it is too much to say that the assessee did not get any benefit in having the car at a price which is almost nominal. According to him, even the value adopted by the AAC was probably on the lower side. The benefit accrued to the assessee is out of employment. The alleged stipulation regarding conditional use of the car for official purposes, according to him, was not stipulated. He relied on the other orders of the Tribunal where concessional loans were held to be taxable as a benefit, on the analogy of the reasoning of the Madras High Court in the case of Addl. CIT v. A.K. Lakshmi [1978] 113 ITR 368. We have carefully considered the records as well as the arguments. We have first to find out whether the assessee got the car at a concessional price, as alleged by the revenue. The assessee would say that there was no concession involved. It was an Ambassador Car of 1969 model and the sale was in April 1977. We find it difficult to accept the assessee's claim that its market value would have been only Rs. 3,900. If it had been shown that due to excess mileage, or excessive depreciation, or the general condition of the car, the market price was only Rs. 3,900, we could have understood the assessee's argument. The only reason for fixing the price at Rs. 3,900 was that it was the book value in the employer's books of account. We are also not impressed with the argument that the assessee was expected to restrict its use for official purposes only. There is no material for accepting the assessee's claim on this point. The AAC was of the view that the market price would have been Rs. 15,000, though he actually adopted Rs. 10,000 for the purpose of evaluating the perquisite. We are not in a position to say that the estimate of Rs. 10,000 is in any manner excessive. However, the second part of the question is whether this difference between Rs. 10,000 which was the market value as estimated by the AAC and Rs. 3,900 at which the car was transferred to the assessee, is a benefit which can be taxed in the hands of the assessee. It is not as though the assessee was entitled to have the car at book value, according to the terms of the contract of employment. The employer was not bound to sell the car or any other goods to the assessee at book value. Even if it was offered at book value, the assessee was not bound to purchase the same. The purchase was as a result of an independent sale between the employer and the employee. Employment was not the causa causans but at best only sine qua non. The transaction is commercial in character as the transfer took place at an agreed price between the parties. In a transfer or sale, it is not possible to arrive at the conferment of benefit implied in the definition of 'perquisite' under Section 17(2). Where the concession was to be taxed, the statute has definitely said so, as in respect of concessional rate. Again, the element of concession is not measurable with reference to any objective criteria. The price of a second-hand car will depend upon various factors as to the extent of use, the condition of its parts, etc. There are no norms or guidelines or prescribed rules either under the rules or under any circular. Though method of evaluation of a perquisite need not stand in the way of taxation, the absence of such method of evaluation as for concessional rate, use of the company's car for personal purposes, etc., would indicate that the statute and the rules do not contemplate taxation of such benefit even in respect of substantial shareholders. The principle of ejusdem generis would apply to Section 17(2) and Rule 3 would also indicate that the 'perquisite' or 'amenity' should be all of the same kind as the ones specifically listed. There was some discussion about the taxability or otherwise of the benefit of concessional loans. This Tribunal in the case of Khavilkar (supra), to which one of us was a party, gave the reasons hereinbefore stated as not justifying taxation of benefit of concessional loans within the meaning of Section 17(2)(iii). We understand that this decision has also since been accepted by the revenue, inasmuch as reference was not sought on this question by the Commissioner, though reference was sought on another issue decided in that case. The assessee has shown a letter wherein it is seen that the CBDT had no intention of taxing such a benefit (concessional loan) as a perquisite. In fact, the stand of the CBDT before the Public Accounts Committee in respect of the concessional loans was that the present law does not enable the Government to tax the same. This was seen from a report in The Hindu, dated 16-12-1980 and has been reproduced in the case of Khavilkar (supra). We are of the view that the sale of articles belonging to a company at book value cannot be in a worse position than the concessional loan which is now accepted to be outside the purview of taxation. If the loan granted by an employer to its employees could be treated as mere commercial transaction between a lender and the borrower, it stands to reason that a sale has to be construed primarily as a transaction between a seller and the purchaser and not as a necessary incident of employment or at any rate as a benefit flowing ,from the employment as such, so as to make it liable for taxation all the same. It has not been the practice of the revenue to impute a market value to such second-hand sales and to bring the difference between the book value and such imputed value to tax. As pointed out by the assessee, the revenue has accepted the decision in employer's hand (sic) though the decision was rendered in the limited context of finding by the first appellate authority that the benefit is not in the nature of an expenditure so as to attract Section 40A(5) or Section 40(c) and that even Section 41(2) cannot justify the substitution of market value for the actual sale price. Whatever might be the reason, the fact remains that it has not been considered as a benefit conferred by the employer to the employee in the employer's case and it cannot, therefore, be treated as a benefit in the employee's hands. In other words, we are of the view that the benefit, if any, cannot be treated as a perquisite within the meaning of Section 17(2).
(3.) IN the result, the assesee is entitled to succeed. The appeal is allowed. Relief due Rs. 6,100.;

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