Commissioner of Income Tax vs M.R. Ruia

Sugla, J.—The only question of law we are called upon to answer in this reference u/s 256(1) of the Income Tax Act, 1961, is :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the expenditure on the foreign trips of the assessee''s minor daughters and Dr. Madan, met by the companies, in which the assessee was a director, could not be said to be an obligation which, but for such payment, would have been payable by the assessee and in thus holding that the amount of Rs. 26,021 was not the income of the assessee within the meaning of section 2(24)(iv) of the Income Tax Act,1961 ?"

It is evident from the question of law itself that the expenditure in question has been incurred by the company of which the assessee is a director on the foreign trips of the assessee''s minor children and a friend by the name of Dr. Madan, the break-up of which is as under :

Rs. Miss Nandini Ruia 5,161 Shri S. M. Ruia 10,511 Dr. Mohan Singh of similar nature 5,195 Another item of expenditure borne by the company 5,164 --------- Total 26,031 ---------- (wrongly taken as Rs. 26,021).

Shri Jetly, learned counsel for the Department, strongly relied on the Delhi High Court decision in the case of The Commissioner of Income Tax, Delhi Vs. Nar Hari Dalmia, New Delhi, , in support of the Department''s case for disallowance. Shri Patel, learned counsel for the assessee, on the other hand, submitted that the question was squarely covered by this court''s decision in the case of Commissioner of Income Tax, Bombay City-I Vs. Ramnath A. Podar, . Shri Jetly, it may be stated, made an attempt to distinguish this court''s decision by pointing out that the foreign tour expenses involved in that case were of the wife, whereas in the instant case these pertain to the foreign tours of minor children and a friend.

The question is, of course, required to be considered in the context of the provisions of section 2(24)(iv) of the Income Tax Act, 1961, which reads as under :

"2. (24) ''income'' includes - ...

(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 going through this court''s decision in Commissioner of Income Tax, Bombay City-I Vs. Ramnath A. Podar, , we find that the ratio of the decision is squarely applicable in this case. No doubt, the expenditure involved in that case was that of the wife of the assessee, a director in the company. The reason given for not treating such an expenditure as the income of the assessee is (i) there is no warrant for treating the value of any benefit or perquisite received by the director''s relative as the income of the director, unless there is some legal fiction or a deeming provision by which the value of such benefit or perquisite received by a relative of the director is to be regarded as the income of the director, and (ii) the mere fact that the company had met the foreign tour expenses of the assessee''s wife does not automatically lead to the conclusion that the assessee had an obligation to take his wife abroad which, but for the company''s making the payment, the director would have had to bear. As stated earlier, this reasoning is squarely applicable in this case and the decision is binding on this court.

In the result, following this court''s decision in Commissioner of Income Tax, Bombay City-I Vs. Ramnath A. Podar, , we answer the question in the negative and in favour of the assessee. No order as to costs.