COMMISSIONER OF Income Tax vs S. P. JAIN.

These two references, u/s 66(1) of the Indian Income Tax Act, at the instance of the Commissioner of Income Tax, Bihar and Orissa, relate to the assessment year 1951-52 and 19522-53. The corresponding accounting years of the assessee are the years beginning on November 1, 1949, and ending with October 31, 1950, and beginning on November 1, 1950, and ending with October 31, 1951, respectively. The short question referred is, whether the benefits not convertible into money received by the assessee as a shareholder of a company, Ashok Marketing Ltd., will be assessable during the two years as income chargeable u/s 12 of the Income Tax Act, 1922. The assessee holds the majority of shares in that company and, as it appears from the order of the Income Tax Officer, he received benefits from the company, such as residence in a rent-free house, payment of charities at his behest. The Income Tax Officer, treated these kinds of benefits as "constructive income" and added them to the assessed income of the assessee. On appeal by the assessee, the appellate Assistant Commissioner held that the value of such benefits which are not convertible into money cannot be brought to tax as income in the hands of the assessee. The same view was taken in appeal by the department before the Tribunal.

There was an amendment, and section 2(6C) of the act was recast in 1955 (see section 3 of the Finance Act, 1955). The amended provisions came into force from the assessment year 1955-56. That amendment included, within the meaning of income, the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by any other person who has a substantial interest in the company and who is concerned in the management of the business of that company being the beneficial owner of not less than 20% of the shares of the company. According to this amendment, there cannot be any doubt that the nature of income which was added by the Income Tax Officer will be assessable income, but the years of assessment with which we are concerned were prior to the coming into effect of the amendment. Therefore, we have to consider whether, as stated by the Income Tax Officer, and be assessed to tax. The answer to this question is bound to be in the negative, because the definition of "income", as given in the Act, at the relevant time could not include such benefits. In our view, the opinion expressed by the Tribunal was correct.

Learned counsel appearing for the Commissioner referred us to a case in Lady Miller v. Commissioners of Inland Revenue. There, in the trust made by the testator, a provision was incorporated that his widow would occupy the house of the testator free of rent and tax. The trustees were paying the tax of the house while it was in the occupation of the widow. A question arose if the widow could be assessed to tax in respect of the rent that she should have paid for that house and also for the tax which was paid by the trustees. It was held that she was so liable. The case is distinguishable from the present one. There, a benefit was conferred upon the widow which could have been enforced in law. The benefit had a regularity, certainty and was related to a definite source. That (benefit) was also convertible into money. But, in the instant case, the assessee could not have enforced the alleged benefits against the company. Rather, the company could withdraw them at its option, at any time, if it liked. They were not convertible into money; the question framed is on that assumption. Until the value of the benefits and perquisites was brought within the definition of income, that remained outside the taxable area. While making the amendment, Parliament appointed the time from which that enlarge definition, for purposes of taxation, shall take effect. This lends further clarification to the meaning of the word "income" in the act, before the amendment.

For all these reasons, we are of the view that the value of the benefits received by the assessee from the Ashok Marketing Ltd., which were not convertible into money, did not constitute "income" chargeable u/s 12 of the Income Tax Act, 1922.

The reference is disposed of accordingly. The hearing fee for the two cases is fixed at a consolidated sum of Rs. 250 payable to the opposite party by the Commissioner of Income Tax.

Question answered in the negative.