TaxTMI 
TaxTMI 
2012 (12) TMI 608
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.... No.258/2010 the substantial question of law is as under:- "(i) Whether the ITAT was correct in law in deleting the addition made by the Assessing Officer on account of perquisite value in the hands of assessee? 4. We may first take up ITA No.258/2010, in which the assessee is one U.K.Bose. He at the relevant time was an employee of M/s Sahara Airlines Ltd. In respect of the assessment year 2000-01 the assessing officer noticed in the course of the assessment proceedings that the assessee was provided with several perquisites by his employer. They were in the shape of credit card expenses, club partnership expenses, expenses on domestic servants, expenses on security guard, chauffer driven car, telephone/cell phone expenses, electricity expenses etc. He considered these expenses incurred by the employer-company as perquisites arising out of employment and taxable under Section 17 of the Act. He accordingly brought the aggregate amount of Rs. 2,94,843/- to tax as under:- Credit Card expenses 6 86,363 Club Membership 7 20,000 Domestic Servant 8 24,000 Security guards 9 2,880 Chauffeur Driven car 10 90,000 Teleph....
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....gainst the revenue. 7. So far as the ITA No.942 & 546/2010 are concerned, they relate to the assessee by name J.B. Roy, for the assessment years 2001-02 and 2000-01 respectively. In respect of these years, the assessee was a partner of M/s Sahara India and director in various companies of Sahara Group. He was drawing salary from M/s Sahara India Mass Communication. In the assessments the assessing officer added the perquisite value on account of provision of security guards and gardener to the assessee in the amount of Rs. 7,37,025/- for the assessment year 2001-02. The value of perquisite on account of provision of chauffer driven car was taken at Rs. 2 lacs. The other perquisites assessed were Rs. 2,11,500/- for domestic servants, Rs. 5,000/- for gas and water charges and Rs. 1,24,069/- for telephone expenses. The value of perquisites on account of security guards and gardener was assessed under Section 2(24)(iv) and the perquisites aggregating to Rs. 5,40,569/- was assessed under Section 28(v) since these were provided by M/s Sahara India Finance Corporation which was the assessee's employer. 8. On appeal the CIT (Appeals) deleted the addition on account of perquisites who....
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.... in the assessment order for the assessment year 2001-02 is as under:- "8. The assessee has disclosed income from salary received from M/s. Sahara India Mass Communication amounting to Rs. 35,16,000/-. The assessee has claimed deduction u/s 10(13A) at Rs. 3,84,000/- on the basis of rent paid by him which has been debited from his salary directly. 8.1 It is noted that the promoters (Sri Subrato Roy, the assessee and Sri O.P. Srivasata) have devised a system by which they are drawing salary from some concern, perquisite from another, etc. The whole system works in a fashion that their personal/ family needs are being taken care of by the various concerns without their showing the value as income (partly or wholly) and paying tax on it. It is evident that this privileged treatment is received by them by virtue of their overall position in the group and particular position in the respective firms/ companies in which they are partners/ directors. Here it is also to point out that last year his employer has given him a gross salary of Rs. 16,89,000/- but during the year under consideration the salary of the assessee has increased more than doub....
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....ia Commercial Corporation Ltd. (SICCL) against which it claimed deduction of Rs. 10,12,524/-, being interest paid to the same entity i.e. SICCL and declared the net interest of Rs. 7,74,897/- as his income. The income was shown under the head "income from other sources". The assessing officer called upon the assessee to explain the claim for deduction of the interest. In response thereto the assessee wrote a letter on 11.10.2002 as follows: "During the year assessee has received interest from Sahara India Commercial Corporation Limited in respect of land sold to them against which the sales proceeds were received late and on the other hand has also paid interest on the loan obtained earlier for the purchase of the said land. The difference of the same has also been offered for the assessment in the revised return. The assessee was under wrong impression that since the sale of land was not taxable receipt in the hand of the assessee, it was presumed that the interest element also was not taxable and obtaining proper legal advise, the same is being offered for assessment....." 16. After considering the reply, the assessing officer called upon the assessee to ....
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....he investment to be paid by the assessee. But since the sale proceeds has been remitted to the assessee late and interest has been received by the assessee on such late remittance, the interest which has been paid by the assessee on the loan from the date of the sale till the date of repayment of the loan is an interrelated transaction with each other and, therefore, the interest which has been paid is fully allowable deduction in the hands of the assessee......" 17. The assessing officer was of the view that there was no provision in the Act to allow the interest paid against the interest received by the assessee. He also examined the provisions of Section 57(iii) of the Act and held that the interest liability cannot be claimed as deduction under those provisions. He referred to the judgment of the Supreme Court in CIT vs. Dr. V.P.Gopinathan (2001) 248 ITR 449 and held that the gross interest of Rs. 17,87,426/- was assessable to tax and the same was brought to charge under the head "income from other sources". 18. On appeal the CIT (Appeals) agreed with the assessee and directed the assessing officer to allow the interest payment of Rs. 10,12,529/- and to assess only the ba....
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....ced the assessee was to receive the interest. Such interest could not have been received, had the assessee not borrowed. Therefore, the interest payable on the borowal being in respect of amount advanced on which the interest is received. The assessee was rightly held to be eligible for deduction of such interest paid. Accordingly ground No.3 in appeals for Assessment Year 2000-01 and 2001-02 fails." 20. It is the correctness of the above decision of the Tribunal that is called in question by the Revenue. Strong reliance was placed on the judgment of the Supreme Court in CIT vs. Dr. V.P.Gopinathan (supra). It is submitted that Section 57(iii) cannot apply at all and the assessee cannot claim a deduction for the interest paid, since it was not paid for the purpose of making or earning the interest received. Relying on the judgment of the Supreme Court (supra) it is contended that even a set off on the principle of real income or any other principle deduction of the interest paid cannot be granted since the transactions giving rise to the interest receipt and the interest payment are different transactions having no commonality or connection. 21. The contention of the assessee ....
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....inished only if there was a provision in law which permits such diminution. There is none, and, therefore, the amount paid by the assessee as interest on the loan that he took from the bank did not reduce his income by way of interest on the fixed deposit placed by him in the bank." The judgment of the Supreme Court in Keshavji Ravji (Supra) is earlier in point of time and was also rendered by a Bench of equal strength i.e. three Judges. In Keshavji Ravji (supra) the provisions of Section 40(b) of the Act came up for consideration. Under this provision, any interest paid by the firm to its partner was to be disallowed and added back to the income of the firm. A question arose as to what should be the quantum of the interest to be disallowed, when the firm is both in receipt of interest from the partner on monies advanced to him and also pays interest to him. According to the Revenue, the receipt of interest from the partner had to be ignored and the amount paid by the firm to the partner had to be disallowed; whereas according to the assessee, both the amounts should be netted and only the excess interest paid, if any, over and above the interest received by the firm, could be d....
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....of the Provincial Insolvency Act, 1920 and Section 529 of the Companies Act, 1956 which provides for "mutual credit" to avoid injustice which would otherwise be caused by compelling a creditor to pay the official assignee the full amount of debt due from him to the insolvent while the creditor would receive only a small dividend on the debt due from the insolvent to him under "pari passu" payment. The concept of set off was held applicable even under the Income Tax Law which identifies the firm as a distinct entity and unit of assessment, having regard to mutuality concept implicit in the dealings between the partners and the firm. 24. The netting principle was adopted by a Division Bench of this Court in CIT vs. Shri Ram Honda (supra). That was a case concerning Section 80HHC which provides for a deduction from export profits. Explanation (baa) provided for exclusion of certain income which had nothing to do with the export profit and one such item of income was interest. This Court held that the interest which had to be excluded from the business profits was not the gross amount of interest, but only the net interest after adjusting the expenditure incurred by the assessee to ....