Assessee company had advanced interest free loans to its employee directors where the Revenue was alleging use of interest bearing borrowed funds for giving the loan. According to the Revenue, this resulted in a taxable perquisite in the hands of the director under section 17(2) of the Income-tax Act and also invoked the then section 40A(5) of the said Act enabling disallowance of remunerationpaid to the employees in excess of the specified limits. The said proceedings related to AY 1979-80 wherein the AO\u2019s stand had been confirmed by the High Court. Subsequent thereto, since in the cases of P. Krishna Murthy v. CIT (1997) 224 ITR 183 <\/em><\/strong>and CIT <\/em><\/strong>v.M. K.\u00a0 Vaidya\u00a0 (1997) 224 ITR 186 <\/em><\/strong>a\u00a0 view was taken\u00a0 that no benefit or perquisite arises, the reference application for AY 1980-81 was decided in favour of the Assessee by the High Court. Appeal filed by the Revenue from the said order based on a certificate grantedby the High Court under section 261 of the Act had been dismissed stating \u201cthe appeal is dismissed\u201d. The relevant proceedings before the Supreme Court related to AY 1979-80.<\/p>\n \u00a0<\/p>\n Whether granting of an interest free loan or a loan at concessional rate of interest would give rise to benefit or perquisite in the hands of the employee.<\/p>\n \u00a0<\/p>\n Court has referred to the fact that sections 17(2) and 40A were amended by the Taxation Laws (Amendment) Act, 1984 with effect from 01.04.1985 to\u00a0 include the difference in the rate of interest as a benefit or\u00a0 perquisite based on\u00a0 the\u00a0 rate of interest as notified by the Central Government to be\u00a0 charged by it from\u00a0\u00a0\u00a0\u00a0\u00a0 its employees on similar loans. This amendment was omitted by the Finance Act, 1985 with effect from 01.04.1985. Therefore, it stood omitted from the\u00a0 date on which it was to\u00a0 become effective. Referring to\u00a0 this legislative history,\u00a0 the Court has held that an amending provision can certainly give guidance for interpretation of an existing provision and concluded that subsequent omission\u00a0\u00a0\u00a0\u00a0 of the amendment brought in to make the benefit or perquisite arising from an interest free loan or loan given at a\u00a0 concessional rate of\u00a0 interest would show\u00a0 that the Parliament never intended the same to beotherwise treated as a taxable<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n benefit or perquisite. At another place, the cardinal rule of construction of a fiscal statute has been emphasized that, even if two views are possible, the view which favours the assessee must be accepted. With respect to section 40A(5), the Court has also approved the conclusion reached by the Andhra Pradesh High Court in CIT v. Vazir Sultan Tobacco\u00a0 Co. Ltd (1998) 173 ITR 290(AP) (HC) <\/em><\/strong>and\u00a0 the Calcutta High Court in CIT v. P.\u00a0 R. S. Oberoi (1990) 183 ITR 103 (Cal) (HC)\u00a0 <\/em><\/strong>and Indian Oxygen Ltd. v. CIT (1994) 210 ITR 274 (Cal) (HC) <\/em><\/strong>that disallowance could be made of an expenditure incurred by the assessee which it claims as a deduction and no deduction of expenditure had been claimed by the employer in this regard. It has also rejected Revenue\u2019s submission that if the money was not\u00a0 lent to the employee it would have been placed on a fixed deposit or invested in some other profitable manner as importing a fiction into the section which cannot\u00a0 \u00a0be permitted.<\/p>\n \u00a0<\/p>\n Granting of a interest free loan or a loan at concessional rate of interest by an employer to its employee does not result is a taxable benefit or perquisite unless specifically so provided.<\/p>\n \u00a0<\/p>\n In what circumstances the High Court Order will merge with that of the Supreme Court.<\/p>\n \u00a0<\/p>\n Referring to the distinction between a special leave petition under article 136 of\u00a0\u00a0 the Constitution and an appeal provided in article 133 thereof, the Court has held that when a special leave petition is dismissed the Court does not comment on\u00a0\u00a0\u00a0 the correctness or otherwise of the order from which leave to appeal is sought.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 It means that the Court does not consider it to be a fit case for exercise ofjurisdiction. Whereas, when an appeal under article 133 is dismissed, though by\u00a0\u00a0\u00a0\u00a0 a non speaking order, the doctrine of merger applies. In such a case the Supreme Court upholds the decision of the High Court or Tribunal from which the appeal arose. Based thereon, the Court has held that dismissal of the appeal for\u00a0\u00a0\u00a0 AY 1980-81 should be binding on them, in\u00a0 the\u00a0 present proceedings relating to AY1979-80.<\/p>\n \u00a0<\/p>\n Doctrine or merger would apply to dismissal of an appeal filed before the Supreme Court under article 133 of the Constitution but not to a simplicitor<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n dismissal of a special leave petition filed under article 136 thereof. (AY. 1979-80) (CA Nos. 657 of 1994 and 4012-13 of 1998 dt. 10-4-2000)<\/p>\n Editorial<\/em><\/strong>: For the principle on doctrine of merger, reference may also be made to<\/p>\n \u201cWhen I admire the wonders of a sunset or the beauty of the moon, my soul expands in the worship of the creator.\u201d<\/em><\/p>\n – Mahatma Gandhi<\/p>\n","protected":false},"excerpt":{"rendered":" S.261 : Appeal to Supreme Court \u2013 Doctrine of merger \u2013 Dismissal of special leave petition \u2013 Dismissal of Appeal – Grant of interest free loan or loan at a concessional rate of interest does not result in benefit or perquisite to the employee [S. 17(2) 40A(5), Constitution of India , Art, 133, 136 ]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-13473","post","type-post","status-publish","format-standard","hentry","category-income-tax-act"],"acf":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9S2Rw-3vj","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13473","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/comments?post=13473"}],"version-history":[{"count":1,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13473\/revisions"}],"predecessor-version":[{"id":13474,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13473\/revisions\/13474"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/media?parent=13473"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/categories?post=13473"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/tags?post=13473"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Issue I<\/h3>\n
Views I<\/h3>\n
Held I<\/h3>\n
Issue II<\/h3>\n
Views II<\/h3>\n
Held II<\/h3>\n
Kunhayammed & Others v. State of Kerala 245 ITR 360 (SC) and Principal CIT v.Maruti Suzuki India Ltd. 416 ITR 613. <\/em><\/strong>It also requires consideration, whether this judgment could be relied upon as a precedent for non-chargeability of savings in costs as income.<\/h4>\n