While hearing the case of Mr. Anil Kumar Sharma, Delhi bench of Income Tax Appellate Tribunal (ITAT) recently ruled that interest-free loan from firm to a director of a Company which provided a loan to the said firm is not taxable as perquisite under the Income Tax Act.
The assessee in the instant case is an individual Mr. Anil Kumar Sharma who is chief managing director of M/s. Ultra Home Construction Pvt. Ltd and he has filed his return of income for the relevant assessment year and declared total income at Rs. 5255320.
During the course of assessment proceedings, the Assessing Officer (AO) has noticed that the Assessee has received an advance of Rs. 5670500/- from M/s. AHS Joint Venture for which no interest has been paid and the joint venture was paid a loan of Rs. 127712707/- from M/s. Ultra Home Construction Pvt. Ltd. Therefore, the benefit was given to the assessee by providing interest-free loan by the joint venture. Therefore the AO made an addition u/s 2(24)(iv) of the Income Tax Act 1961 considering interest at 6% of amounting to Rs. 34.06 lacks as the benefit received by UHCPL as income.
On appeal, the CIT(A) granted relief to the Assessee by deleting the addition made by the AO and held that such income is chargeable to tax in the hands of the assessee only if it is received from the company in which the assessee is holding substantial interest but not from a partnership firm. The Authority further stated that the amount was advanced to the assessee to provide a counter guarantee for raising bank loans and therefore headed due to commercial expediency and it does not have any legal or factual basis.
Feeling aggrieved, the Revenue approached the tribunal on appeal against the order passed by the authority.
After analyzing the facts and circumstances deeply, the tribunal bench comprising of Judicial Member Sudhanshu Srivastava and Accountant Member Prashant Maharishi observed that according to the aforementioned section any benefit or perquisite obtained from the company by a director is income. In the present case, the assessee is a director has provided the loan of Rs. 12.77 crores to a partnership firm and from that firm assessee has got interested free funds as loans of Rs. 5.67 crores. Whether the about transaction falls under the definition of income under section 2 (24) (IV) of the act or not is delimited issue.
Further, the division bench rejected the findings of the CIT(A) that benefit is to be “received” from the company. The bench also noted that there could not find the text of the section that benefit is to be received from the company and It provides rather than the benefit is to be “obtained” from the company. Furthermore, there is no relationship between the amount advanced to the appellant to provide the guarantee for raising of the bank loan by the lender company to fund the project and headed commercial expediency.
While concluding the issue the bench set aside the appeal of the Revenue to the file of the AO with a direction to the assessee to show before him that how the above transaction of receiving loan from a firm to the assessee free of interest where a company where the assessee is director which is provided huge interest free funds to such firm is not chargeable to tax as income under section 2 (24) (iv) of the Act.
