Thanikkachalam, J.
1. In pursuance of the direction given by this Court in TCP Nos. 185 and 129 of 1981, dt. 2nd November, 1981, the Tribunal referred the following two common questions in the case of two of the assessees, for the asst. yr. 1975-76, for the opinion of this Court, under s. 256(2) of the IT Act, 1961 :
Tax Case No. 1258/1982 :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the price paid by the assessee for the acquisition of five vehicles from Seethapathy Transports (P) Ltd., at a consideration which is admittedly lower than the true market value, is not a benefit within the meaning of s. 2(24)(iv) of the IT Act, 1961
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 52,600 on the ground that the provisions of s. 2(24)(iv) of the IT Act, 1961 are not applicable in the assessee's case ?'
Tax Case No. 1259/1982 :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the price paid by the assessee for the acquisition of four vehicles from Seethapathy Transport (P) Ltd., at a consideration which is admittedly lower than the true market value is not a benefit within the meaning of s. 2(24)(iv) of the IT Act, 1961
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 82,200 on the ground that the provisions of s. 2(24)(iv) of the IT Act, 1961, are not applicable in the assessee's case ?'
2. In the case of Shri S. Varadarajan, for the asst. yr. 1975-76 the relevant accounting year being the financial year, the original assessment was completed on a total income of Rs. 51,640. Subsequently it came to the notice of the ITO that the assessee, who was a director of one Seethapathy Transport (P) Ltd., had purchased five vehicles at certain price. In the assessment of the company, the Revenue had found that the market value of the vehicles was very much higher and the sale was effected at a lower price. The provisions of s. 52(2) had been invoked in the case of the company and the fair market value of the vehicles transferred to the assessee had also been fixed. As there was a difference between the fair market value and the price paid, according to the ITO, it was clear that the assessee had received a benefit within the meaning of s. 2(24)(iv) of the IT Act, 1961. He accordingly reopened the assessment.
3. The five vehicles in question were purchased by the assessee from the company at prices detailed below :
S. No. Regn. No. of the Vehicles Purchase priceRs.1. MDT 7205 4,0002. MDT 8564 7,9003. MDT 9473 9,0004. MDT 0554 14,0005. TWT 1121 35,000
4. The ITO fixed the market value of the said vehicles in the case of the company. The difference between the purchase price and the market value fixed by the ITO was considered to be the benefit under s. 2(24)(iv) in the case of the assessee, which come to Rs. 52,600 and the said amount is arrived at, in the following manner :
Regn. No. Market value fixed Difference to be assessedRs. Rs.1. MDT 7205 7,500 3,5002. MDT 8564 14,000 6,1003. MDT 9473 16,000 7,0004. MDI 0554 25,000 11,0005. TWT 1121 60,000 25,000----------52,600----------
5. So also in the case of Smt. S. Esakki Ammal, for the asst. yr. 1975-76, the relevant accounting period ending on 31st March, 1975. The assessee is an individual. The ITO noticed that the assessee who had a substantial interest in a concern Seethapathy Transports (P) Ltd., had purchased from the said company four vehicles. The details are as under :
Regn. No. of the Vehicle Purchase price1. MDT 6584 2,3002. MDT 9248 9,0003. TWT 1364 34,0004. TNT 2453 54,000
6. According to the ITO, the market value of the vehicles was much higher and the difference of Rs. 62,200 was assessable in the hands of the assessee under the provisions of s. 2(24)(iv). The break-up of the relevant figures are as under :
Regn. No. Market value fixed Difference to be assessedRs. Rs.1. MDT 6584 4,000 1,7002. MDT 9248 16,000 7,0003. TST 1364 62,500 27,5004. TNT 2453 1,00,000 46,000---------82,200---------
The ITO processed the assessments of both the assessees together. The plea of the assessees before the ITO was that there was no income, which could be included within the meaning of s. 2(24)(iv). The assessees contended that the action of the ITO in the case of the company in invoking s. 52(2) was the subject of appeal and further it was urged that since the transport industry was facing crisis due to impending nationalisation, there would have been no third party willing to purchase the vehicles, and therefore, the prices at which the purchases were effected, did not result in any benefit to the assessees.
The ITO stated that the assessees had shown profits in the subsequent year and it was, therefore, clear that the trade was lucrative. Further, according to the ITO, it was common knowledge that the written down value arrived at by allowing depreciation of 30 per cent. annually was much lower than the real market value. The ITO also referred to the second Schedule to the Tamil Nadu Stage Carriage and Contract Carriage Acquisition Act, 1973, which prescribed a mode of valuing the vehicle, which were to be acquired with reference to the age and stated that applying such principles the purchase price was too low. Finally he brought to tax by invoking the provisions of s. 2(24)(iv) an amount of Rs. 52,600 in the case of S. Varadarajan, and Rs. 82,200 in the case of S. Esakki Ammal.
7. The assessees appealed to the AAC. He held that the assessees had acquired the vehicles at a price which was very low and the ITO was justified in treating the difference between the market value and the purchase price as income under the provisions of s. 2(24)(iv) as there was a clear benefit to the assessee from payment of price lower than the market value. Accordingly, the AAC dismissed the appeals filed by the assessees.
8. The assessees challenged the order passed by the AAC before the Tribunal. The assessees submitted before the Tribunal that though the amount fixed by the ITO as fair market value in the case of each vehicle was either equal to or lower than the price which would have been worked out in accordance with the Schedule to the Tamil Nadu Stage Carriage and Contract Carriage Acquisition Act, 1973, the fact was that the vehicle had been sold at the book value, i.e., at the written down value at the beginning of the year less the amount of depreciation at the appropriate percentage prescribed under the IT Act for the year of the use before sale and hence, no benefit accrued to the assessees. The assessees further contended that though the aforesaid Acquisition Act has been struck down by the High Court and the operation of the order was stayed only in respect of Nilgiris, the State Government was renewing permits only for four months at a time, and therefore, nobody would have purchased the vehicles in question at any higher value inasmuch as the period of ownership and operation was very uncertain. The assessees further contended that under s. 2(24)(iv) defining the expression 'income' there can be a benefit only if there is a receipt, which is of income nature and hence, even if it was held that a lesser price was paid in the present case, the lower price paid could not be construed as benefit within the meaning of s. 2(24)(iv).
9. On the other hand, the Revenue contended that the buses being transferred on the written down value, which was much lower than the market value, the assessees had received a benefit, which was taxable. According to the Tribunal, there is nothing to link the transfer to the assessees at written down value as an incident of the services rendered as director. Actually the transfers were effected in view of the impending nationalisation. By transferring at a price which was lower than the market value as computed by the ITO, there is no outgoing from the company and no receipt in the hands of the assessees. The assessees had only paid a lesser amount. Therefore, in the absence of a receipt, there can be no amount brought to tax under the general concept of income. Even if the assessees had derived a benefit, it is clearly in respect of a capital asset acquired. In the hands of the company, it was held by the Tribunal, that the provisions of s. 52(2) did not apply because it was shown that no extra consideration has actually passed. Therefore, the finding cannot be construed as conclusive of what would have been market value of the buses transferred. The Tribunal further pointed out that even if there is difference between the market value and the written down value, but what the assessee had obtained is a capital asset by paying a lower price than the market value. Therefore, according to the Tribunal, such a lower price paid cannot result in a benefit within the meaning of s. 2(24)(iv) having regard to the concept of income, which is the subject of taxation under the IT Act. Accordingly, the Tribunal held that the addition made in the case of both the assessees by invoking the provisions of s. 2(24)(iv) of the Act are not warranted. In that view of the matter, the additions are deleted.
10. Before us the learned counsel for the Department submitted that the concept of distribution of capital asset be treated as income within the purview of s. 2(24)(iv), read with the definition of 'dividend' in s. 2(22) was well-known. Therefore, it was submitted that even if the benefit was in respect of a capital item, it did not fall outside the purview of s. 2(24). According to the learned standing counsel, the term 'income' was not restricted and has to be given its widest meaning. The buses were transferred on the written down value, which was much lower than the market value, looking into the income earning capacity, etc. Therefore, according to the learned standing counsel, the Tribunal was not correct in holding that there is no benefit for the assessees while purchasing the buses for a price, which is lessor than the market value. The learned standing counsel further pointed out that there was no finding given by the Tribunal that the book value can be taken as market value. Even according to the Tribunal the market value prevalent for the buses sold is higher than the price paid by the assessees on the basis of the written down value. The learned standing counsel further pointed out that for the purpose of invoking the provisions of s. 2(24), it is not necessary that the director should be an employee director. Under s. 2(24)(iv) any benefit derived by a director from the company, is income, chargeable to tax, irrespective of the fact whether he is rendering any service for the company. Sec. 52(2) will not stand in the way of assessing a director, who received benefit from the company. In order to tax the benefit received by the director from a company under s. 2(24)(iv), it is also not necessary that the payment by the company is to its detriment. For these reasons, it was submitted that the Tribunal was not correct in holding that the difference between the price paid by the assessee on the basis of the written down value and the fair market value, cannot be taxed as benefit derived by the director of the company, under s. 2(24)(iv) of the IT Act, 1961.
11. On the other hand, the learned counsel appearing for the assessees, while supporting the order passed by the Tribunal, submitted that in the case of the company it was held that the provisions of s. 52(2) of the Act were not applicable. According to the learned counsel, the difference between the written down value paid by the assessees and the fair market value determined by the ITO cannot be treated as benefit derived by the director, when the transaction was not done between the director of a company and the company. In fact, what happened was that the vehicles sold by the company were purchased by persons, who happened to be the directors of the company. Therefore, the sale of vehicles by the company was not because the purchasers are directors of the company. It was further submitted that the fair market value determined by the ITO on the basis of the Acquisition Ordinance, 1973 is more or less equal to the written down value for which the vehicles were purchased. The vehicles were sold for the written down value because of the impending acquisition proceedings, during which time there were no purchasers for purchasing the vehicles for the fair market value. Hence, the price for which the vehicles were sold reflects the market value of the vehicles as on that date. Therefore, no benefit was derived by the assessees by purchasing the vehicles from the company for the price at which the vehicles were sold. According to the learned counsel, the vehicles had been sold at the written down value at the beginning of the year less the amount of depreciation at the appropriate percentage prescribed under the IT Act for a year of use before sale. According to the learned counsel, if appropriate adjustments were made, it cannot be said that the vehicles were sold for under-value. According to the learned counsel that though the aforesaid Act has been struck down by the High Court and the operation of the order was stayed only in respect of Nilgiris, the State Government was renewing permits for only four months at a time, and, therefore, nobody would have purchased the vehicles in question at any higher value inasmuch as the period of ownership and operation was very uncertain. The learned counsel further submitted that unless the director is an employee director, it is not possible to tax the benefit received by the director under s. 2(24)(iv). The learned counsel also submitted that even though there is difference between the written down value and the market value, the benefit received by the assessees would be of capital in nature, and, therefore, it cannot be brought to tax as in the nature of income, chargeable under s. 2(24)(iv). The learned counsel also submitted that by selling the buses at a written (down) value, there was no loss or detriment suffered by the company. Unless there is any detriment to the company in selling the buses, the benefit derived by the director in the matter of purchasing the vehicles cannot be brought to tax by treating the same as income under s. 2(24). For these reasons the learned counsel appearing for the assessees submitted that the Tribunal was correct in deleting the additions made by the ITO, by resorting to the provisions under s. 2(24)(iv) of the IT Act, 1961.
12. We have heard the rival submissions. The fact remains that the assessees are directors of a company, known as Seethapathy Transports (P) Ltd. They have purchased the buses sold by the company. The buses were sold at the written down value. The difference between the written down value and the fair market value was considered to be the benefit derived by the directors of the company under s. 2(24)(iv) of the IT Act, 1961. The written down value, the market value and the difference between both in respect of each of the buses are already stated in detail. Sec. 2(24)(iv) of the IT Act, 1961, stated as under :
''Income' includes 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'.
13. The point for consideration is, whether the difference between the written down value and the fair market value determined by the ITO would constitute benefit derived by a director from the company as contemplated under s. 2(24)(iv) of the Act. The fair market value was arrived at by the ITO on the basis of the guidelines prescribed under Tamil Nadu Stage Carriage and Contract Carriage (Acquisition) Ordinance, 1973. According to the assessees even if the market value is determined as per the abovesaid Ordinance, in view of impending abovesaid Ordinance, there was no intending purchaser, since the licences for running the buses were granted by the Government only for a block period of four months. Therefore, according to the assessees, the prices for which the buses were sold are more or less equivalent to the fair market value as prevalent during these times. Hence, there is no benefit derived by the directors in purchasing the vehicles. But, however, the Tribunal recorded a finding stating that the buses were sold for a lesser price than the fair market value, and, therefore, there is difference in prices between the written down value for which the vehicles were sold and the fair market value determined by the ITO. Therefore, on facts, the assessees derived benefit in purchasing the vehicles from the company. According to the assessees no direct benefit was received from the company while purchasing the vehicles for written down value. So also the benefit derived is not of income nature, but what was derived by purchasing the capital asset is only of capital in nature, and therefore, not taxable. The case of the assessees was that the purchase was made by the assessees as not that of a director of a company, but as a third party purchaser. Therefore, the benefit is not a benefit derived by a director from the company. The assessees further made it clear that in these transactions there was no detriment to the company, warranting any benefit to the assessees in purchasing the vehicles.
14. A similar question came up for consideration before the Delhi High Court in K. S. Malik vs . CIT : [1980]124ITR522(Delhi) . According to the facts arising in that case, the assessee, a director of a private company, had taken loans from the company for purchasing the shares in that company. The company debited interest to the assessee's account in its books. At the request of the assessee, the board of directors of the company passed a resolution, dt. 28th March, 1957 to the effect that the amount due from the assessee be written off and the shareholders in the general meeting held on 31st March, 1957 affirmed the board's resolution. The salary and dividends he received from the company as well as the interest payable by him were entered in the account books maintained by him. The previous year in these accounts ended on 30th September. The question was, whether amount written off by the company was a benefit or perquisite obtained from the company and could be assessed in the hands of the assessee as deemed income under s. 2(6C)(iii) of the Act of 1922. While answering this question, the Delhi High Court held as under :
'(i) as a result of the resolution of the company writing off the amount, the assessee had obtained a benefit within the meaning of s. 2(6C)(iii) of the 1922 Act, corresponding to s. 2(24)(iv) of the 1961 Act, and the benefit was assessable to tax as deemed income in his hands;
(ii) sec. 2(6C)(iii) of the Act of 1922 is not restricted in its application only to cases where the company had paid out certain moneys or incurred certain expenditure, the benefit of which the assessee receives. Having regard to the enactment of a fiction in very sweeping terms, cases of remission of debts cannot be excluded from its ambit. It is well settled that the concept of income indicates something which goes into the pocket of the assessee and not what saves his pocket. It has also been held that the remission of a debt by a creditor would not result in the creation of income in the hands of the debtor.
Even in construing an inclusive definition one has to give full effect to the ordinary meaning of the words employed in the statute.'
15. In CIT vs . Nar Hari Dalmia : [1971]80ITR454(Delhi) , the facts are that the assessee, a part-time director of a private company, undertook, pursuance to a resolution of the company, a foreign tour accompanied by his wife. The cost of the tour amounted to Rs. 29,793 and the company paid the amount to the assessee, that amount was not allowed as an expenditure incurred by the company in the company's assessment. In the reassessment proceedings against the assessee for the relevant year the abovesaid sum was brought to tax in the hands of the assessee as his income within the meaning of s. 2(6C)(iii) of the Indian IT Act, 1922. On the above facts, a question arose whether the amount of Rs. 29,793 was liable to be taxed in the hands of the assessee. While answering this question, the Delhi High Court held that though the sum of Rs. 29,793 did not amount to a perquisite, it was a benefit received by the assessee from the company of which he was a director.
16. The words 'has a substantial interest in the company 'in s. 2(6C)(iii) qualified only the words 'any other person' and not the words 'a director', and, as such, it was not necessary for the amount to be treated as a benefit within the meaning of the s. 2(6C)(iii) that the director should have a substantial interest in the company. It was further held that the amount was received by the assessee in the exercise of an occupation, and, therefore, did not fall within the exemption contemplated by s. 4(3)(vii), therefore, the amount of Rs. 29,793 was liable to income-tax in the hands of the assessee. The legislation when it dealt with the words 'business, profession, vocation or occupation' intended to bring in all aspects of a person's activity as distinct from a chance pursuit.
17. According to the facts arising in D. M. Neterwalla vs . CIT : [1980]122ITR880(Bom) from September, 1946, till 30th September, 1956, the assessee was a whole-time director and manager of WIT Ltd. On this date, he gave up the appointment with a view to work for a new concern proposed to be formed, viz., CFM (P) Ltd. The assessee was the proposed director incharge of the new company. On 11th October, 1956, the assessee and four other persons as promoters applied to the controller of capital issues. The controller of capital Issues authorised the issue of capital and formation of the company, and sanctioned the issue of 600 shares, which were to be free of payment. The company was thereafter incorporated on 7th December, 1956, with seven directors, one of whom was the assessee. The board of directors of the said company met on 27th February, 1957, and appointed the assessee as directorincharge on certain remuneration. The board also allotted the promoters 600 shares among seven persons, among whom the assessee was allotted 60 shares. In the assessment for the asst. yr. 1957-58, the ITO held that the sum of Rs. 60,000 being the value of the 60 shares allotted to the assessee, was received without consideration by him as an employee and was taxable under s. 7 of the IT Act, 1922. On these facts, on a reference, it was contended for the assessee that there was consideration for the allotment of the shares to the assessee, viz., the agreement not to carry on competitive business. It was also contended that the benefit or perquisite, even though it had been received by the assessee when he was a director, had not been received from the company, but only in pursuance of an arrangement among the promoters of the company. The Bombay High Court held that though the allotment of 60 shares to the assessee was in pursuance of an arrangement between the assessee and the other promoters of the company, the allotment of the promoters' shares was by the company. This was a clear benefit to the assessee from company, the provisions of s. 2(6C)(iii) were attracted and the value of the benefit had to be considered as income of the assessee.
18. This Court had an occasion to consider a question of a similar nature in CIT vs . C. Kulandaivelu Konar : [1975]100ITR629(Mad) . According to the facts arising in that case, the assessee, who was the managing director of a company, used to deposit various amounts like salary received by him as managing director, rents received by him from certain properties, value received on sale of plantation, leaves, paddy, etc., in the account he had with the company. He was also withdrawing moneys out of its account for his personal expenses. For the asst. yr. 1963-64 relevant to the year ending 31st March, 1963, the assessee's account shows an opening debit balance of Rs. 3,00,611 and a closing debit balance of Rs. 3,59,912. As the company was not charging any interest on this overdrawing by the managing director, but was paying interest on its borrowings, the ITO disallowed in the company's hands an estimated sum of Rs. 29,718 as the interest referable to the amounts withdrawn by and standing to the debit of the assessee. The officer also added this sum as a perquisite in the hands of the assessee and brought the same to tax. On these facts, a question arose, whether the Tribunal was right in law in holding that the sum of Rs. 16,692 was not includible under the provisions of s. 17(2) of the IT Act, 1961. While answering this question, this Court held that 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 and the benefit was not derived by the employee de hors his status as an employee. The assessee was, therefore, granted a benefit within the meaning of s. 17(2)(iii), which could be added to the assessee's income.
19. In CIT vs. G. Venkataraman (1978) 111 ITR 444 : TC 38R.356 while considering the provisions of s. 2(6C)(iii) of the Indian IT Act, 1922, this Court held that the benefit or perquisite contemplated in s. 2(6C)(iii) cannot be money itself as (a) if it is money, the question of its value being taken into account or the benefit or perquisite being converted into money will not arise, and (b) the same section makes a distinction between 'benefit or perquisite' on the one hand and 'any sum paid' on the other, indicating that the 'benefit or perquisite' contemplated by the section is other than money.
20. The Calcutta High Court had an occasion to consider a similar question in CIT vs . P. R. S. Oberoi : [1990]183ITR103(Cal) . According to the facts arising in that case, the assessee, who was a director of the company, obtained an interest-free loan. The ITO held that the assessee got a benefit from the aforesaid company in the shape of getting funds without any obligation to pay any interest thereon. As the assessee was a director of the aforesaid company, he invoked the provisions of s. 2(24)(iv) of the IT Act, 1961, and taxed the interest income at the rate of 12 per cent. per annum written off by the company.
A question arose, whether the Tribunal was justified in deleting the interest not charged by the company on the ground that the provisions of s. 2(24)(iv) of the IT Act, 1961 were not attracted. While answering this question, the Calcutta High Court came to the following conclusion :
'Clause (24) of s. 2 of the IT Act, 1961 gives an inclusive definition of 'income'. Under sub-cl. (iv) thereof, 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 substantial interest in the company, or by their relatives, is treated as income. 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-cl. (vi) in s. 17(2) and s. 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 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 employee, 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 purpose of Expln. 2(b)(iii) to s. 40A(5) or s. 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 s. 2(24)(iv) of the Act.'
21. In CIT vs . Prem Narain Agarwal : [1982]136ITR407(Delhi) a question arose as to whether bonus or rights shares received by a director in respect of shares owned by him can be taxed as perquisite under s. 2(24)(iv). While answering this question, the Delhi High Court held that even in the personal assessment of a director or a managing director rights or bonus shares received by him in respect of his own shares would not be perquisite within the meaning of s. 2(24)(iv) of the IT Act, 1961. There is a difference between rights share and income. The bonus or rights share are not received for nothing. In the case of a director or managing director his personal position qua the company in respect of his shares is no different from that of the other shareholders of the company. All ordinary shareholders receiving rights or bonus shares are not treated as having received any income because they have got the rights or bonus shares. Similarly, a director or other person having substantial interest in the company who received bonus or rights share does not receive them because he is a director or managing director of the company or as a person having a substantial interest in the company, but because he is a shareholder, and he is to be treated exactly like any other shareholder. If the 'income' in question is not taxable in the hands of a director or managing director, who happens to hold the shares in his own right, it would follow that the same rights or bonus shares cannot be taken in the hands of HUF which the managing director or director may represent for the purpose of holding the shares.
22. The Madhya Pradesh High Court had an occasion in CIT vs . Krishnaram Baldeo Bank (P) Ltd. : [1983]144ITR600(MP) to consider a question whether the Department was justified in taxing the sum of Rs. 42,53,148 representing the difference between the book value of the trading assets and the price paid therefor to the predecessor, as revenue benefit in the hands of the assessee-bank for the asst. yr. 1959-60. While answering this question, the Madhya Pradesh High Court held that the difference between the book value of any part of the trading assets acquired by an assessee and the price paid by the assessee for the same cannot be regarded as a revenue profit directly arising from the purchase of the trading assets. It could not be said that any profit at all is made by the assessee from the purchase of any of the assets. What can be said is that assets worth a particular amount are purchased by the assessee for a small amount, but that does not represent the profit of the assessee and cannot be added to the assessable income of the assessee. According to the Madhya Pradesh High Court the difference between the book value of the trading assets and the price paid therefor to the predecessor-bank by the assessee-bank, could be regarded only as share premiums and could not be assessed as revenue profit. The amount had been treated as capital by the assessee-bank. The Supreme Court dismissed the SLP (Civil) No. 7705 of 1980 filed by the Department against the judgment, on 30th March, 1983 [vide (1983) 141 ITR 49.
23. Our attention was drawn to a decision of the Calcutta High Court in CIT vs . Salkia Transport Associates : [1983]143ITR39(Cal) . According to the facts arising in this case the assessee-firm took on hire 23 buses from a transport agency under an agreement, dt. 29th March, 1963, with the object of plying the buses. Clause 10 of the agreement provided that the assessee shall keep the motor vehicles in good running condition, and, if necessary, shall replace the motor vehicles at its own cost, keeping the owners informed about it and that the vehicles replaced would be the property of the assessee. The assessee replaced five of the worn out buses by five new buses. The assessee paid to the transport agency a sum of Rs. 1,76,172 as part of the consideration representing the cost of one chasis and the cost of building bodies of the 23 buses and claimed deduction of the amount as revenue expenditure. On these facts, the Calcutta High Court held that when lump sum payments were made by the assessee-firm for taking the buses on hire, the expenditure was treated by the Department to be of capital nature and not deductible for the purpose of computing the assessee's business income. The assessee, in its turn, hired out the buses and received some lump sum payments. On a parity of reasoning these receipts could not also be regarded as of revenue character. Furthermore, the Tribunal found that the Department had not been able to bring on record any evidence to show that the lump sum payments represented advance payment of part of hire charges and not premium for parting with the capital assets. Therefore, the amount received by the assessee from the sub-lessees were premiums for parting with a capital asset and the same were capital receipts. This decision was rendered while considering the provisions of s. 32 of the IT Act, 1961.
24. We have also come across a decision in Weight (H. M. Inspector of Taxes) vs. Salmon 19 Tax Cas 174. According to the facts arising in that case the respondent was a managing director of a limited company and entitled under a service agreement to a fixed salary. In addition, the directors of the company by resolution each year gave the respondent the privilege of applying for certain unissued shares in the company at their par value, which was considerably less than their current market value, the shares he applied for were duly allotted to and taken up by him, and had, in fact, been retained by him. The earlier resolutions recited that this privilege was granted having regard to the 'eminent and special services' the respondent had rendered to the company, but the resolutions relating to the years covered by the appeal made no reference to his services.
25. The respondent was assessed to income-tax under Schedule E on the basis of the difference between the market value of the shares taken up and the par price actually paid for them. On appeal, he contended that he had not received a profit, assessable to income-tax. The special Commissioners discharged the assessments. On further appeal, the House of Lords held that the privilege granted to the respondent represented money's worth and was assessable to income-tax as a profit of his office as managing director.
26. It was further held as under :
'I think it is really impossible to appreciate the argument which suggests that, that was not an immediate profit in the nature of money's worth received by the director as remuneration for his services. It appears to me to correspond very closely in substance to a case where a company might have sold 1,000 tons of its product, if the company were a colliery company, to a director who was in the coal trade, at a price which was one-third of the market price of the day. There no question could arise that the person was receiving a profit in the nature of money's worth and he has receiving that profit in the nature of money's worth to the extent of the difference between the price he could get for it and the price he had actually paid.'
27. A plain reading of the decisions cited supra would go to show that if a director is an employee, the value of any benefit or amenity granted by the company would be taxable as salary. If the director is not an employee and his remuneration is assessable under s. 56 as income from other sources, the value of the benefit or perquisite would still be assessable as income within the meaning of s. 2(24)(iv) of the IT Act, 1961. According to the facts arising in the present case, there is difference between the written down value of the buses, which were sold to the assessee by the company and the fair market value of the buses determined by the Department. According to the Department, the difference is benefit as contemplated under s. 2(24)(iv) of the Act. Even if the benefit received by the director of the company is of capital in nature, it can also be brought under the term 'value of any benefit' as contemplated under s. 2(24)(iv) of the Act. In order to tax the benefit received by a director from the company, it is not necessary that the director should be an employee director. The service rendered by the director has no connection for taking any benefit derived by the director under s. 2(24) of the IT Act, 1961. The fact that in the hands of the company, it was held by the Tribunal that the provisions of s. 52(2) did not apply, since it was shown that no extra consideration has actually passed, has no relevance for applying the provisions of s. 2(24)(iv) to tax any benefit received by the assessee as a director from the company. The fact that there was no direct receipt to the assessees while transferring the buses for under-value is also not relevant for the purpose of bringing any benefit to tax under s. 2(24)(iv) of the Act. The fact that the company would not suffer any detriment because of this transaction is also immaterial for taxing any benefit received by a director from the company. The intention of the legislature was to tax any benefit if it is received by a director or by a relative of the director or such person, who is having substantial interest in the company, irrespective of the fact whether the director is an employee director or the benefit received was in the nature of capital, or whether there is any direct receipt in the transaction or whether there is any detriment to the company or not in the transaction, or whether s. 52(2) was held to be not applicable in the case of the company, since there was no extra consideration actually passed, under the provisions of s. 2(24)(iv) of the IT Act, 1961, as deemed income.