COMMISSIONER OF INCOME TAX vs. MANSUKHLAL GOVIND VYAS

ITR/358/1983HC GujaratGJHC24011824198301 May 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH3 pages
AI SummaryAllowed

What were the facts?

The assessee, an employee of the Bank of India, was granted a housing loan at an interest rate of 4% for the assessment year 1978-79. The Income Tax Officer (ITO) treated the concessional interest rate as a perquisite under section 17(2)(iii)(c) of the Income Tax Act, 1961, and added Rs. 4438/- to the assessee's total income. The Assistant Appellate Commissioner directed the ITO to recompute the interest, implying a higher rate should have been charged. The Income Tax Appellate Tribunal (ITAT), following its own precedent, held that the concessional interest element was not a perquisite and allowed the assessee's appeal. The Revenue has referred the matter to the High Court.

What did the High Court hold?

The High Court held that the charging of interest at a rate lower than the market rate by an employer does not amount to a perquisite within the meaning of section 17(2)(iii)(c) of the Income-tax Act, 1961. The Court reasoned that the grant of a loan itself is not a benefit or amenity, and the employee is not obliged to take it. While a lower interest rate might cause a loss of interest to the employer, this alone does not constitute a perquisite. The Court noted that the legislature had attempted to introduce a clause (vi) to section 17(2) to include concessional interest rates as perquisites, but this was later omitted. The Court respectfully agreed with the Calcutta High Court's decision in C.I.T vs. P.R.S. Oberoi, which held that an interest-free loan was not a benefit or perquisite. Therefore, the question referred to the High Court was answered in the affirmative, in favour of the assessee and against the Revenue. The reference was disposed of accordingly.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that charging interest at a lower rate than the market rate by an employer is not a perquisite in terms of section 17(2)(iii)(c) of the Income-tax Act, 1961? Assessee's Contentions: The judgment does not record specific contentions made by the assessee before the High Court, but their appeal was allowed by the Tribunal on the grounds that the concessional interest was not a perquisite. Revenue's Contentions: The Revenue contended that the concessional element of the benefit accrued by way of charging a lower rate of interest to the employee amounted to a benefit given at a concessional rate, which should be treated as a perquisite under section 17(2)(iii)(c). The Revenue's argument is reflected in the ITO's initial action and the reference to the High Court.

Which sections of the Income-tax Act were involved?

Section 17(2)(iii)(c),Section 15,Section 17(1),Section 17(2)(vi),Section 40A(5),Section 2(24)(iv)

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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 358 of 1983

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

The order continues below.

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