Non-convertible shareholder benefits were not taxable income before the 1955 amendment under the Income-tax Act, 1922.

For assessment years before the 1955 enlargement of the definition of income, non-monetary benefits or perquisites received by a shareholder from a company were not taxable as income under section 12 of the Income-tax Act, 1922. The Patna HC held that, because the pre-amendment statutory framework did not expressly cover such non-convertible benefits and the benefits were neither legally enforceable nor convertible into money, they could not be treated as constructive income. The reference was answered in the negative, in favour of the assessee.

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Issues: Whether benefits received by a shareholder from a company, though not convertible into money, constituted income chargeable to tax under section 12 of the Income-tax Act, 1922 for assessment years prior to the 1955 amendment.

Analysis: The relevant assessment years preceded the amendment made to the definition of income by section 2(6C) of the Income-tax Act, 1922 through section 3 of the Finance Act, 1955. Before that enlargement, the statutory definition did not cover the value of non-monetary benefits or perquisites received from a company in the manner contemplated by the amended provision. The benefits in question were also not legally enforceable by the assessee and were not convertible into money, so they could not be treated as constructive income within the pre-amendment statutory framework.

Conclusion: Such non-convertible benefits did not constitute income chargeable under section 12 of the Income-tax Act, 1922 for the assessment years in question. The answer to the reference was therefore in the negative, in favour of the assessee.

Ratio Decidendi: For assessment periods governed by the unamended definition, non-monetary and non-enforceable benefits received from a company cannot be taxed as income unless the statute expressly brings such benefits within the ambit of taxable income.

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