Promoters' share allotment to a director treated as taxable income and assessable under Other sources

Allotment of promoters' shares to a person who was a director was treated as a taxable benefit or perquisite within section 2(6C)(iii), because the provision is inclusive and the capacity in which the benefit was arranged was immaterial once the recipient held directorship at the time of receipt. The Court also accepted that the department could raise the section 2(6C)(iii) point in reference, in view of binding precedent. On the tax head issue, the amount was held assessable under "Other sources" after salary treatment was rejected. The reference was answered against the assessee.

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Issues: (i) Whether the department could be permitted to raise for the first time in reference the contention that the amount was taxable under section 2(6C)(iii); (ii) whether the allotment of promoters' shares to the assessee amounted to income within section 2(6C)(iii); (iii) whether, if taxable, the amount was assessable under the head "Other sources".

Issue (i): Whether the department could be permitted to raise for the first time in reference the contention that the amount was taxable under section 2(6C)(iii).

Analysis: The point had already been concluded by an earlier decision of the same High Court, and the assessee accepted that the objection could not succeed in view of that binding precedent.

Conclusion: The department was entitled to raise the contention, and the answer was in favour of the Revenue.

Issue (ii): Whether the allotment of promoters' shares to the assessee amounted to income within section 2(6C)(iii).

Analysis: Section 2(6C)(iii) defines income inclusively and brings within its scope the value of any benefit or perquisite obtained from a company by a director. The capacity in which the benefit was received was held to be immaterial so long as the recipient was a director when the benefit was obtained. The Court rejected the contentions that the shares had no value, that they were received merely as a promoter, or that the benefit did not come from the company. The allotment of shares by the company to a person who was then a director was treated as a benefit within the statutory definition.

Conclusion: The allotment constituted income within section 2(6C)(iii), and the answer was in favour of the Revenue.

Issue (iii): Whether, if taxable, the amount was assessable under the head "Other sources".

Analysis: The assessee did not press this issue independently if the principal question on taxability failed against him, and the Tribunal had treated the amount as assessable under "Other sources" after rejecting salary treatment.

Conclusion: The amount was assessable under the head "Other sources", and the answer was in favour of the Revenue.

Final Conclusion: The reference was answered entirely against the assessee, and the disputed value of the allotted shares was held taxable as income of the assessee.

Ratio Decidendi: For purposes of section 2(6C)(iii), the decisive requirements are that a benefit or perquisite is obtained from a company and the recipient is a director at the time of receipt; the benefit is taxable as income regardless of the capacity in which it was arranged or conferred.

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