COMMISSIONER OF INCOME-TAX VS M.K. VAIDYA, 1998 PTD-KARNATAKA-HIGH-COURT-INDIA 1558 (1992)

1998 P T D 1558

[224 I T R 186]

[Karnataka High Court (India)]

Before K. Shivashankar Bhat and R. Ramakrishna, JJ

COMMISSIONER OF INCOME-TAX

versus

M.K. VAIDYA

I. T. R. C. Nos. 161 and 162 of 1987, decided on 11/06/1992.

(a) Income-tax---

----Salary---Perquisites---Interest-free loan or loan at concessional rate given to employee for building house---Not a perquisite---Indian Income Tax Act, 1961, S.17(2).

Section 17(2) of the Income Tax Act, 1961, purports to include certain benefits and amenities in the term "perquisite". There is no exhaustive definition of the term "perquisite" for the purposes of section 17. Even though there is no equity in taxation and equitable considerations are outside fiscal legislation, still if reasonably two meanings are attributable to a word used in the fiscal law, the meaning which is more beneficial to the taxpayers will be applied, especially when the State itself at one point of time clearly acted as if the wider meaning was not attributable without adding further words.

Section 17(2)(vi) was inserted by the Taxation Laws (Amendment) Act, 1984, with the particular object to tax salaried taxpayers by treating as a perquisite interest-free loans or loans for which interest charged is at a concessional rate, where the loan is advanced by the employer to enable the construction of a house by the employee. This provision was deleted by section 6 of the Finance Act, 1985, with a clear statement that deletion was necessary to grant relief to salaried taxpayers. The Central Board of Direct Taxes which is empowered under section 119 to issue instructions to other Income-tax Authorities (who are its subordinates) did not instruct them or clarify that notwithstanding the deletion of clause (vi), the subject of house -building loans would be covered by clause (iii) of section 17(2). In fact, Circular No.421, dated June 12, 1985, conveyed the meaning that these loans are not to be included in the concept of "perquisite" under section 17(2), as a measure of relief to the salaried taxpayers. The clear intention of the Central Board of Direct Taxes behind this circular issued by it will have to be respected and implemented by the Income-tax Authorities.

If the loan granted to an employee without charging any interest or by charging interest at a concessional rate amounts to a benefit for the purpose of section 17(2)(iii) of the Act, there was no need for Parliament to introduce, by the Taxation Laws (Amendment) Act, 1984, the new sub -clause (vi) in section 17(2) of the Act. The subsequent omission of the said sub-clause by the Finance Act of 1985 with effect from the date of its proposed insertion was also made with a view to give relief to salaried taxpayers. If interest-free loans or loans bearing law rate of interest are treated as perquisite under section 17(2)(iii) it would defeat the very objective sought to be advanced while deleting clause (vi) of section 17(2).

Hence, interest-free loans advanced for house-building purposes cannot be treated as perquisites within the meaning of section 17(2).

CIT (Addl.) v. Lakshmi (A.K.) (Late) (1978) 173 ITR 368 (Mad.); CIT v. Kulandaivelu Konar (C.) (1975) 100 ITR 629 (Mad.); CIT v. Oberoi (P.R.S.) (1990) 183 ITR 103 (Cal.); CIT v. V.M. Salgaocar & Bros. (P.) Ltd. (1992) 198 ITR 738 (Kar.); CIT v. Vazir Sultan Tobacco Co. Ltd. (1988) 173 ITR 290 (AP); Lohia Machines Ltd. v. Union of India (1985) 152 ITR 308 (SC); Shailendra Kumar v. Union of India (1989) 175 ITR 494 (All.) and Varghese (K.P.) v. ITO (1981) 131 ITR 597 (SC) ref.

(b) Interpretation of statutes---

---- Construction beneficial to assessee---Legislative history and Circulars of C.B.D.T. can be used as aids for interpretation of provisions. '

The legislative history of a fiscal statute could be traced and considered to understand its scope The Courts are permitted to travel beyond the words used in a statute, to find out the purpose for which a particular provision is enacted for this purpose, even the speech of the Finance Minister, while introducing the particular fiscal legislation could be looked into. The circulars issued by the Central Board of Direct Taxes are not only binding on the Income-tax Department but are also in the nature of contemporanea expositio furnishing legitimate aid in the construction of a provision.

H. Raghavandra Rao and M.V. Seshachala for the Commissioner.

G. Sarangan for King and Patridge for the Assessee.

JUDGMENT

K SHIVASHANKAR BHAT, J. ---In respect of the assessment years 197.8-79 and 1980-81, the following question has been referred under section 256(2) of the Income-tax Act, 1961 ("the Act", for short):

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in rejecting the Revenue's ground that the difference in interest rate between Government loans and that on the loan obtained by the assessee should be treated as perquisite?"

The assessee was an employee of the company called "MICO". The company advanced him certain amounts as loan free of interest for the purpose of house building. That this was the policy adopted by the company and several employees had obtained such loans is not a matter in dispute. In the course of the assessment of the assessee, the assessing authority held that the interest-free loan was a benefit which should be valued as a perquisite.

The statement of the case actually does not indicate the basic question which was raised by the assessee before the assessing authority as well as before the Appellate Commissioner to the effect that the interest-free loan cannot be valued as a "perquisite" under section 17(2). However, both learned counsel admitted before the Court that this question does arise and that is how the matter was fought out throughout and referred to the assessment order and the order of the Appellate Commissioner.

It was contended on behalf of the Revenue that the interest-free loan is a benefit which should be treated as a "perquisite" under section 17(2)(iii) and for the purpose of computation rule 3(g) is attracted' and that the principle underlying clause (vi) inserted in section 17(2) by the Taxation Laws (Amendment) Act, 1984, could be looked at for this purpose.

Section 17(2)(iii) reads---

"' perquisite' includes--- . . . . . .

(iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases---

(a)by a company to an employee who is a director thereof;

(b)by a company to an employee being a person who has. a substantial interest in the company;

(c)by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of its sub-clause do not apply and whose income under the head 'salaries', whether due from or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds twenty-four thousand rupees."

While clauses (a) and (b) cover the special cases of those employed by a company, clause (c) covers all categories of, employees Governmental and non-Governmental), including other categories of company employees) provided their salaried income is above RsA8,000. There is no income limit to attract the persons covered by clauses (a) and (b).

In the case of clause (c), those whose annual income under the head "salaries" (as stated therein) is below Rs.18,000 are not covered.

It is also clear that in case the interest-free loan or loan at a concessional rate of interest is a benefit, it would be a perquisite falling under clause (iii) of section 17(2). It can be valued under rule 3 of the income-tax Rules, 1962. There is also no doubt that, if any particular set of employees is to be brought out of this net of taxation, normally Parliament would enact an exception or proviso to this clause, or by inserting an appropriate rule in the Rules, the benefit of non-inclusion can be extended, as was done by the Rules, immediately on the insertion of clause (vi). However, if already clause (iii) covered the subject of interest-free loan or loan given at a concessional rate of interest (for house building purposes), it was an unnecessary exercise for Parliament to insert clause (vi)) to section 17(2), at the time of enacting the Taxation Laws (Amendment) Act, 1984.

In the Notes on Clauses appended to the Bill leading to the Taxation Laws (Amendment) Act, 1984, it was stated, regarding clause (7), thus, (see) (1984) 149 ITR (St.) 41):

"Clause (7) seeks to amend section 17 of this Income-tax Act which defines the term salary', perquisite' and 'profit in lieu of salary'. Thereafter, as to sub-clause (vi), it was stated (see (1984) 149 ITR (St.) 42).

"Sub-clause (ii)(c) seeks to insert a new sub-clause (vi) in clause (2) of section 17 to provide that where the employer has advanced any loan to an employee for building a house or purchasing a site or a house and a site or for purchasing a motor car, and either no interest is charged by the employer on such loan or interest is charged at a rate which is lower than the rate of interest which the Central Government may specify in this behalf by notification in the Official Gazette, an amount calculated on the following basis shall be regarded as 'perquisite' received by the employee and charged to tax accordingly:---

(a)in a case where such loan is advanced without charging any interest, the amount of interest (calculated in the prescribed manner) on such loan at the rate so notified;

(b)in a case where such loan is advanced by charging interest at a rate which is lower than the rate so notified, the amount of the difference between the interest (calculated in the prescribed manner) on such loan at the rate so notified and the interest charged by the employer.

In notifying the rate of interest for the purposes of this provision, the Central Government shall have regard to the rate of interest charged by it from its employees on loans for similar purposes granted to them.

The proposed new provision will not apply to employees of the Central Government or any State Government or an employee (not being a director of a company or a person who has a substantial interest in the company) whose income under the head ' salaries', exclusive of the value of all benefits or amenities not provided for by way of monetary payment, does not exceed Rs.18,000."

Section 17(2)(vi), as inserted by the above amendment, reads:

"(vi) where the employer has advanced any loan to the employee for the purposes of building a house or purchasing a site or a house and a site or for purchasing a motor car, and either no interest is charged by the employer on the amount of such loan or interest is charged at a rate lower than the rate of interest which the Central Government may, having regard to the rate of interest charged by it from its employees on loans for such purpose granted to them, specify in this, behalf by notification in the Official Gazette, an amount equal to,---

(a)in the case where such loan is advanced without charging any interest, the interest calculated in the prescribed manner on such loan at the rate so specified;

(b)in a case where such loan is advanced by charging interest at a rate lower than the rate so specified, the difference between the interest calculated in the prescribed manner on such loan at the rate so specified and the interest charged by the employer

Provided that this sub-clause shall not apply in the case of---

(1)an employee of the Central Government or any State Government; or

(2)an employee, not being an employee referred to in paragraph (a) or paragraph (b) of sub-clause (iii), whose income under the head 'salaries', exclusive of the value of all benefits or amenities not provided for by way of monetary payment, does not exceed eighteen thousand rupees."

The main part of clause (vi) brings in house building loans within the concept of "perquisite". However, certain kinds of employees are not to be brought into this net.

A comparison of clauses (iii) and (vi) shows that the persons to be covered at substantially the same under both these clauses, and the purpose of the exception made for the benefit of Governmental employees could also have been achieved by a suitable amendment of clause (iii) itself. It is also clear that, in case the subject of the house building loans granted to an employee is a perquisite, because it is a benefit or an amenity falling under clause (iii), it was unnecessary to enact clause (vi) in the year 1984.

Clause (vi) was to be in operation from April 1, 1985, however, it was omitted while enacting the Finance Act, 1985. Clause 20 of the Memorandum explaining the provisions of the Finance Bill, 1985, states that, as a measure of relief to salaried taxpayers, the Bill, seeks to omit clause (vi) from section 17(2) with effect from the date of its insertion (i.e. 1st April, 1985).

The Central Board of Direct Taxes issued circulars incorporating those objectives sought to be achieved by the omission of clause (vi), in Circular No.421, dated June 12, 1985 (see (1985) 156 ITR (St.) 130). Paragraph 13.1 of this circular reads (at page 139):

Discontinuance of the provision for taxation of perquisites represented by interest-free loans or loans concessional rate of interest to employees.

13.1 Under sub-clause (vi) of clause (2) of section 17 of the Income tax Act, inserted by the Taxation Laws (Amendment) Act, 1984, where the employer has advanced any loan to an employee for building a house or purchasing a site or a house and a site or for purchasing a motor car, and either no interest is charged by the employer on such loan or interest is charged at a rate which is lower than the rate of interest which the Central Government may specify in this behalf by notification in the Official Gazette, an amount calculated on the following basis is regarded as perquisite received by the employee and charged to tax accordingly;

(i)in a case where such loan is advanced without charging any interest,the amount of interest on such loan at the rate notified;

(ii)in a case where such loan is advanced by charging interest at a rate which is lower than the notified rate, the amount of the difference between the interest on such loan at the rate notified and the interest charged by the employer.

13.2 The provisions does not apply to employees of the Central Government or any State Governments or an employee (not being a director of a company or a person who has a substantial interest in the company) whose income under the head 'Salaries' (exclusive of all benefits and amenities not provided for by way of monetary payment) does not exceed Rs. 18,000.

13.3 As a measure of relief to salaried taxpayers, the Finance Act has omitted the aforesaid provision with effect from the date of its insertion, namely, 1st April, 1985. In consequence thereof, sub -clause (vi) of clause (b) in Explanation 2 to section 40-A(5) of the Income-tax Act, which defines the term 'perquisite' for the purposes of the said section to include the perquisite value represented by interest-free loans or loans at concessional rates of interest, has also been deleted."

The above circular has to be read in contrast to the Circular No.397, dated October 16, 1984, issued on the enactment of the Taxation Laws (Amendment) Act, 1984, paragraph 4.1 of this circular reads (see (1985) 152 ITR (St.) 30):

"Section 17(2). Taxation of perquisite represented by interest-free loans or loans at concessional rates of interest to employees.---4.1 Employers often grant loans free of interest or on concessional terms to their employees for various purposes, e.g., house building, purchase of a conveyance, etc. The provision of a loan to an employee free of interest or at an unduly concessional rate of interest confers benefit which should be assessable as perquisite.

4.2 The Amending Act has inserted a new sub-clause (vi) in clause (2) of section 17 of the Act to provide that where the employer has advanced any loan to an employee for building a house or purchasing a site or a house and a site or for purchasing a motor car and either no interest is charged by the employer on such loan or interest is charged at a rate which is lower than the rate of interest which the Central Government may specify in this behalf by notification in the Official Gazette, an amount calculated on she following basis shall be regarded as perquisite received by the employee and charged to tax accordingly:

(a)In a case where such loan is advanced without charging any interest, the amount of interest (calculated in the prescribed manner) on such loans at the rate notified;

(b)in a case where such loan is advanced by charging interest at a rate which is lower than the rate so notified, the amount of difference between the interest (calculated in the prescribed manner) on such loan at the rate so notified and the interest charged by the employer.

4.3 In notifying the rate of interest for the purposes of this provision, the Central Government shall have regard-to the rate of interest charged by it from its employees on loans for similar purposes granted to them.

4.4. The new provision will not apply to employees of the Central Government or any State Government or an employee (not being a director of a company or a person who has a substantial interest in the company) whose income under the head 'salaries', exclusive of all benefits or amenities not provided for by way of monetary payment, does not exceed Rs.18,000. Thus, employees drawing cash remuneration up to Rs.24,000 per annum will be exempted from the purview of this provision, because, after deduction of standard deduction, the income in such cases under the head 'Salaries', will not exceed Rs.18,000.

4.5, The new provision takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. (section 7(ii) of the Amending Act)."

It may be noted here, for the sake of completing the narration of historical facts, that after clause (vi) was inserted in section 17(2) by the Amendment Act of 1984, the Central Board of Direct Taxes amended the Income-tax Rules by incorporating rule 3-A to work out the enacted clause (vi); however, the said rule 3-A also was deleted after the omission of clause (vi).

From the above, at least two inferences are inevitable: (1) In the year 1984, while enacting the Taxation Laws (Amendment) Act, 1984, Parliament thought that section 17(2)(iii) did not cover the cases of loans granted to employees for house building purposes. (2) Clause (vi), which was inserted, was omitted again to grant tax relief to the salaried taxpayers. In other words, salaried taxpayers were not to be burdened with the tax, by including the value of the interest-free loan or loan at a concessional rate of interest granted for house building purposes, to an employee, by his employer.

The Central Board of Direct Taxes which is empowered under section 119 to issue instructions to other income-tax authorities (who are its subordinates), did not instruct them or clarify that notwithstanding the deletion of clause (vi), the subject of house building loans would be covered by clause (iii). In fact, the relevant part of Circular No.421 (see (1985) 156 ITR (St.) 130), dated June 12, 1985 (already quoted by us) would convey the meaning that these loans are not to be included in the concept of "perquisite" under section 17(2), as a measure of relief to salaried taxpayers. The clear intention of the Central Board of Direct Taxes behind this circular issued by it will have to be respected and implemented by the income-tax authorities.

The legislative history of a fiscal statute could be traced and considered to understand its scope; for example, this proposition was applied by the Supreme Court to consider the scope of rule 19-A and the contents of section 80-J in Lohia Machines Ltd. v. Union of India (1985) 152 ITR 308. The Courts are permitted to travel beyond the words used in a statute, to find out the purpose for which a particular provision is enacted; for this purpose even the speech of the Finance Minister, while introducing the particular fiscal legislation could be looked into (vide K.P. Varghese v. ITO (1981) 131 ITR 597 (SC). While stating this principle, the Supreme Court further observed (at page 608):

"This is in accord with the recent trend in juristic thought not only` in Western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible." (Emphasis supplied).

In the same decision, the circular issued by the Central Board of Direct Taxes was also referred to understand the scope and object of the particular section of the Act involved therein. The circulars issued by the Central Board of Direct Taxes were not only binding on the Tax Department, but were also in the nature of contemporanea exposition furnishing legitimate aid in the construction of the section. If so, there can be no doubt about the purpose behind enacting clause (vi) in the year 1984 and its subsequent deletion by the Finance Act, 1985. The clear implication is that, but for enacting clause (vi), the grant of a loan to an employee for house building purposes was not hitherto covered by section 17(2), in spite of its clause (iii) and, therefore, clause (vi) had to be inserted by the Amendment Act of 198,4.

Section 17(2) purports to include certain benefits and amenities in. the term "perquisite". There is no exhaustive definition of the term "perquisite" for the purposes of section 17. Therefore, unless the provision refers to a particular subject clearly to be included in the meaning of the word "perquisite", Courts would hesitate to attribute a wider meaning to the said word. Even though there is no equity in taxation and equitable considerations are outside fiscal legislations, 'still, if reasonably two meanings are attributable tee a word used in the fiscal law, the meaning which is more beneficial to the taxpayers will be applied, specially it is so, when the State itself at one point of time clearly acted as if the wider meaning was not attributable without adding further words.

The valuation of the perquisite is to be as per the rules. There is a specific rule covering the calculation of the alleged benefit resulting from the interest-free loans or from the loans bearing a low rate of interest. In such a situation, if it is a perquisite, it has to be valued under rule 3(g), whereunder the Income-tax Officer shall determine its value on such basis and in such amount as he considers "fair and reasonable". In the case of loans, it is not possible to clearly identify the normal rate of interest and the exercise of the power to determine the value which the authority considers fair and reasonable, itself is likely to lead to different and divergent results. The rate of interest varies from subject to subject. The banks are required to charge a low rate of interest on agricultural loans; even as between industries and traders, distinctions are made in this regard. There is no uniform rate of interest charged on house building loans advanced to employees by public sector undertakings. Though a loan without interest is rare and a facility to obtain a loan without paying any interest could be considered as a beneficial facility in its larger sense, having regard to the inherent difficulty involved in working out the value of the benefit, Parliament must have thought it unwise' to rope in the subject of house building loans to the employees, while taxing perquisites. It is also likely that the need to encourage house building activities, in this country, where there is acute shortage of houses, would have influenced the law-making authorities in this regard. It is difficult to assume that the normal rate of interest chargeable on a house building loan is the rate of interest charged by the Central Government, to its employees; the only source of authority for such an assumption is clause (vi) enacted in the year, 1984.

Now it is necessary to deal with the decisions cited before us by learned counsel. In CIT v. C. Kulandaivelu Konar (1975) 100 ITR 629 (Mad.), the assessee was the managing director of a company. He had the benefit of depositing and withdrawing monies for his personal purposes, from the company. In his account, a debit balance of certain sums were found for the assessment year 1963-64. No interest was charged on this amount by the company. Interest on this was estimated and it was added as a perquisite in the hands of the assessee for the purpose of assessing the tax. The Madras High Court accepted the Revenue's contention that the benefit of the interest-free drawings from the company was a benefit falling under section 17(2)(iii). Several English and Indian decisions were referred to by the High Court and it was held that the concept of a perquisite was quite wide and the benefit which accrued to the assessee by the non-levy of interest by the company was a perquisite as defined in section 17(2)(iii). At page 635, the Bench held:

"In the normal circumstances, the company is not expected to allow its funds to be given to anybody for use without any obligation to pay interest. The company in this case allowed the assessee to withdraw the money, but without any obligation to pay interest. To the extent it allowed the assessees to use the funds of the company -without any obligation to pay interest thereon, the company should certainly be deemed to have granted a benefit to the assessee.

It was next contended by learned counsel for the assessee that, in order to attract the provisions of section 17(2), the benefit granted or provided should arise directly out of the relationship of employer and employee. In other words, it was the contention of learned counsel that there is a relationship of debtor and creditor between the assessee and the company and the benefit, if at all, was derives by him only as a debtor and not by virtue of his being an employee of that company. It is true that the company had given such an interest-free loan to a debtor; but, in cases where in addition to the debtor and creditor relationship there exists a relationship of employer and employee and such employee is a director of the employer, the provisions of section 17(2)(iii) would be directly attracted. It is by reason of the fact of his being an employee deriving such a benefit, that the provision direct it to be included in the salary income of such an employee. Normally, a company is not expected to allow its funds to be utilised by its employee for his personal benefit. In cases where the company permits an employee to utilise its funds for his own benefit, it shall be deemed to have given a personal benefit to such employee. The relationship of employer and employee, in such circumstances, is the primary reason for grant of such benefit to the employee. We have, therefore, no doubt that the benefit was not derived by the employee de hors his status as an employee. "

The further discussion at page 636 shows that the Bench considered that every advantage or privilege granted to an employee as an incident of service by a company is a perquisite and the same could be valued by resorting to rule 3(g) of the Rules.

A similar question again came up before another Bench of the Madras High Court in Additional CIT v. A.K. Lakshmi (1978) 113 ITR 368. The Bench pointed out that, ordinarily, a borrowing can be had only by incurring a liability to pay interest and it is difficult if not impossible to borrow amounts for one's use without having any liability for payment of interest, the amount of interest being a matter of agreement between the lender and the borrower. Therefore, if for any reason whatsoever, amounts are advanced by an employer to an employee without any obligation to pay any interest, the employee would be deriving a benefit in that he gets the use of the monies belonging to the employer without any liability to pay interest thereon and this benefit could be valued by resort to, rule 3(g) read with ssection 17(2)(iii).

CIT v. Vazir Sultan Tobacco Co. Ltd. (1988) 173 ITR 290 is a decision of the Andhra Pradesh High Court, cited by Sri Sarangan. During the assessment years 1972-73 and 1973-74, one of the questions referred to the High Court was,(at page 292):

"Whether, on the facts and in the circumstances of the case, the difference between the concessional rate of interest and the prevailing market rate of interest on loans advanced to the employees was not a perquisite under section 40-A(5)?"

The Revenue sought to include the notional value of the concessional rate of interest in the income of the company -under section 40-A(5): As per section 40-A(5), inter alia, any expenditure incurred by the assessee which results in the provision of any perquisite to an employee, etc is not allowable as a deduction. In this context; the Revenue contended that if the concession was not granted by the company to its employees for house building loans, to that extent, the company's income would have augmented. This contention was negatived. The court held, at page 295:

Subsection (5) applies where an assessee claims a certain deduction saying that he has spent that money in providing, directly or indirectly, either as salary to an employee or in the provision of perquisite to an employee. Only then do the ceilings prescribed in the said subsection come into play. It is true that in some cases this facility may be abused. We know public corporations like batiks: lending money to their own employees at practically no interest, say for example, one or two per cent., interest per annum, whereas those very banks lend to people at rates of interest ranging from 13 per cent. to 19 per cent, per annum. But the remedy for that must lie elsewhere, either in the proper control of the public corporations or in the amendment of the Income-tax Act, as the case may be. As the provision of law of section 40-A(5) of the Act now stands, it is not possible to answer the said question in the manner suggested by the

Department. "

It must be said that this decision rested on the language of: section 40-A(5) and may not help the assessee before us directly.

Shailendra Kumar v. Union of India (1989) 175 ITR 494 is a decision of the Allahabad High Court. The employees of the Central Government and its undertakings contended that various allowances, such as house rent allowance, city compensatory allowance and dearness allowance. do not form the income of the employees and could not be included In, the computation of the income under -the Act. The Bench held that (at page 502):

..a 'perquisite' is an advantage received by the holder of an office over and above the salary. Any benefit received incidental to employment in excess of salary is a 'perquisite'. Perquisite postulates relationship of employer and employee: Perquisite is a benefit attached to the office. We have no hesitation in holding that city compensatory allowance, house rent allowance and dearness allowance are benefits attached to an office and incidental to the employment. 'Perquisite' is what is received by an employee over and above the salary. Any additional benefit incidental to employment is a perquisite."

The Bench thereafter held that whereas house rent allowance was only a perquisite within the meaning of section 17(2), city compensatory allowance and dearness allowance may be "perquisite" within the meaning of section 17(2) and also profits in lieu of salary' under section 17(3)(ii), being profits in addition to the salary.

In CIT v. P.R.S. Oberoi (1990) 183 ITR 103, the question came up before the Calcutta High Court for the assessment years 1973-74 and 1974-75. The assessee was a director of a company; he had withdrawn considerable sums from the company but the company did not charge him any interest. The Income-tax Officer estimated the interest at 12 per cent. which would be normally charged and included it in the income of the assessee on the ground that, to the extent of the interest not charged by the company, the assessee derived a benefit, which was to be considered his income under section 2(24)(iv). The assessee relied on the amendments made to section 40-A(5) and the introduction clause (vi) to section 17(2) under the Taxation Law (Amendment) Act, 1984, and its deletion thereafter by the Finance Act, 1985, to contend that, if actually grant of interest-free loan was covered by section 17(2)(iii), it was unnecessary to insert clause (vi) in the manner it was done. The Bench accepted the contention advanced on behalf of the assessee. The Bench observed at page 108

"The question, therefore, arises whether the enjoyment by the assessee of interest-free credit can be treated as a benefit or perquisite' within the meaning of section 2(24)(iv) of the Income-tax Act, 1961. The intention of the Legislature seems to be very clear that the expressions 'benefit' and/or 'perquisite' did 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. By this amendment, as already indicated, a new sub-clause (vi) was inserted in section 17(2) and, similarly, another sub-clause (vi) was inserted in clause (b) of Explanation 2 to section 40-A(5). The effect of these amendments, which were made effective from April 1, 1985, was to ensure treatment and taxation and perquisite of the value of an amount calculated on a particular basis in a case where an employee receives loan for certain prescribed purposes either free of interest or at a rate which was lower than the specified rate. However, subsequentlythe Finance Act, 1985, omitted the aforesaid amendments made by the Taxation Laws (Amendment) Act, 1984, with effect from the date of its insertion, namely, April 1, 1985, with a view to provide relief to salaried taxpayers. 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 Parliament does not intend to treat 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 employee, as the case may be.

If the loan granted to an employee without charging any interest or by charging interest at a concessional rate amounts to a benefit for the purposes of section 17(2)(iii) of the Act, there was no need for Parliament to introduce, by the Taxation Laws (Amendment) Act, 1984, the new sub-clause (vi) in section 17(2) of the Act. The subsequent omission of the said sub-clause by the Finance Act of 1985 with effect from the date of its proposed insertion was also made with a view to give relief to salaried taxpayers. It is to be noticed that Explanation 2(b) to section 40-A(5) of the Act defines a perquisite to mean, inter alia, any benefit or amenity granted or provided free of cost or at a concessional rate to the employee by the assessee. If the loan granted to an employee being a director or a person who has a substantial interest in the company or a relative of a director without charging of interest or at a concessional rate of interest constituted any benefit or amenity within the meaning of section 40-A(5), Explanation 2(b)(iii), there was no need for Parliament to introduce the amendment in Explanation 2(b) of section 40-A(5) of the Act by introducing sub-clause (vi). Sub-clause (vi) which was introduced in Explanation 2(b) of section 40-A(5) of the Act included within the meaning of the expression 'perquisite' the amount treated as perquisite under section 17(2)(i)(vi) which also was introduced by the same Taxation Laws (Amendment) Act, 1984. In other words, a loan granted to an employee who is a director or who has a substantial interest in the company without charging any interest or at a concessional rate of interest did not amount to a benefit or amenity falling within clause (b)(iii) of Explanation 2 to section 40-A(5) of the Act. The amendment and the immediate deletion thereof manifest clearly the intention of Parliament."

The Bench further pointed out that section 17(a) sought to include certain matters in the definition of the term "perquisite" and that the word "includes" is often used in interpretation clauses in order to enlarge the meaning of the words or phrases and in such a situation, the meaning of the word sought to be enlarged would require a strict interpretation. It was also held that, "it is also a cardinal rule of construction of a fiscal statute that, even if two view are possible, the view which is favourable to the assessee must be accepted while construing the provisions of a taxing statute". Hence, the non-charging of interest on the amounts withdrawn was held to be not a benefit for the purposes of section 17(2)(iii).

The introduction of section 17(2)(vi) and its omission thereafter, under the particular circumstances and the reasons as disclosed in the relevant Notes. on Clauses and the circular of the Central Board of Direct Taxes changed the entire situation. These facts and the necessary implications flowing from them cannot be just ignored and forgotten. It has to be assumed that Parliament does not legislate a superfluous enactment and, in fact, section 17(2)(vi) was inserted with a particular object in view to tax the, salaried taxpayers by treating the interest-free loan or loan for which interest is charged at a concessional rate and where the loan is advanced to enable the construction of a house by the employee (as a perquisite). This provision is again deleted with a clear statement that the deletion was necessary to grant relief to the salaried taxpayers. In other words, the law-makers thought that but for clause (vi), there was no provision to treat such a lodn as a benefit and perquisite and section 17(2)(iii) would not cover the subject. If the contention of the Revenue is accepted, even after April 1, 1985, salaried taxpayers would have to be taxed by treating interest-free loans or loans bearing low rate of interest as a perquisite under section 17(2)(iii), which would defeat the very objectives sought to be advanced while deleting clause (vi).

Mr. H. Raghavendra Rao strongly relied on a recent decision of this Court in CIT v. V.M. Salgaocar & Bros. (P.) Ltd. (1992) 198 ITR 738 (I.T.R.C. No. 20 of 1989, decided on February 7, 1992). The case arose in respect of the assessment year 1979-80. The assessee was a company which was borrowing large sums by paying interest at the rate of 15 per cent. This interest was claimed as deductible expenditure by the assessee. The directors of the company were drawing amounts from the company without paying interest. The Income-tax Officer held that, when the company borrowed loans by paying 15 per cent. interest and it advanced loans to its director without any interest, to the extent of the interest the company could have charged a benefit was granted to the directors and hence the said amount of interest on the amounts advanced to the directors was not to be deducted as an expenditure to view of section 40-A(5). The assessee's contention that it was deductible was upheld by the Appellate Tribunal, in view of the Taxation Laws (Amendment) Act, 1984, under which section 40-A(5) was suitably amended while inserting clause (vi) to section 17(2).

Relying upon two decisions of the Madras High Court in CIT v. C. Kulandaivelu Konar (1975) 100 ITR 629 and in Addl. CIT v. A.K. Lakshmi (1978) 113 ITR 368, the contention of the Revenue was accepted by the Bench; the Court observed (at page 741):

"We cannot accept the submission that no benefit was conferred upon the assessee's directors by reason of what were, in effect, interest-free advances made to them and it does not appear to us relevant in the context that the assessee may have had funds independent of borrowed funds from which it could have made such advances."

Further, the Bench held (at page 742):

"The assessee has found it necessary to borrow monies. It had been required to pay interest thereon. It had let its directors maintain debits in their accounts and charged them no interest. These facts are sufficient to hold that the directors were given perquisites for which the assessee incurred expenditure and that expenditure is not allowable by reason of the aforementioned provisions. "

As to the amendment made to section 17(2) by the Taxation Laws (Amendment) Act, 1984, it was observed (at page 742):

"It is difficult to see how this amendment can have any bearing upon the interpretation of the then existing provisions of the Act."

Mr. Sarangan contended that this decision has no bearing on the facts of the instant case before us, because, in the earlier decision the Bench was concerned with sections 36 and 40-A(5) of the Act. It was a case where having borrowed large sums of monies by paying interest at 15 per cent., a part was obviously drawn by the directors without compensating the assessee-company, without paying any interest, and the Bench was not concerned with section 17(2).

We are inclined to agree with this contention. On the facts of the said case, where the company borrowed large sums of money by paying interest at 15 per cent. and claiming it to be a deductible expenditure, it will be too much of a generosity to say that the company could at the same time advance to its directors monies without collecting any interest from them. The observations of the Bench while construing section 40-A(5) in the said case were in the context of the facts of the case.

Learned counsel for the assessee contended that interest-free loans or loans obtained at a low rate of interest were never intended to be treated as a "perquisite" and this is very clear from the legislative history of section 17(2). If actually it was a benefit, it was entirely unnecessary for Parliament to interest clause (vi) by the Taxation Laws (Amendment) Act, 1984, and again to delete it through the Finance Act, 1985. This legislative exercise read with the relevant statement of objects and the circulars issued by the Central Board of Direct Taxes cannot be ignored altogether while construing the scope of section 17(2)(iii).

For the reasons stated above, we are of the view that it was never intended to treat the interest-free loan advanced or house building purposes to the employees as a "perquisite" under section 17(2)(iii). Consequently, we answer the question referred, in the affirmative and against the Revenue.

M. B. A./1410/FC Order accordingly.