Tax court rules benefit of Rs.3 lakhs taxable under Income-tax Act. Tribunal decision partially upheld.

Commissioner Of Income-Tax Versus S. Kannan

Commissioner Of Income-Tax Versus S. Kannan - [1994] 210 ITR 585, 118 CTR 318, 74 TAXMANN 353 Issues Involved:
1. Applicability of Section 2(24)(iv) of the Income-tax Act, 1961.
2. Whether the benefit derived by the assessee's relatives can be treated as a benefit derived by the assessee.

Summary:

Issue 1: Applicability of Section 2(24)(iv) of the Income-tax Act, 1961

The court examined whether the Tribunal was right in deleting the addition of Rs. 4,00,000 by holding that the provision of section 2(24)(iv) of the Income-tax Act, 1961, was not attracted. The Tribunal had held that the benefit of loans was received by the assessee's relatives and not by the assessee himself. However, the court noted that the transactions on January 9, 1980, were mere book entries and a colorable device to circumvent the provisions of section 2(24)(iv). The court emphasized that the company's funds were appropriated by the assessee through his relatives, and thus, the benefit accrued to the assessee. The court concluded that the Tribunal ignored material evidence, specifically the letter from the assessee's father, K. Srinivasan, which admitted the scheme to knock off additional money from the purchaser. Consequently, the court held that the benefit of Rs. 3 lakhs accrued to the assessee and was taxable u/s 2(24)(iv).

Issue 2: Benefit Derived by Assessee's Relatives

The court addressed whether the benefit derived by the assessee's relatives from the company could be considered a benefit to the assessee himself. The court clarified that section 2(24)(iv) does not create a deeming fiction where the benefit accruing to the relatives of a director is treated as a benefit accruing to the director. The court relied on the Bombay High Court decisions in CIT v. Shri Ramnath A. Podar and CIT v. M. R. Ruia, which held that the benefit or perquisite received by a relative of a director cannot be treated as the income of the director unless explicitly provided by a legal fiction or deeming provision. Therefore, the court answered this question in the affirmative, in favor of the assessee, and against the Revenue.

Conclusion:

The court concluded that the Tribunal was wrong in deleting the addition of Rs. 3 lakhs, but correct in deleting Rs. 1 lakh, thus partially applying section 2(24)(iv). Additionally, the benefit derived by the assessee's relatives cannot be treated as a benefit derived by the assessee.