High Court Of Delhi
CIT vs. Dayawati Modi
Sections 2(24)(iv), 17(2), 28, 256
S.B. Sinha, C.J. & A.K. Sikri, J.
IT Ref. No. 45 of 1983
14th December, 2001
R.C. Pandey with Ms. Prem Lata Bansal, for the Revenue : S.K. Aggarwal, for the Assessee
A.K. SIKRI, J. :
The questions of law raised in all these income-tax references are common. For the sake of convenience, it would be appropriate to reproduce the questions referred for opinion in IT Ref. No. 287/81 :
1. “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the value of perquisite on account of residential house known as âModi Bhawanâ was not assessable under s. 28 r/w s. 2(24)(iv) of the IT Act, 1961, but under s. 17(2) of the IT Act, 1961?
2. Whether, on the facts and in the circumstances of the case, the method of assessing its value was correct in law and whether the Tribunal was justified in reducing it from the value assessed by the CIT(A) ?”
2. Before adverting to the aforesaid questions, it would be appropriate to state the background facts under which these questions have arisen in all these cases. The various assessees in these cases are family members who were provided accommodation in the residential house known as âModi Bhawanâ. This was treated as a perquisite to them. These persons included one G.M. Modi. In a return filed by G.M. Modi the question arose as to whether the value of the perquisite on account of the aforesaid residential house was assessable under s. 2 (24)(iv) of the IT Act or s. 17(2) of the said Act. Income-tax Appellate Tribunal (Delhi Bench-B) decided on 12th Dec., 1974, the said questions in favour of G.M. Modi holding that it is the provision of s. 17(2) which would be applicable in the instant case. It is this order of the Tribunal, which was in respect of asst. yrs. 1965-66, 1966-67 and 1967-68, which has been followed in the case of G.M. Modi for subsequent years as well as of other assessees in respect of various assessment years. The IT Department that is the CIT sought reference under s. 256(2) of the IT Act against these orders of the decision of the Tribunal and the orders were passed by this Court directing the Tribunal to refer the aforesaid questions for its opinion. Since some of the assessees were subject to the jurisdiction of IT Department in U.P., the High Court of Judicature at Allahabad also directed the aforesaid questions to be referred for its opinion. By orders of Supreme Court, all these references stood transferred to this Court.
3. Before proceeding further it may be mentioned at this stage that another question regarding value of this perquisite also arose. It was as to whether in respect of this rent-free accommodation provided to the assessees, value is to be based on standard rent fixed by the Rent Controllerâs orders in similar case or the prevailing market rate of rent. This question was answered by this Court in the case of CIT vs. M.K. Modi (1993) 112 CTR (Del) 176 : (1993) 200 ITR 673 (Del) : TC 58R.460 holding that when the property belonging to the company is allowed to be used by the director then even though it may not be a case of letting out, the value of the rent-free accommodation has to be determined as per the decision of the Supreme Court in the case of Dewan Daulat Rai Kapoor vs. New Delhi Municipal Committee (1980) 122 ITR 700 (SC) : TC 40R.461 and the standard rent will determine the value.
4. Coming back to present references, as already noticed above, the lead case in which the Tribunal decided the matter in the first instance was that of the assessee G.M. Modi and decision rendered on 12th Dec., 1974. The reference cases which have arisen out of that are IT Refs. 206 to 211/1993. These cases were received in this Court on transfer from High Court of Judicature at Allahabad in the year 1993. The cases were listed before the Joint Registrar from time to time and the Department was directed to file the paper books. In spite of scores of opportunities having been given to the Revenue for this purpose, no paper books have been filed although in the process more than seven years have expired. When the matter came up for final hearing on 6th Dec., 2001, Mr. R.C. Pandey, learned counsel for the Revenue, was candid in accepting the position that even if further time is allowed for this purpose, Department shall not be in a position to file the paper books as the relevant papers are not traceable with the Department. In the absence of paper books in these cases, it is not possible to determine the question. Therefore, there is no option but to reject these references for non-prosecution [See CIT vs. Bombay Master Printers Association (1984) 146 ITR 339 (Bom) : TC 55R.1079 and CIT vs. ITAT & Anr. (1998) 150 CTR (Del) 319 : (1998) 232 ITR 207 (Del) : TC S55.4356. We order accordingly. The effect of that would be to uphold the decision of the Tribunal.
5. Since the order of the Tribunal which became the basis of the orders of the Tribunal in all other cases is upheld, the other references can also be answered in the same manner i.e., in favour of the assessees and against the Revenue. However, there would be additional reasons for doing so. It may be mentioned at this stage that order dt. 12th Dec., 1974, of the Tribunal is annexed as annexure in the paper book of IT Ref. No. 287/1981. A perusal of that order would show that the Tribunal recorded the finding of fact and proceeded on that basis that the ITO was not justified in treating the income on account of the perquisite under s. 2(24) of the IT Act, 1961, as he failed to consider the circumstances under which the accommodation was provided to the assessee and his brother K.N. Modi not as a director of the company but as an employee of the managing agents who were asked to pay a sum of Rs. 200 per annum for the accommodation provided by the managing agents of the company. It was found that the very basis of the assessment order was that the assessee was the employee of the managing agents, receiving salary as managing director of R.B. Multanimal & Sons (P) Ltd. which were managing agents of Modi Industries Ltd. On the basis of such a finding of fact, one has to examine as to whether s. 2(24) of the Act or s. 17 of the Act is applicable. It is cl. (iv) of s. 2(24) which is relevant and reads as under : “Sec. 2(24) “Income” includes : (i) ……. (ii) ……. (iii) …… (iv) 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.” On the other hand s. 17 deals with salary, perquisites and profits in lieu of salary of the employees. The submission of learned counsel for the Revenue was that s. 2(24)(iv) would be applicable. Pandey, learned counsel for the Revenue, pressed for applicability of s. 2(24)(iv) on the basis that it was the case of perquisite by a director and not an employee. This premise, itself is unfounded in lieu of finding of fact recorded by Tribunal and as noticed above. Moreover, nothing would turn on the decision as to which of the aforesaid two provisions are applicable inasmuch as even if this is treated as income in the hands of these assessees under s. 2(24) as a perquisite given to the director, ultimately value of this perquisite has to be determined. For determination of the value, one has to fall back on the formula contained in (1993) 112 CTR (Del) 176 : (1993) 200 ITR 673 (Del) : TC 58R.406 (supra) as per which it is the standard rent which has to be on the basis of standard rent fixed for such housing accommodation. In that view of that matter the result would remain the same.
These references are accordingly answered in favour of assessee holding that the value of perquisite on account of residential house was not assessable under s. 28 r/w s. 2(24)(iv) of the IT Act but under s. 17(2) of the said Act and the Tribunal adopted correct method of assessing its value.
[Citation : 257 ITR 301]