Calcutta H.C : The petitioner has challenged the notice dt. 7th March, 1983, issued under s. 148 of the Act for the asst. yr. 1966-67

Counsel Appeared

Dr. Debi Prosad Pal & Soumitra Mukherjee, for the Petitioner : M.P. Agarwal & P.K. Bhowmick, for the Respondents

JUDGMENT

KALYAN JYOTI SENGUPTA, J. :

By this writ petition, the petitioner has challenged the notice dt. 7th March, 1983, issued under s. 148 of the Act for the asst. yr. 1966-67. Dr. Pal, in support of this writ petition, contends that the concerned respondent has no jurisdiction to issue the notice unless certain conditions mentioned in the aforesaid section are fulfilled. In this case, though it is mentioned in the impugned notice that he has reason to believe that the petitioner has escaped assessment of an income but in fact there cannot be any reason to believe nor the same has been spelt out in the affidavit-in-opposition. In the affidavit-in-opposition it has been stated that since the petitioner enjoyed interest- free loan and such benefit of non-payment of interest cannot be termed to be an income within the meaning of s. 2(24) of the IT Act, 1961. Dr. Pal contends that a Division Bench of this Court has held, while deciding the question as to whether a benefit and/or enjoyment of interest-free loan can be termed to be an income within the meaning of s. 2(24)(iv) of the Act, that non-charging of interest or for that matter non-payment of interest on the loan cannot be termed to be a benefit so as to be described as an income. This judgment has been rendered in the case of CIT vs. P.R.S. Oberoi (1990) 84 CTR (Cal) 191 : (1990) 183 ITR 103 (Cal) : TC 38R.357. Dr. Pal further contends that the aforesaid ratio of the judgment of the Division Bench of this Court has been entirely approved by a later judgment of the Supreme Court in V.M. Salgaocar & Bros (P) Ltd. vs. CIT (2000) 160 CTR (SC) 225 : (2000) 243 ITR 383 (SC). Dr. Pal further contends that unless both the conditions which are sine qua non for issuance of a notice, are satisfied the authority concerned cannot issue such notice. In support of his submission he has relied on Calcutta Discount Co. Ltd. vs. ITO (1961) 41 ITR 191 (SC) : TC 51R.779, ITO vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) : TC 51R.598, Indian Oil Corporation vs. ITO (1986)

58 CTR (SC) 83 : (1986) 159 ITR 956 (SC) : TC 51R.811 and Coca-Cola Export Corporation vs. ITO (1998) 146 CTR (SC) 250 : (1998) 231 ITR 200 (SC) : TC S51.4058.

Mr. Agarwal, appearing for the respondents, contends that the judgment of the Division Bench as well as the Supreme Court have been rendered on the question of benefit given interest-free loans to the salaried employees concerned. The aforesaid judgment cannot help this case as the petitioner herein is not a salaried employee and this loan was obtained without paying any interest. Therefore, it will come within the definition of s. 2(24)(iv) and it is a benefit which was derived by the petitioner so as to render the same being an income. Therefore, the reason for which the impugned notice was issued has got solid foundation as there is no jurisdictional error on the part of the respondents in issuance of the aforesaid impugned notice.

Having heard respective contentions of learned counsel, I am of the view that the question falling for consideration is as to whether the impugned notice issued by the respondent is sustainable on the basis of the disclosed reasons mentioned in the affidavit. Mr. Agarwal is not really disputing under what circumstances the aforesaid impugned notice should be issued. I am of the further view and it is a settled position of the law that there are conditions which are to be fulfilled before exercising of power under s. 148 for issuance of the impugned notice. These conditions are that the concerned authority must have reason to believe that there is escapement of income. In order to explain the aforesaid position first of all there should be an income within the meaning of the IT Act and then question of escapement will arise. Unless there is an income and followed by escapement the question of issuance of notice under the aforesaid section does not and cannot arise. In order to examine whether there is an income in the true sense as per the affidavit-in-opposition or not, I am of the view that the benefit enjoyed by the petitioner by way of exemption of payment of interest cannot be termed to be an income in any sense. The Revenue has tried to bring this case within the purview of s. 2(24)(iv) of the IT Act. The Division Bench of this Court has categorically held as follows : “The question, however, remains as to whether the non- charging of interest will also fall within the purview of s. 2(24)(iv) of the Act. For the purposes of applying s. 2(24)(iv) of the Act, the same test as to what constitutes a benefit or a perquisite has to be applied. 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 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 benefit or a perquisite for the purposes of s. 2(24)(iv) of the Act.”

It has further been held : “In the absence of any finding that the company has paid any interest on the overdrawn amount which, but for such payment, would have been paid by the assessee, the amount cannot be treated as a benefit within the meaning of s. 2(24)(iv) of the Act.” This judgment has been approved by the Supreme Court as cited by Dr. Pal which has been reported in V.M. Salgaocar & Bros. (P) Ltd. vs. CIT (supra) . In view of the aforesaid, I have no option but to hold that the benefit which is treated to be an income is not a benefit nor can be termed to be an income within the meaning of s. 2(24)(iv) of the Act. If it is not an income at all, the question of escapement does not arise. Therefore, the conditions for issuance of the notice under s. 148 have not been fulfilled. I am unable to accept the argument of Mr. Agarwal that the aforesaid judgment will be applicable in the case of salaried employees. I am of the view, the Division Bench of this Court has held not in the context of income derived by the salaried employees but the interpretation given by their Lordships generally and the same is having general application. Under such circumstances, I hold that the aforesaid authority had no material nor any reason to believe that the petitioner has escaped income. Therefore, the notice is liable to be and is hereby set aside for the reasons as mentioned hereinabove. The writ petition succeeds. The rule is made absolute.

There will be no order as to costs

[Citation : 250 ITR 362]