Income Tax Appellate Tribunal - Chandigarh
Rajinder Gupta vs Deputy Commissioner Of Income-Tax on 15 May, 2000
ORDER
Joginder Pall, A.M.
1. These appeals by the assessees are directed against the orders of the CIT(A) for the respective assessment years. Since the issues involved in all these appeals are common, the same were taken up together and are disposed of by this consolidated order for the sake of convenience.
2. The first ground of appeal in all the cases relate to the issue that the CIT(A) was not justified in confirming the addition made by the Assessing Officer by resorting to the provisions of section 2(24)(iv) of the Income-tax Act. In the case of Shri Rajinder Gupta, there is one additional ground of appeal for the assessment year 1996-97 and the same will be discussed at the appropriate place. The facts of the cases are that Shri Rajinder Gupta is the Managing Director of M/s. Varinder Agro Chemicals Ltd. (hereinafter referred to as VACL). The Assessing Officer noted that in the accounting year relevant to the assessment year 1992-93, the assessee had taken interest free loans of Rs. 2,00,000 from M/s. Varinder Agro Pvt. Ltd. (hereinafter referred to as VAPL) and Rs. 1,75,000 from Pashupati Enterprises Ltd. (hereinafter referred to as PEL). The Assessing Officer observed that both the companies were on paper only and had share capital of Rs. 100 each. These companies had not carried out any business. He noted that Shri N.K. Vohra and Shri Rakesh Gupta were the Directors in VAPL. Shri N.K. Vohra is an employee of VACL, where the assessee is Managing Director. Shri Rakesh Gupta is also related to the assessee and is also an employee of VACL for the last 8 to 9 years. Both the companies took interest free loans from M/s. VACL which were advanced to the assessee and his other relatives. During the course of assessment proceedings, the Assessing Officer recorded the statement of Shri N.K. Vohra, Director of VAPL on 18-1-1995. When asked to explain the purpose for which loans were given to the assessee, his parents, his wife and minor son, Shri Vohra could not explain the same. However, he added that M/s. VACL had given loan to VAPL for purposes of carrying out construction work. However, the Assessing Officer noted that the company had no experience in the line of construction and both the Directors were employees of the main company, namely, M/s. VACL. Likewise, statement of Shri Ramesh Kumar was also recorded wherein he stated that M/s. VACL had given advances for supply of fertilizer machinery. However, the Assessing Officer noted that said company had no experience in the line of business. Thus the Assessing Officer noted that transactions of loans were routed through these companies with a view to wriggle out the provisions of section 2(24)(iv) of the Act. He, therefore held that loans given to the assessee which were utilised for the purchase of immovable property at College Road, Ludhiana amounted to benefit derived by the Managing Director of the company. He, therefore, estimated the interest @ 18% on the amount of loan and added a sum of Rs. 35,752 for the assessment year 1992-93 as benefit under section 2(24)(iv) of the Act. Likewise for the assessment year 1996-97, the Assessing Officer added a sum of Rs. 67,500 being interest on the loan received from M/s. Himalayan Ayurvedic & Agro Research Centre Ltd. in which he is a Director.
3. Shri Nohar Chand Gupta is the father of Shri Rajinder Gupta. While completing the assessment for the assessment year 1994-95, the Assessing Officer noted that Shri Nohar Chand Gupta was given interest free loan of Rs. 8 lacs by M/s. Ganpati International Ltd., Rs. 13,01,625 by VACL and Rs. 4,40,000 by Himalayan Ayurvedic Agro & Research Centre. No interest was charged on the loans advanced to Shri Nohar Chand Gupta. The Assessing Officer, therefore, estimated the interest @ 21 per cent amounting to Rs. 5,03,262 on the loans and treated the same as benefit derived by the father of the Managing Director. Accordingly he made an addition of Rs. 5,03,262 under section 2(24)(iv) of the Act.
4. Smt. Madhu Gupta is the wife of Shri Rajinder Gupta, Managing Director of VACL and Director in the company viz. Himalyan Ayurvedic Agro & Research Centre Ltd. While completing the assessment for the assessment year 1996-97, the Assessing Officer noted that Smt. Madhu Gupta had received interest free loan of Rs. 10,07,000 from M/s. Himalayan Ayurvedic Agro & Research Centre Ltd in which the husband of the assessee is a Director. As in the other cases mentioned above, the Assessing Officer noted that benefit of interest free loan had been passed on to the wife of the Director. He, therefore, estimated the interest @ 21 per cent on the interest free loan and added the same under section 2(24)(iv) of the Act.
5. Shri Varinder Gupta is a director in M/s. Himalayan Ayurvedic Agro & Research Centre Ltd. While completing the assessment for the assessment year 1996-97 the Assessing Officer noted that the assessee had received interest free loan of Rs. 1,75,000 from M/s. Himalayan Ayurvedic Agro & Research Centre Ltd. The Assessing Officer noted that benefit in the form of interest free loan had been derived by the Director of the company which is liable to tax under section 2(24)(iv) of the Act. Accordingly he estimated the interest @ 21 per cent on loan of Rs. 1,75,000 and included an amount of Rs. 36,750 in the income of the assessee.
6. Aggrieved by the orders of the Assessing Officer, the above referred assessees filed appeals before the first appellate authority. The CIT(A) confirmed the orders of the Assessing Officer by holding that interest estimated by the Assessing Officer was a benefit derived by the Managing Director, Directors and their relations and the same constituted benefit under section 2(24)(iv) of the Act. While arriving at such a finding, the CIT(A) also noted that two companies, namely, M/s. VAPL and Pashupati Enterprises Ltd. were used as conduits in advancing interest free loans to the Managing Director and his relations by obtaining such loans from M/s. VACL. The CIT(A) also held that such transactions were covered by the judgment of the Supreme Court in the case of McDowell & Co. v. CTO [1985] 154 ITR 148. In the light of these facts, the CIT(A) held that these transactions were fully covered by the provisions of section 2(24)(iv) of the Act and the benefit derived by the Managing Director, Director and their relations was assessable in their respective hands. Aggrieved by the orders of the CIT(A), these assessees have now filed appeals before us.
7. The ld. Counsel for the assessee submitted that the matters arising from these appeals are squarely covered by the decision of the Tribunal (Chandigarh Bench) in the case of Shri Varinder Gupta for the assessment year 1991-92 in ITA No. 82/Chd./1996 and the same decision has been followed in the cases of all the assessees in ITA Nos. 666 & 888/Chd./1997, 619 & 1304/Chd./1996 dated 6-1-2000. He, therefore, pleaded that the orders of the CIT(A) be set aside and the additions made in the respective cases be deleted.
8. The ld. D.R., Shri Y.R. Saini, submitted that while deciding the cases of the assessees for the earlier years, full facts relating to these matters were not before the Tribunal. He submitted that concept of 'income' was wide enough to cover various other receipts. He submitted that expression 'income' does not lose its natural connotation. He relied on the following judgments :--
(i) Lachit Films v. CIT [1993] 195 ITR402 (Gau.).
(ii) Emil Webber v. CIT [1993] 200 ITR 483 (SC).
(iii) CIT v. G.R. Karthikeyan [1993] 201 ITR 866 (SC).
The Hon'ble Supreme Court in these judgments has observed that concept 'income' is of widest amplitude and must be given its natural and grammatical meaning. He further submitted that the transactions of routing the loans taken from VACL through VAPL and Pashupati Enterprises Ltd. should be viewed in the light of the facts brought on record by the Assessing Officer which have been duly discussed by the CIT(A) in his appellate order No. 275/IT/94-95 in the case of Shri Rajinder Gupta. He submitted that both the companies existed on paper only. They had borrowed amounts from VACL without any security and advanced the same to the Managing Director and his relatives without charging any interest. He submitted that these companies were only a ruse for passing on the benefits to the Managing Director and his relatives. These were colourable devices. He also submitted that the Assessing Officer is empowered to pierce the corporate veit to see the true character of the transactions. He further submitted that colourable device for tax evasion cannot be encouraged. In this regard, he relied on the following judgments :--
(i) CIT v. Shekhawati Rajputana Trading Co. (P.) Ltd. [1999] 236 ITR 950 (Cal.).
(ii) CIT v. Poulose & Mathen (P.) Ltd. [1999] 236 ITR 416 (Ker.).
(iii) McDowell & Co.'s (supra)
(iv) Kartikeya V. Sarabhai v. CIT [1985] 156 ITR 509 (SC).
He submitted that in view of the ratio laid down in the above-mentioned judgments, the transactions routed through the two companies should be treated as collusive transactions. Considering the fact that both the companies existed on papers and had not carried on any business except receiving the loans from VACL and passing these on to Managing Director and his relations, the transactions of loans should be considered direct by VACL to these assessees. He, therefore, submitted that in view of the provisions of section 2(24)(iv) of the Act, loans obtained by these assessees, which were utilised for purchase of prime property at Ludhiana should be considered as benefit derived by the assessees and, therefore, should be brought to tax. He also submitted that but for loans given by the companies, these assessees would have paid interest on similar loans from others.
9. As regards specific decisions on the point of treating as benefit derived by the assessees, he relied on the Calcutta High Court judgment in the case of CIT v. P.R.S. Oberoi [1990] 183 ITR 103 to say that this judgment was in favour of the Revenue and against the assessee. It may be mentioned that this decision was relied on by the Tribunal in the case of Varinder Gupta (supra) for deleting the additions made by the Assessing Officer. He also relied on the judgments of the Delhi High Court in the case of CIT v. Nar Hari Dalmia [1971] 80 ITR 454, Madras High Court in the case of CIT v. L. Alagusundaram Chettiar [1977] 109 ITR 508, Delhi High Court in the case of K.S.Malik v. CIT [1980] 124 ITR 522, Madras High Court in the case of CIT v. C. Kulandaivelu Konar [1975] 100 ITR 629, Addl CIT v. A.K. Lakshmi [1978] 113 ITR 368, CIT v. S.S.N. Lingappan [1981] 129 ITR 597, Allahabad High Court in the case of Lakshmipat Singhania v. CIT [1974] 93 ITR 162 and Delhi High Court in the case of CIT v. Tara Singh [1998] 233 ITR 669.
10. Replying to the submissions made by the ld. D.R., the ld. Counsel for the assessee submitted that it is not correct to say that full facts of the case were not before the Tribunal when it decided the case of Shri Varinder Gupta (supra). He drew our attention to para 3.1 of the Tribunal's order where arguments of the ld. D.R. have been discussed. He submitted that the facts regarding routing of the transactions through two companies were brought to the knowledge of the Tribunal. Besides, the ld. D.R. had also cited several judgments which have been duly recorded at page 5 of the above-mentioned order and it may be seen therefrom that those judgments are the same which have now been relied on by the ld. D.R. He, therefore, submitted that the decision of the Tribunal in the case supra squarely covers the facts of the present cases as no additional facts, whatsoever have been placed on record. He, therefore, pleaded that the additions made by the Assessing Officer and confirmed by the CIT(A) in all these cases should be deleted.
11. We have carefully considered the rival submissions and examined the facts, evidence and material on record. We have also perused the earlier decision of the Tribunal referred to by the ld. Counsel for the assessee. We have also referred to the various judgments relied on by the Id. D.R. It is now clear that the Assessing Officer has made additions in terms of provisions of section 2(24)(iv) of the Act. Section 2(24)(iv) is reproduced below :--
"2. In this Act, unless the context otherwise requires-
** ** (24) 'income' includes ** **
(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid."
Now the only issue that needs to be considered is whether interest free advances given to Shri Rajinder Gupta, Managing Director and his relations constituted benefit or perquisite which could be brought to tax. As discussed earlier, similar issue had come up before the Tribunal in the case of Shri Varinder Gupta (supra) for the assessment year 1991-92. The facts of that case were that while completing the assessment under section 143(3), the Assessing Officer had not made any addition. Subsequently, the CIT had revised the order under section 263 on the ground that perquisite arising from interest free loan advanced to the Director was not brought to tax and, therefore, the order of the Assessing Officer was erroneous insofar as it was prejudicial to the interest of Revenue It is also worth noting that for that assessment year Shri Varinder Gupta was Managing Director of Vanaspati Agro Chemicals from whom loan of Rs. 7 lacs was taken. In addition, the assessee had taken loans of Rs. 5.50 lacs and 4.42 lacs from the two companies mentioned in the case of Rajinder Gupta. The Tribunal deleted the addition by relying on the judgment of the Calcutta High Court in the case of P.R.S. Oberoi (supra). Relevant paragraph as reproduced at page 4 of Tribunal's order is extracted below :--
"..... The intention of the Legislature seems to be very clear, that the expression 'benefit' and/or 'perquisite' does not include the enjoyment of loan or credit, free of interest or at a concessional rate. This aspect has been recognised by the statute itself and to bring such items in the net of taxation, the law was amended by the Taxation Laws (Amendment) Act, 1984, which added a new sub-clause (vi) in section 17(2) and sub-clause (vi) in clause (b) of Explanation 2 to section 40A(5). Subsequently, however, these new provisions were deleted. The very fact that the statute had to be amended at the first instance to bring the said item within the purview of the expression 'perquisite' and it later sought to delete the same from the date of its insertion clearly shows that the Parliament does not intend treating interest free loan or loan at a concessional rate as any benefit or perquisite granted or provided by the lender-company to the director or employees, as the case may be. If the loan granted to an employee or a director or a person who has a substantial interest in the company without charging any interest or at a concessional rate of interest does not constitute any benefit for the purposes of Explanation 2(b)(iii) to section 40A(5) or section 17(2)(iii) of the Act, by the same yardstick, such loan cannot also be construed as a benefit or perquisite for the purposes of section 2(24)(iv) of the Act."
It may be seen from the above that the Hon'ble Calcutta High Court has held that advancing of interest free loans or giving loans on concessional rates to the Director or his relatives of the company does not constitute a 'benefit' or 'perquisite'. While arriving at such a finding the Hon'ble High Court has taken note of the amendment brought about by the Taxation Laws (Amendment) Act, 1984 to provisions of sections 17(2)(vi) and 45A(5). Besides, the Calcutta High Court had noted the fact that there was nothing on record to show that the company had borrowed any money for making advances to the assessee and/or paid any interest on the overdrawn amount which, but for such payment, would have been paid by the assessee. In the absence of these facts, the Calcutta High Court had held that interest free advances given to the assessee did not constitute a gift.
12. While relying on the judgment of the Calcutta High Court, the Tribunal also took note of the fact that in that case also the Assessing Officer had not recorded any finding that M/s. VACL had borrowed funds for which interest was paid by that company. There was nothing on record to suggest that interest bearing loans were passed on to the Director and his relations and interest paid on the loans by the company would have been payable by the Director or the relations, for the company advancing these loans. In the light of these facts, the Tribunal held that the departmental authorities had proceeded on the assumption that since the assessee was a Managing Director in one of the companies, he had derived benefit/ perquisite in view of interest free advances taken from these companies and this was not sufficient for invoking the provisions of section 2(24)(iv) of the Act. The same decision was followed in the other cases referred to above. In none of these cases in appeal, the Assessing Officer has recorded any finding to the effect that the companies, namely, VACL and Himalayan Ayurvedic Agro & Research Centre Ltd. had in fact borrowed moneys on interest which were diverted to the Directors and their relations. But for company making payment of interest on these amounts, interest would have been payable by the assessee, which could be said perquisite or benefit derived by the assessees. Therefore, the facts of the cases, even for the assessment years under appeal are absolutely identical to the facts of the case before the Tribunal in the case decided earlier. On the contrary, loan of Rs. 7 lacs was directly given by VACL to the Managing Director. Still addition made by way of interest was not considered as benefit or perquisite by the Tribunal.
13. Now before recording our finding on the issue, we would like to refer to the judgments relied on by the ld. D.R. In the first three judgments relied on by the ld. D.R. and Lachit Films (supra), Emit Webber's (supra) and G.R. Kartikeyan's case (supra), these are to support the view that concept of 'income' has wide connotations and this covers several items of income which are not specifically exempt under the various sections of the Act. We are in full agreement with the ld. D.R. so far as this proposition is concerned. But the question is whether the additions made by the Assessing Officer constitute a benefit or perquisite within the meaning of section 2(24)(iv) of the Act. The second set of judgments relied on by the ld. D.R. is on the point of colourable device by which loans were taken from VACL by the two companies on paper and given to the Managing Director and his relations without charging any interest. There cannot be any dispute to the fact that the transactions were routed through those two companies only with a view to wriggle out the provisions of section 2(24)(iv) of the Act. The facts brought on record clearly show that both the Directors of the companies have subscribed share capital of Rs. 100 each and were employees of M/s. VACL. Neither the purpose for which they had obtained interest free loans and advanced to the Managing Director and his relations nor the fact that these transactions were made during the course of their business have been established. Having said so, the issue that needs to be considered is whether interest free loans given to the Managing Director and his relations amounted to a benefit or perquisite derived by the assessees particularly when there is no finding recorded by the authorities below that the companies had borrowed amounts on interest. But for payment of interest by those companies, interest would have been payable by the Managing Director and his relations to attract the provisions of section 2(24)(iv) of the Act. In fact, there is nothing on record to show that whether the assessees had also invested some amounts with the companies on which no interest was charged.
14. The last set of decisions/judgments relied on by the ld. D.R. relate to the fact where the Courts have held that the amounts in question were 'benefits' derived by the Directors or their relatives, and as such covered under the provisions of section 2(24)(iv) of the Act. These judgments are discussed as under:
(i) The first judgment relied on by the ld. D.R. is Nar Hari Dalmia's case (supra). In this case, the company had incurred expenditure on foreign tour of the Director. The Director had not done any business for the company. In the light of these facts, the Hon'ble Delhi High Court has held that expenditure incurred on foreign tour was a benefit derived by the Director because but for company incurring such expenditure, the assessee would have paid for the same. The fact of this case are clearly distinguishable because amount of loan received was not in the nature of expenditure.
The assessees are liable to return the loans obtained. There is no finding recorded by the authorities below that companies had borrowed amounts on interest and advanced to the assessees as interest free loans,
(ii) In L. Alagusundaram Chettiar's case (supra), the issue before the Madras High Court was whether a loan taken by the Director through employee of the company can be treated as dividend under section 2(6A)(e) of the Act. In that case, the Managing Director had admitted before the Assessing Officer that whenever he needed money, he would ask his employee to withdraw from the company and advance the same to the Director. In these circumstances it was held that the Managing Director had derived benefit which could be treated as dividend under section 2(6A)(e). This decision was not with reference to the fact whether loan constituted benefit under section 2(24)(iv) of the Act. There is also no admission by the Managing Director that overdrawls were made through the companies. In fact, there is no finding whether the assessees had also credit balances or some other investments in the companies.
(iii) In K.S. Malik's case (supra), the issue before the Delhi High Court was whether the amount of loan borrowed by the Managing Director, written off in the books of account of the company, constituted a benefit under section 2(24)(iv) of the Act. The High Court held that there was remission of liability in favour of the Director and the same constituted a perquisite under section 2(24)(iv), In these cases, there is no remission of the liability.
(iv) The next case relied on by the ld. D.R. is C. Kulandaivelu Konar's case (supra). The issue before the Madras High Court was whether interest free loan given by a company to Managing Director amounted to a 'benefit' when the company was paying interest on its borrowings. In the light of these facts, the Hon'ble High Court held that interest referable to the amounts borrowed by the Managing Director constituted a benefit because the company was paying interest on the amounts borrowed. In the present cases, there is no finding recorded by the Assessing Officer that the companies were paying interest on their borrowings.
(v) In A.K. Lakshmi's case (supra) the Managing Director had overdrawn the amounts on which no interest was paid. The company was paying interest on its borrowings. In the light of these facts, the Hon'ble Madras High Court had held that interest referable to amounts overdrawn by Managing Director was a perquisite under section 17(2)(iii) of the Act. Obviously there is no finding recorded by the Assessing Officer in the present appeals.
(vi) In Tara Singh (supra), the Assessing Officer had held that the Director of the company had derived benefit in the form of debit balance which attracted the provisions of section 2(24)(iv) of the Act. The Hon'ble Delhi High Court has not passed a very detailed and well reasoned order. Rather the High Court has relied on the case of S.S.N. Lingappan (supra) and held that no contrary decision had come to its knowledge. In S.S.N. Lingappan (supra), the judgment relied on by the Delhi High Court, the issue was whether the benefit derived by the Director unilaterally without the aid of agreement could constitute a perquisite under section 17(iii) and (iv) of the Act. Besides the issue before the High Court was whether a disallowance made in the case of the company would automatically attract the provisions of section 17(iii) and (iv) of the Act. In the light of these facts, the High Court has held that both are separate provisions and disallowance of one should not attract the other. In any case, the issue was user of motor-car and telephone by the Director and not loan obtained by the Directors and their relations. Therefore, the matter was sent back to the ITAT for reconsideration of the case. The ultimate outcome is not known. Thus this case is also distinguishable on facts.
(vii) In the case of Lakshmipat Singhania (supra), the issue was rent free accommodation provided to the Director and not interest free loans given to the Director. Rent free accommodation was held to a perquisite under section 2(24)(iv) of the Act. The facts of the present cases are totally different.
(viii) The last case relied on by the ld. D.R. is CIT v. V.M. Salgaocar & Bros. (P.) Ltd. [1992] 198 ITR 738 (Kar.). In this case, the Company was paying interest on moneys borrowed and interest free advances were given to the Directors. In the light of these facts, the High Court has held that to the extent interest was paid on the amounts given to the Directors constituted a benefit to the Directors under section 40A(5) of the Act and was not allowable in the case of the company. In this case, there is no such finding.
15. Thus from the detailed discussion of the facts of the cases and the issues before the various High Courts in the cases relied on by the ld. D.R., we find that there is only one case i.e., Tara Singh (supra) which is slightly in favour of the Revenue. The judgment in this case is very brief and it has not spelt out the complete facts of the case. However, it is noted that the Hon'ble Delhi High Court has upheld the contention of the Revenue by relying on the judgment of the Madras High Court in the case of A.K. Lakshmi (supra) and Madras High Court in the case of S.S.N. Lingappan (supra). The facts relating to both the cases discussed above clearly show that both the cases are distinguishable from the facts of the present cases, inasmuch as, in A.K. Lakshmi's case (supra) there was a clear finding of fact that company was paying interest on the amounts borrowed and it did not charge interest in respect of the amounts advanced to Director. No such finding exists in the present appeals. In the case of S.S.N. Lingappan (supra) the issue was providing facility of free user of car and telephone and not interest free loan. It is not clear from the facts of Tarn Singh 's case (supra) whether the company was paying interest on the amounts borrowed which were given to the Director. Besides, the judgment of the Delhi High Court has not referred to the decision of the Calcutta High Court in the case of P.R.S. Oberoi (supra) relied on by the Chandigarh Bench of the Tribunal, in deciding the earlier appeal. Moreover, the decision of the Calcutta High Court clearly brings out the reasoning as to why interest free loan given to the Director did not constitute benefit under section 2(24)(iv). The Hon'ble Calcutta High Court has observed that the very fact that statute had to be amended at the first instance by the Taxation Laws (Amendment) Act, 1984 to incorporate sub-clause (vi) in section 17(2) and sub-clause (vi) of clause (b) of Explanation to section 40A(5). To bring the said items within the purview of expression 'perquisite' and it later sought to delete the same items from the dates of its insertion clearly shows that Parliament did not intend to treat interest free loan or loan at concessional rate as any benefit or perquisite granted or provided by the lender company to the Director or employee, as the case may be. Besides, there is a clear finding recorded by the Hon'ble Calcutta High Court that there is nothing on record to show that company had borrowed money on interest for making advances to the assessee and/or paid any interest on the overdrawn amount which, but for such payment, would have been paid by the Director or his relations. Respectfully following the judgment of the Calcutta High Court which was relied on by the Chandigarh Bench of the Tribunal in the case of Varindcr Gupta (supra) and in the absence of any finding having been recorded by the authorities below that companies, namely, VACL and Himalayan Ayurvedic Agro & Research Centre Ltd. had borrowed amounts on interest for making advances to the assessees either directly or through other two companies and/or paid any interest on the amounts given to the assessees, we hold that the assessees had not derived any 'benefit' or 'perquisite' to attract the provisions of section 2(24)(iv) of the Act. While coming to such a finding, we have also followed the decision of the Chandigarh Bench of the Tribunal in the case of Varinder Gupta (supra). This ground of appeal is allowed in all the cases.
16. In the case of Shri Rajinder Gupta, there is another ground for the assessment year 1996-97. The issue relates to confirmation of addition of Rs. 54,180 in respect of perquisite value of free electricity and telephone. The facts of the case are that the assessee was enjoying certain benefits in the form of rent free accommodation, free electricity and telephone. The assessee had offered an amount of Rs. 48,000 to cover the value of perquisite on all counts. The Assessing Officer noted that for purposes of computing the perquisite value of free electricity, the same was to be taken at 6.25 per cent of the salary of the assessee. The salary has been defined under Explanation 1 to rule 3. As per this rule, the salary of the assessee worked out to Rs. 10,01,665 and @ 6.25 per cent thereof perquisite value worked out to Rs. 62,600. The Assessing Officer also added an amount of Rs. 3,580 being 20 per cent of the residential telephone expenses of Rs. 17,921. The assessee himself had offered an amount of Rs. 12,000 on account of free electricity. Aggrieved by the order of the Assessing Officer, the assessee took the matter in appeal before the first appellate authority. It was argued before the CIT(A) that accommodation provided to the assessee was partly used for office purpose. The CIT(A) confirmed the perquisite value made on account of free use of electricity by relying on the relevant provisions of the Act. He also confirmed the perquisite value of residential telephone estimated at less than Rs. 300 per month. The assessee has not come in appeal before us.
17. The ld. Counsel for the assessee submitted that for purposes of computing free supply of electricity for household consumption, salary has been defined in Appendix 2 of the Income-tax Rules. Salary for this purpose includes basic pay, D.A. (if terms of contract or employment so provide) and commission. The ld. D.R., on the other hand, relied on the orders of the authorities below.
18. We have considered the submissions of the parties. Appendix 2 of rule 17(iii) deals with the determination of value for free electricity as per which salary includes basic pay, D.A. (if terms of contract or employment so provide) and commission. Therefore, the contention of the ld. Counsel for the assessee is quite correct. The Assessing Officer is directed to re-compute the perquisite value on the basis of Appendix 2 and restrict addition to the extent mentioned herein. This ground is partly allowed.
19. In the result, the appeals in the cases of S/Shri Rajinder Gupta for the assessment year 1992-93, Nohar Chand Gupta, Varinder Gupta and Smt. Madhu Gupta are allowed but the appeal in the case of Rajinder Gupta for assessment year 1996-97 is partly allowed.