V.M. SALGAOCAR AND BROS. PVT. LTD. ETC. ETC. versus COMMISSIONER OF INCOME TAX ETC.

Citation: [2000] 2 S.C.R. 1169 · Decided: 10-04-2000 · Supreme Court of India · Bench: D.P. WADHWA · Disposal: Disposed off

Cited by 4 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

V.M. SALGAOCAR AND BROS. PVT. LTD. ETC. ETC. 
A 
v. 
COMMISSIONER OF INCOME TAX ETC. 
APRIL 10, 2000 
[D.P. WADHWAAND S.S. MOHAMMED QUADRI, JJ.] 
B 
Income Tax Act 1961-Sections 17(2), 40A(5)-Amounts drawn from 
company by directors and employees-Interest ·not charged by company-
Company borrowing monies on payments of interest-Whether Revenue can 
object to the allowance of expenditure to the extent of interest not charged 
C 
on the directors-Held, No, in the absence of any proof that the amounts were 
diverled for the benefit of the directors. 
Income Tax Appellate Tribunal-Whether High Courl can go beyond the 
finding of Held, No. 
Interpretation of Statutes-Taxation Laws (Amendment) Act, I984-
Amendment to Section 17(2) and 40A( 5)-Introduced with effect from I .4. I 985-
Later on omitted with effect from the date of insenion-Held, cannot be brushed 
aside while interpreting the parlicular provisions-Constitution of India-
Article I 33-Appeal by cenificate dismissed in limine-Held, it merges with the 
order of the High Court or Tribunal from which the appeal was provided. 
In the assessment year 1979-80, the Income Tax Officer disallowed a 
sum equal to 15 % of the amount standing to the debit of the Directors in 
the books of the Assessee Company, under Sections 40-A(5) and 17(2) of 
the Income Tax Act, 1961. The Income Tax Officer observed that the 
assessee which was a company borrowed monies by paying interest @ 15 % 
p.a. and claimed the interest as deductible expenditure. He held that since 
the Directors of the Assessee Company were drawing monies from the 
company without paying any interest, an amount equal to the interest that 
could have been charged was not to be allowed as a deduction in view of 
Section 40-A(5). On appeal by the Assessee Company, the CIT (Appeals) 
upheld the order of the Income Tax Officer. On appeal by the Assessee 
before the Appellate Tribunal, it was held that no evidence had been led by 
the Revenue to show that borrowed funds were directly diverted for the 
benefit of the Directors, and that the non-charging of interest on the debit 
balance in running account of the Directors would not constitute perqui-
l l 69 
D 
E 
F 
G 
H 
1170 
SUPREME COURT REPORTS 
[2000] 2 S.C.R. 
A 
site. The Tribunal also observed that the Taxation Laws (Amendment) Act, 
1984 for the first time provided that the difference in interest between the 
prescribed rate and that charged by an employer to the employee should 
be treated as perquisite. 
B 
c 
D 
E 
F 
G 
H 
On a reference, the High Court relying on the Judgment of Madras 
High Court, held in favour of the Revenue and against the Assessee Com-
pany. 
During the assessment years 1980-81 and 1981-82 in the case of 
assessment of a Director of the Company, the Income Tax Officer held that 
non-charging of interest on the debit balance would amount to perquisite 
within the meaning of Section 17(2) of the Act 1961. On appeal by the 
assessee, the CIT (Appeals) relying on the decision in the case of Assessee-
Director for the earlier year held that it could not be treated as a perqui-
site. On appeal by Revenue before the Tribunal, the order of CIT (Ap-
peals) was upheld holding that no ground had been made out by the 
Revenue to depart from the view taken earlier. The reference before the 
High Court at the instance of the Revenue was dismissed based on the 
Judgments rendered in two different cases. 
In appeal to this Court the Assessee-Appellant contended that, in the 
case of the Company for the assessment year 1980-81 the decision of the 
CIT (Appeals) holding that the non-charging of interest will not amount to 
a perquisite has been approved by this Court and the Appeals have been 
dismissed after admission, that a different view cannot be taken in respect 
of the same Company for the assessment year 1979-80. 
Allowing the Appeals by assessee and dismissing the appeals filed by 
Revenue this Court 
HELD : 1. Different considerations apply when a special leave peti-
tion under Article 136 of the Constitution is simply dismissed by saying 
'dismissed' and an appeal provided under Article 133 is dismissed also 
with the words 'the appeal is dismissed'. In the former case it has been laid 
by this Court that when special leave petition is dismissed this Court does 
not comment on the correctness or otherwise of the order from which leave 
to appeal is sought. But what the Court means is that it does not consider it 
to be a fit case for exerc

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