Interest-free director loan not taxable as perquisite where no company cost or contractual obligation was shown.

An interest-free loan advanced by a company to its employee-director was held not taxable as a perquisite under section 17(2)(iii) or as income under section 2(24)(iv) of the Income-tax Act, 1961. The Tribunal held that section 2(24)(iv) applies only where a benefit or perquisite is obtained from a company on a legal basis, and the facts did not bring the loan within that provision. It also found that the company had substantial own reserves and surplus, and no cost by way of interest to the company was shown. In the absence of a contractual obligation and any demonstrable company cost, the addition was deleted and the assessee's position was upheld.

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Issues: Whether the interest-free loan advanced by the company to its employee-director was taxable as a perquisite under section 17(2)(iii) of the Income-tax Act, 1961, or as income under section 2(24)(iv) of that Act.

Analysis: The Tribunal held that section 2(24)(iv) applies only where a benefit or perquisite is obtained from a company on a legal basis, and that an interest-free loan in the present facts did not fall within that provision. As regards section 17(2)(iii), the Tribunal reasoned that the company had substantial own reserves and surplus, and the funds advanced to the director were not shown to have caused any cost to the company in terms of interest. The Tribunal distinguished the authorities relied upon by the Revenue on their facts and accepted the assessee's contention that, in the absence of a contractual obligation and in the absence of any cost to the company, the interest-free advance could not be treated as a taxable perquisite.

Conclusion: The interest-free loan was not taxable either as a perquisite under section 17(2)(iii) or as income under section 2(24)(iv), and the deletion of the addition was upheld in favour of the assessee.

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