Law: Income Tax Act, 1961

Section: 17(2)(iv),260

Law: Income Tax Act, 1922

Section: 2(24)

Section 17(2) of the Income-tax Act, 1961 - Salaries - Perquisites - Assessment year 1963-64 - Whether in cases where in addition to debtor and creditor relationship there exists a relationship of employer and employee and such employee is a director of employer, provisions of section 17(2)(iii) would be directly attracted - Held, yes - Assessee director of a company had overdrawn amount from his current account in company - Company had borrowings from outside and paid interest - In company's assessment interest chargeable on over drawings of assessee was disallowed - Assessee had nothing with borrowings of company nor had privity of contract with creditors of company - Whether section 17(2)(iv) was not applicable but section 17(2)(iii) was attracted to case - Held, yes FACTS The assessee was periodically depositing various amounts like salary received by him as managing director, rents of certain properties, value received by the sale of paddy and sale of plantation leaves, etc., into company's account. He was also, drawing out of the account money for his expenses. For the assessment year 1963-64, corresponding to the accounting year ending 31-3-1963, there was an opening debit balance against the assessee in a sum of Rs. 3,00,611 and a closing debit balance of Rs. 3,59,912. The company was borrowing moneys in respect of which it was paying interest at 9 per cent. The ITO considered that to the extent of the debit balance against the assessee, there had been a diversion of money for non-business purposes. In the assessment of the company, therefore, the ITO disallowed a sum of which was the amount arrived at, as the interest that would be referable to the amounts withdrawn by and standing to the debit of the assessee. While making assessment of the assessee, treated that amount as 'perquisite' within the meaning of section 17(2)(iv) and added that amount to the salary income of the assessee. The AAC upheld the order. The Tribunal was of the view that since there was no privity of contract between the creditors of the company and the assessee, there was no obligation on the part of the assessee to pay any interest to the creditors, and that, therefore, the…

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