H S SALIAN Vs. FOURTH INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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T. Venkatappa, Judicial Member -
(1.) SINCE common points are involved in these appeals for three years, they are being disposed of together. The assessee is an employee of LIC. He had taken loan from LIC for house construction. The loan was granted at a concessional rate of interest of 5 per cent. The ITO was of the view that the LIC charged higher rate of interest of 10 1/2 per cent to its clients on the loans advanced to them, whereas lower rate of interest is charged to its employees on the loans advanced for construction of house. Thus, the assessee enjoyed a concession which is to be treated as a perquisite. Thus, the ITO added 5 per cent interest as perquisite which came to Rs. 1,727. In appeal, the AAC held that as per Section 11(2)(iii) of the Income-tax Act, 1961, perquisite includes value of any concession or amenity granted or provided free of cost or at concessional rate by any employer to an employee whose income under the head "Salaries", exclusive of the value of all benefits or amenities not provided for by way of monetary payment exceeds eighteen thousand rupees. The LIC advances loans to the employees at a concessional rate of 5 per cent whereas it charges an interest of 10 1/2 per cent from the customers. Therefore, the extent of concession derived by the assessee is to be treated as a perquisite. Applying the ratio laid down in Addl. CIT v. Late A. K. Lakshmi  113 ITR 368, he upheld the order of the ITO in adding Rs. 1,727. Against the same, these appeals are filed.
(2.) The learned counsel for the assessee strongly urged that interest is a matter to be regulated by the employer and employee. Hence, no benefit accrues. The lower authorities were not justified in treating the sum of Rs. 1,727 as a perquisite. The learned departmental representative justified the orders of the lower authorities. He placed reliance on an order of the Tribunal in IT Appeal No. 234 (Bang.) of 1980. He also referred to a passage at page 630 in Whiteman and Wheatcroft on Income-tax. He also relied upon the decision in the case of Addl. CIT v. Late A.K. Lakshmi (supra).
We have considered the rival submissions. There is no dispute about the facts. The assessee obtained a loan from his employer LIC. The interest charged was 5 per cent as against interest of 10J per cent charged to others by the LIC. The question is whether the concession obtained by the assessee could be treated as a perquisite. Section 17(2)(S') reads as under:
(2) 'perquisite' includes-
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(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;
(b) by a company to an employee being a person who has a substantial interest in the company ;
(c) by any employer (including a company to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income under the head 'Salaries', exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds eighteen thousand rupees.
The assessee comes under item (c). The assessee has been provided the loan at a concessional rate. The question is whether that could be treated as a perquisite. An identical question came up for consideration before the Madras High Court in Addl. CIT v. Late A.K. Lakshmi (supra). The question whether the non-liability to pay interest would be a benefit and whether what has been determined is the cost of that benefit came up for consideration in that case. At page 375, it is observed as under :
...But the question would still arise whether granting amounts of the company for the personal use of its employees without charging interest would be the grant of any benefit. Our answer here must be in the affirmative. It is well known that it is difficult, if not impossible, to borrow amounts for one's own use without having any liability to pay interest. Putting it positively, ordinarily borrowing can be had only by incurring an obligation to pay interest. What would be the amount of interest will be, unless there are statutory provisions governing the matter, a matter of agreement between the lender and the borrower. But, if either due to magnanimity or with a view to help an employee any amounts are advanced by an employer to an employee without any 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 moneys belonging to the company or any other employer, without having any liability to pay interest...
At page 630 of Whiteman and Wheatcroft on Income-tax, it is observed as under:
An interesting question that often arises in practice is whether an interest-free loan or a loan at a rate below the market rate made by an employer to an individual within Sections 195 to 203 is a taxable benefit within those provisions, and, if so, the basis on which the charge to tax on the employees is to be 'calculated. In the authors' opinion, such loan must be a 'benefit' in the ordinary meaning of that word.
It was held by the Madras High Court in the above case that the interest that was chargeable during the relevant years, which has been fixed at 10 per cent, is a benefit that had accrued to the assessee without cost, attracting the definition of the term "perquisite" under Section 17(2) and falling under Section 17(2)(m)(o). The above ratio squarely applies to the instant case.
(3.) AN identical question had come up for consideration before this bench of the Tribunal in IT Appeal No. 234 (Bang.) of 1980. The Tribunal, by its order dated 29-7-1981, held that the interest-free loan granted by the employer to its employee is a benefit and amounts to a perquisite. The above ratio squarely applies to the instant case.;
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