1. The assessee was the managing director of a company called Chockan Transports (Private) Ltd. (hereinafter referred to as "the company"). He was carrying on business of Bus transport. As and from August 19, 1959, the company which was formed for that purpose, took over the assets and liabilities of this business. After fixing the value of various assets and also taking into account certain liabilities, the result was incorporated by showing certain debits against the assessee. He was periodically depositing various amounts like salary received by him as managing director, rents of certain properties, value received by the sale of paddy and sale of plantain leaves, etc., into this account. He was also drawing out of the account money for his expenses. For the assessment year 1963-64, corresponding to the accounting year ending March 31, 1963, there was an opening debit balance against the assessee in a sum of Rs. 3,00,611 and a closing debit balance of Rs. 3,59,912. The company was borrowing moneys in respect of which it was paying interest at 9 per cent. The Income-tax Officer considered that to the extent of the debit balance against the assessee, there had been a diversion of money for non-business purposes. In the assessment of the company, therefore, the Income-tax Officer disallowed a sum of Rs. 29,718 which was the amount arrived at, as the interest that would be referable to the amounts withdrawn by and standing to the debit of the assessee. While making assessment of the assessee, he was of the view that the sum of Rs. 29,718 represented the amount of interest (paid by the company to its creditors) which, but for the company's paying, the assessee would have had to pay and that, therefore, it would amount to a "perquisite" within the meaning of Section 17(2)(iv) of the Income-tax Act, 1961. In that view, he added back the sum of Rs. 29,718 to the salary income of the assessee. On appeal by the assessee, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer, except that on a recalculation he arrived at the sum of Rs. 16,692 as the monetary equivalent of benefit derived by the assessee as against the sum of Rs. 29,718 added by the Income-tax Officer. How he arrived at this figure need not detain us. On further appeal by the assessee, the Tribunal considered the applicability of Sections 17(2)(iv) and 17(2)(iii) of the Act. As regards' the applicability of Section 17(2)(iv), it was of the view that since there was no privity of contract between the creditors of the company and the assessee, there was no obligation on the part of the assessee to pay any interest to the creditors, and that, therefore, the company could not be said to have paid any interest on behalf of the assessee. In that view, the Tribunal held that Section 17(2)(iv) would not apply. As regards the applicability of Section 17(2)(iii), the Tribunal was of the view that the benefit a amenity contemplated under that provision is only a benefit or amenity which would not be refundable or returnable. In the instant case, the overdrawings in current account would be refundable by the assessee to the company and, therefore, it would not come under Section 17(2)(iii). The Tribunal further observed that the relationship of the assessee and the company in respect of these overdrawings is a debtor and creditor relationship and the non-liability to pay interest on these overdrawings was not the result of any relationship of the assessee as an employee in that company and that in any case the relationship of the assessee as an employee in the company was too remote to consider the non-liability to pay interest as any benefit derived from the company by the assessee. On the foregoing reasonings, the Tribunal held that Section 17(2)(iii) was also not attracted. At the instance of the revenue, the following question has been referred :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 16,692 was not includible under the provisions of Section 17(2) of the Income-tax Act, 1961 ? "

2. We have no doubt that the Tribunal was right in its view that Section 17(2)(iv) would not be applicable to the facts and circumstances of this case. As we have already pointed out, the assessee was having a current account in which he had overdrawn. It is not clear from the records as to whether the amount overdrawn was from the amount borrowed by the company. Further, the assessee had nothing to do with the borrowings of the company and there was absolutely no privity of contract between the creditors of the company and himself. Certainly, therefore, the assessee was not obliged to pay any interest to the creditors which could have been paid by the company. As the interest was not payable by the assessee to the company's creditors, there was no payment by the company in respect of any obligation of the assessee within the meaning of Section 17(2)(iv). Clearly, therefore, the provisions of Section 17(2)(iv) would not apply.

3. Learned counsel for the revenue then relied on Section 17(2)(iii)(a), which reads as follows :

"For the purposes of Sections 15 and 16 and of this section,--

(2) 'perquisite' includes--...

(iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases--

(a) by a company to an employee who is a director thereof..."

4. The learned counsel submitted that to the extent he was not obliged to pay any interest on the overdrawings, the assessee had derived a benefit or an advantage and that, therefore, the value of such benefit would have to be included in the income of the assessee under the head "Salary". In this connection, he also invited our attention to Section 2(24) of the Act, which defines "income" as including, apart from the perquisite or profit in lieu of salary taxable under clause (2) of section 17, the value of any benefit or perquisite, whether convertible into money or not, obtained from the company either by a director or by a person who has a substantial interest in the company. The question referred to us does not call for a consideration as to whether the sum of Rs. 16,692 in question would be includible in the assessment as an income falling under Section 2(24)(iv). We, therefore, have to confine ourselves to the question whether it would amount to a "perquisite" falling under Section 17(2)(iii).

5. The import of the word "benefit" had come up for consideration in some of the decided cases which may now be usefully noted. In Owen v. Pook (Inspector of Taxes), [1969] 74 ITR 147 (HL) Lord Pearce observed that perquisite means a personal advantage, but would not include a mere reimbursement. In St. Aubyn v. Attorney-General, [1951] 2 All ER 475 ; 3 EDC 292, 335 (HL) in considering the meaning of the word "benefit" from a company for purposes of estate duty, Lord Tucker observed that it will have to be understood and given the normal meaning and as not excluding "other transactions... which, in the circumstances of particular cases, may clearly confer benefits on the deceased in the natural and ordinary meaning of that word ". The learned counsel for the revenue also brought to our notice a judgment of this court in Commissioner of Income-tax v. A.R. Adaikappa Chettiar, to which one of us was a party. At pages 97, 98, we find the following passage :

"The words 'benefit or perquisite obtained' from a company would take in, in our opinion, only such benefit or perquisite which the company had agreed to provide and which the person concerned could claim as of right based on such agreement and that a mere advantage derived from the company without its authority or knowledge will not amount to a benefit or perquisite obtained. We are not in a position to agree with the contention of the revenue that the word 'obtained' occurring in the said section need not be agreement-oriented, that the word 'obtained' merely meant 'taken' and that if the directors are in a position to take a benefit with a view to help themselves, even without the authority of the company or against its wishes, they will be governed by the above provision, and that both authorised and unauthorised benefits taken or received are to be treated alike for the purpose of this section. If the contention of the revenue is accepted, it will mean that an advantage taken by a director or other person without the authority of the company or against the wishes of the company will constitute a benefit or perquisite obtained from the company by such director or other person. If there is an unauthorised taking of an advantage or a benefit by a director from the company without its authority or knowledge, the company can always insist on the restitution of such advantage or benefit taken by a director and enforce the same legally in a court of law. In such cases there is a definite legal obligation to restore the advantage or benefit taken by a director without the authority of the company and it is not possible to hold that such advantage or benefit can be brought to charge."

6. The learned counsel pointed out that "the benefit or perquisite obtained" which was the language used in Section 2(6C)(iii) of the Indian Income-tax Act, 1922, not only includes those benefits which are agreement-oriented but also benefits conferred by the employer voluntarily, and these observations, therefore, would have to be understood only in the context of the particular facts and circumstances of that case. As one who was a party to that judgment, I may be permitted to point out that we were not concerned in that case whether a voluntary payment by an employer to an employee would amount to a perquisite or not. We were concerned in that case with the unauthorised user of certain vehicles by a director. Therefore, the use of the word "only " in the beginning of the portion of the judgment cited above cannot be given too much emphasis. But there could be no doubt that in order to bring a benefit or advantage within the provision, of Section 17(2)(iii), it must have a legal origin and since any unauthorised advantage taken by an employee without the authority of the employer would create a legal obligation to restore such advantage, it would not amount to a benefit or advantage within the meaning of Section 17(2)(iii). Learned counsel for the assessee faintly suggested that in this case also there is nothing to show that the assessee was permitted legally or by any resolution of the company to overdraw in his account. But, unfortunately, for the learned counsel, this point was not raised before any of the authorities or the Tribunal. In fact, we find that the assessee had a current account right from the year 1959, when the company took over his transport business. We, therefore, have to proceed only on the basis that the overdrawings in his account were not unauthorised. Even so, the learned counsel for the assessee contended that, in order to attract the provisions of Section 17(2)(iii), there should be a positive or express grant with respect to the particular benefit which is sought to be included as a "perquisite ". According to the learned counsel, the grant if at all by the company, was the loan and there was no grant of the interest. The company could only be said to have desisted from collecting the interest and cannot be said to have made a positive grant of the interest payable on the overdrawings. We are unable to agree with this contention of the learned counsel. The grant is, of course, the sum of money overdrawn. In the normal circumstances, the company is not expected to allow its funds to be given to anybody for use without any obligation to pay interest. The company in this case allowed the assessee to withdraw the money, but without any obligation to pay interest. To the extent it allowed the assessees to use the funds of the company without any obligation to pay. interest thereon, the company should certainly be deemed to have granted a benefit to the assessee.

7. It was next contended by the learned counsel for the assessee that, in order to attract the provisions of Section 17(2), the benefit granted or provided should arise directly out of the relationship of employer and employee. In other words, it was the contention of the learned counsel that there is a relationship of debtor and creditor between the assessee and the company and the benefit, if at all, was derived by him only as a debtor and not by virtue of his being an employee of that company. It is true that the company had given such an interest-free loan to a debtor; but, in cases where in addition to the debtor and creditor relationship there exists a relationship of employer and employee and such employee is a director of the employer, the provisions of Section 17(2)(iii) would be directly attracted. It is by reason of the fact of his being an employee deriving such a benefit, that provision directs it to be included in the salary income of such an employee. Normally, a company is not expected to allow its funds to be utilised by its employee for his personal benefit. In cases where the company permits an employee to utilise its funds for his own benefit, it shall be deemed to have given a personal benefit to such employee. The relationship of employer and employee, in such circumstances, is the primary reason for grant of such benefit to the employee. We have, therefore, no doubt that the benefit was not derived by the employee de hors his status as an employee.

8. Learned counsel for the assessee then contended that the employee did not derive any benefit at all ; but if at all, the employer has waived his right to receive the interest. In this connection, he referred to the decisions in Commissioner of Income-tax v. Birla Gwalior (P.) Ltd., , Commissioner of Income-tax v. New Jehangir Vakil Mills Co. Ltd. [1959] 37 ITR 136 (Bom) and British Mexican Petroleum Company Ltd. v. Jackson (H. M. Inspector of Taxes) [1932] 16 TC 570 (HL). In none of these cases, there existed any relationship of employer and .employee between the persons who waived the benefit and the persons who derived the benefit. They were cases of waiver of managing agency commission by the managing agents and certainly the company cannot be considered to be an employee of the managing agents. In these circumstances, it was held in those cases that the amount waived could not be considered as a revenue income of the company. So far as the managing agent is concerned, the amount waived was held not assessable as his income. These decisions, therefore, in no way help the contention of the learned counsel that the benefit in this case amounted to a mere waiver and not liable to be assessed as a perquisite. Further, in the present case, it would not be correct to say that the company had desisted the collection or waived the interest. There was no liability to pay interest and the question of waiver, therefore, does not arise.

9. The learned counsel then relied on the decision in Commissioner of Income-tax v. L.W. Russel, [1964] 53 1TR 91 (SC) and contended that even if it was a benefit, it could not be included. That was a case where the question for consideration was whether the contributions made by an employer to a non-recognised provident fund can be held to be a benefit derived by the employee. It was held that it could not be included as income of the employee ; but that was on the ground that until the employee attained the age of superannuation, he did not acquire any vested right in the employer's share of the contributions and that what he had was only a contingent right to receive the total contributions made by the employer on the happening of a contingent event. This decision is, therefore, not of any assistance to the assessee. In this connection, we may also refer to a decision in Wright (H. M. Inspector of Taxes) v. Salmon, [1935] 19 TC 174 (HL) Which is very near to the point for consideration in this case. In that case, the assessee was the managing director of a limited company and under the service agreement he was entitled to a fixed salary. In addition to this salary, the directors of the company each year by resolution gave the assessee the privilege of applying for certain unissued shares in the company at the par value which was considerably less than their current market value. The shares which he applied for were duly alloted to him. Though in the earlier years there were resolutions reciting that this privilege was granted having regard to the eminent and special services the assessee had rendered to the company, with reference to the assessment year in question, there was no such resolution; The House of Lords held that the difference between the market value of the shares taken up and the par prices actually paid for them would amount to a privilege granted to the assessee and was assessable as a profit of his office as the managing director. Though the question that arose in that case was as to whether that advantage given to the managing director came under the words "salaries, fees, wages, privileges or profits whatsoever therefrom" and the learned Law Lords brought it within the expression "profits whatsoever" in those words. We consider that this decision is of assistance at least to the extent of holding that the difference would amount to an advantage derived by the employee, though there was no specific grant of that difference. In fact, in another decision in Abbot V. Philbin (Inspector of Taxes),[1961] AC 352, [1962] 44 ITR 144 (HL) the House of Lords in similar circumstances considered that the conferring of a right of this kind as an incident of service is a profit or perquisite which is taxable as such. We are, therefore, of opinion that the assessee was granted "benefit" within the moaning of Section 17(2)(iii) of the Act.

10. Learned counsel for the assessee then submitted that if the actual overdrawings in the year of account are taken into account, the benefit derived by him would not amount to Rs. 16,692. Probably, this point was not specifically raised before the Tribunal as the assessee had succeeded on the legal position itself. Therefore, now that we are of the view that the Tribunal was not correct in its decision that Section 17(2)(iii) was not applicable, it shall be open to the assessee to raise this point in the proceedings under Section 260. We would make it clear that on the question of valuation of the benefit at 9 per cent. interest on the overdrawings, which was adopted by the Income-tax Officer, it was not open to the assessee to raise any dispute in the Section 260 proceedings. In this connection, we may also point out that under Rule 3(g) of the Income-tax Rules, 1962, it is for the Income-tax Officer to value the benefit on such basis and at such amount as he considers fair and reasonable. The question whether the 9 per cent. interest on the basis of which the Income-tax Officer calculated the benefit was fair or reasonable, was never in dispute, and, therefore, that could not be again gone into in the proceedings under Section 260.