INCOME TAX OFFICER Vs. TUKARAM S PAI
INCOME TAX APPELLATE TRIBUNAL
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(1.) THE assessee is a director of Century Hotels (P.) Ltd. During this year, the assessee has been given interest-free advance of Rs. 1,05,000. THE ITO was of the view that under Section 2(24)(iv) of the Income-tax Act, 1961 ('the Act'), the value of any benefit obtained from a company by adirector is assessable to tax.THE assessee has not paid any interest on the advance taken. If he had taken any advance from any bank, he should have paid interest at the rate of 18 per cent. Thus, he held that the assessee had derived benefit by not paying interest to the company. Thus, he brought to tax Rs. 15,238 under Section 2(24)(iv).
(2.) The assessee appealed to the AAC. The AAC held that the assessee withdrew a sum of Rs. 1,05,000 from the company without proper authorisation and there was no resolution passed by the board of directors of the company as it is clear from the minutes book. He held that the ITO is not justified in bringing to tax an amount of Rs. 15,238 being the value of benefit or perquisite obtained by the assessee from the company under Section 2(24)(iv). Against the same, the revenue has come up in appeal.
The learned departmental representative strongly urged that the assessee has been given interest-free advance of Rs. 1,05,000 and thus, derived benefit. Hence, the value of benefit obtained from the company by the assessee who is a director is income assessable to tax. He referred to Section 2(24)(iv) under which the value of any benefit obtained from a company by a director is income assessable to tax. He placed reliance on the decisions reported in Lakshmipat Singhania v. CIT  93 ITR 162 (All.) and CIT v. C. Kulandaivelu Konar  100 ITR 629 (Mad.). He submitted that merely because there is no resolution passed by the board of directors it cannot be said that the assessee has not derived any benefit. He also submitted that impliedly it could be construed that the loan has been authorised by the company even though resolution as such is not passed. The learned counsel for the assessee strongly urged that any unauhorised advance taken from a company cannot constitute a benefit or perquisite. Any benefit or .advantage taken by director without any claim or right has to be returned to the company. There should be legal and equitable claim for the benefit of a perquisite. Since the board of directors did not pass any resolution to advance the amount to the assessee as is clear from the minutes book, the unauthorised advantage derived by the assessee by taking the amount cannot constitute benefit. In this connection, he placed reliance on the decisions reported in the cases of CIT v. A.R. Adaikappa Chettiar  91 ITR 90 (Mad.) and M.M. Mehta v. CIT  117 ITR 362 (Cal.).
(3.) I have considered the rival submissions. The assessee is a director of Century Hotels (P.) Ltd. He has drawn an amount of Rs. 1,05,000 from the said company and no interest has been charged by the company. The question for consideration is whether the assessee has received the value of any benefit or perquisite from the company. Section 2(24)(iv) reads as under:
(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person 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 ;
In my view, the assessee has derived benefit by drawing a sum of Rs. 1,05,000 free of interest from the company. In the statement of case filed before the AAC it is stated that the appellant was given interest-free advance of Rs. 1,05,000. It was contended in the said statement as well as the grounds of appeal that mere advance or loan by itself would not result in any benefit obtained by the director. Thus, it is clear from the statement of case as well as the grounds of appeal before the AAC that the assessee was given an advance of Rs. 1,05,000 free of interest but the assessee by letter dated 6-2-1982 contended that the unauthorised advance taken by the assessee from the company cannot constitute a benefit or perquisite in his hands. In my view, even though no resolution was passed by the board of directors, still from the facts, it could be implied that an advance of Rs. 1,05,000 was given by the company to the assessee free of interest. If it was an unauthorised drawing by the assessee, the company would have certainly taken steps by issue of legal notice, but no such action has been taken.;
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