ORDER
I. S. VERMA, J.M. : May, 1996
This is an appeal by the assessee against the order of the CIT(A) dt. 28th November, 1995, in which the assessee has taken 9 grounds. The first ground is of general nature and requires no comments. The rest of the grounds are decided as per the subsequent discussion.
Ground No. 2
2. The assessee has taken the ground against the validity of initiation of proceedings under s. 147 as under :
“The learned CIT(A) erred in confirming the invoking of the provisions of s. 147 of the Act in the case of the appellant by the AO and further erred in confirming the assessment made under s. 143(3) r/w s. 147 of the IT Act by adding a sum of Rs. 32,34,000 wrongly treating the same as perquisite”.
3. We have heard the learned counsel for the assessee as well as the learned Departmental Representative. The counsel for the assessee submitted that the proceedings initiated under s. 147 were bad in law because there was no material or information with the AO on the basis of which it could be said that he had reason to believe that any income had escaped assessment. Inviting our attention to the reasons stated by the AO as well as the CIT(A) for initiating the proceedings under s. 147, he submitted that the so-called information received from the Dy. Director of Income-tax (Exemptions) by way of an order under s. 144A passed in the case of Cotton Textiles Export Promotion Council was neither an authenticated information nor had a direct nexus with the formation of belief. Elaborating this aspect, on the basis of his arguments on merits, he submitted that the authorities below have initiated reassessment proceedings solely on the basis of the opinion expressed by the Dy. Director of Income-tax (E) who was neither competent to interpret the law nor had jurisdiction to determine the market value of the flat. He further submitted that the words used in the information are as “that the fair market value of the flat as on the date of transfer will not be less than Rs. 35 lakhs (approx.) and as such a concession or benefit has been passed on to Mr. Ratnam by his employer Cotton Textiles Export Promotion Council”. From these facts, he submitted that the AO had not applied his mind at all and therefore the reassessment proceedings were bad in law. He further submitted that the quantum of market value of the flat was also a debatable issue and there was no authentic valuation. On the contrary, the information suggests that the Dy. Director of Income-tax (E) himself was also not sure as to what was the market value of the flat in the year 1988. Referring to the submission made by the assessee before the CIT(A), (copy of which has been placed at pg. 10 to 19 of the paper-book), the counsel for the assessee submitted that Expln. 2 of s. 147 was also not applicable, because the assessee had not suppressed any material facts and in support of this proposition, he referred to the statement of computation of assessees income submitted along with the return of income, wherein the assessee had, by way of footnote; disclosed the fact of purchase of flat for Rs. 2,31,000 in the year relevant to asst. yr. 1989-90. It was also his case that in view of his submissions, on merits, that no perquisite had accrued to the assessee due to the transfer of this flat, so no income had escaped assessment and consequently, the reassessment proceedings were bad in law.
The learned Departmental Representative on the other hand relied on the orders of the lower authorities. He further submitted that as a result of the transfer of the flat to the assessee, the perquisite had accrued to him and, therefore, the AO was justified in initiating the reassessment proceedings.
4. We have considered the submissions from both sides and have gone through the material available before us as well as the provisions of s. 147. After careful consideration of the same, and in view of the foregoing discussion, we are of the opinion that the assessee is to succeed on this ground. First of all, we would like to consider the requirement of the provisions of s. 147 and for that purpose would like to reproduce the provisions which are as under :
“147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. He may, subject to the provisions of ss. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in ss. 148 to 153 referred to as the relevant assessment year).
Expln. 2 : For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely;
(a) ..
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;”
5. Provisions as extracted above are somewhat similar to the old provisions of s. 147(a) and 147(b) and therefore the interpretation of the words “reason to believe” made under those provisions applies to these provisions also. From the words “reason to believe”, what we understand is that a person can have reason to believe either on the basis of material available on record or on the basis of some information received from external sources. Consequently, the limitation of law laid down in various cases decided under the old provisions is squarely applicable to the present provisions. Now, as far as the meaning of the words reason to believe is concerned, we are of the opinion that reason to believe must relate to the statement of belief of reasonable men and not to those of the particular petitioner. Where the facts from which the inferences are no more than “pure speculation”, they do not constitute, “reason to believe”. This proposition is supported by the decision in the case of Thompson & Thompson referred at p. 802 of K. J. Aiyers Judicial Dictionary 8th Edn., 1980. [Cf. Special Marriage Act, 1954, s. 27(b); The Matrimonial Causes Act, 1950; Thompson vs. Thompson (1966) 1 All ER. 603] It is also true that the expression “reason to believe” predicates that one holds the belief induced by the existence reasons or holding such belief. It contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons inducing the belief.
Such a belief may not be based merely on suspicion -however strong the suspicion may be; it must be founded upon cogent/definite information and this view is supported by decisions in cases reported as Calcutta Discount Co. Ltd. vs. CIT , V. Rajan vs. ITO , Sharma & Co. vs. ITO , Union Carbide (India) Ltd. vs. ITO , R. Dalmia vs. Union of India & Ors. and Sita Ram Jindal vs. ITO & Ors. .
It is also settled that conditions for having reason to believe is a precedent to the exercise of the jurisdiction to issue a notice of reassessment and if it is not satisfied then the notice will be without jurisdiction. For this proposition, we find support from the decisions reported as ITO vs. Lakhmani Mewal Das , Ganga Saran & Sons (P) Ltd. vs. ITO & Ors. and Modi Spinning & Wvg. Mill Co. Ltd. vs. ITO .
We are further of the view that the words “reason to believe” appearing in s. 147 are stronger than the words “is satisfied”. The belief entertained by the AO must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons which are relevant and material. This view finds support from the decision of Honble Supreme Court in the case of Gangasaran & Sons (P) Ltd. vs. ITO (supra). It is also true that the formation of belief is only possible on the basis of certain material. It is not enough, however, for the AO to have the material in his possession. What is required is that he must perform further necessary mental act of accepting material and information as reliable and forming the belief that they can be acted upon. If such necessary mental act on the part of the AO is missing, then it cannot be said that he had “reason to believe”. This view of ours finds support from the decision reported as Ram Narain Bhojnagarwalla vs. ITO .
The formation of the required belief or to have “reason to believe” is a condition precedent and the fulfilment of the condition is not a mere formality, but it is mandatory, and the failure to fulfil this condition would vitiate the whole proceedings. So, if it is found that this condition was not satisfied in the present case, then, not only the initiation of reassessment proceedings but the subsequent assessment will also get vitiated. This view finds support from the decision of the Honble Supreme Court in the case of Johrilal vs. CIT and Sheonath Singh vs. AAC (1973) 82 ITR 147 (SC).
It is also settled law that each or every information cannot be considered to be a reason for having reason to believe. For example, the view expressed by audit parties interpreting certain provisions of law have been held to be not relevant for initiating the reassessment proceedings. Indian Eastern News Paper Society vs. CIT and Air India vs. V. K. Srivastava, CIT & Ors. and Hotel Appolo vs. P. S. Rashtrapal, ITO .
Similarly, information from a circular letter from IAC to the effect that a certain group of persons with whom the assessee also had transactions was indulging in bogus transactions was held not enough to entertain the requisite belief. [See CIT vs. Narendranath Pravinchand and ITO vs. Lakhmani Mewaldas (supra).
It is also held by the Honble Supreme Court in a case reported as 31 STC 293, that mere fanciful belief that there has been escapement, which has no basis in law, will not justify the action for reopening assessment.
6. Now, for considering as to whether in the present case, the aforesaid conditions have been satisfied and as to whether there was material or reason on the basis of which the AO could be said to have reason to believe we would like to reproduce the facts on the basis of which action under s. 147 has been initiated. The relevant facts as recorded in the order of the CIT(A) are as under :
“The appellant has stated that the reopening of the assessment under s. 147 is illegal and bad in law and is also contrary to the provisions of law. In the assessment order, the AO has stated that originally the return filed by the appellant was processed under s. 143(1) (a) and intimation sent to the appellant. However, an intimation was received from ITO (E-I) Ward, Bombay, wherein order under s. 144A given by the Dy. Director of Income-tax (E), Bombay in the case of Cotton Textile Export Promotion Council Engg. Centre, was forwarded. In the said intimation, it was stated that the said Council had sold a flat owned by them to the appellant who was the executive director for a sum of Rs. 2,31,000. It was also mentioned that the fair market value of the flat on the date of transfer would not be less than Rs. 35 lakhs and as such a concession or benefit had been passed on to the appellant by the employer-council. The AO has stated that on account of the said intimation and on the basis of facts it was a clear case wherein the appellant had got a perquisite which was liable to be taxed and it had escaped assessment. Accordingly, action under s. 147 was taken.”
From the aforesaid facts noted by the CIT(A), it is clear that proceedings under s. 147 have been initiated on the basis of the so-called information received from Dy. Director of Income-tax (E) through his order under s. 144A passed in the case of the assessees employer-council. If we analyse the information under reference, we have no hesitation to come to the conclusion that it is nothing but an assumption of some individual person who had neither the jurisdiction to arrive at a finding that any perquisite had accrued to the assessee nor had technical knowledge as well as jurisdiction to determine the quantum of the same, meaning thereby that the estimate of the alleged perquisite having accrued in assessees hands is simply a brain-child of the concerned Dy. Director of Income-tax (E), and this fact is evident from his conclusion wherein he had stated that the market value of the flat as on the date of transfer will not be less than Rs. 35 lakhs (approximately).
This information is extracted from paras 1 & 2 of the assessment order as under :
“… Subsequently, an intimation was received from the ITO (E)-I, Bombay forwarding therewith the order under s. 144A of the IT Act, 1961, given by the Dy. Director of IT (Exemption), Bombay, wherein it was stated that Cotton Textile Export Promotion Council, has sold a flat No. 24, Miramar Co-op. Housing Society to its Executive Director, Mr. M. M. Ratnam for a sum of Rs. 2,31,000 and that the fair market value of the flat as on the date of transfer will not be less than Rs. 35 lakhs (appro.) and as such a concession or benefit has been passed on to Mr. Ratnam by his employer Cotton Textile Export Promotion Council, Engg. Centre.
The difference between the fair market value and the sale consideration, thus, became a perquisite liable to tax in the hands of the employee which had not been declared in the return of income.”
We are therefore, of the view that the conclusion of Dy. Director of Income-tax (E) being based purely on hearsay or his personal hypothetic assumptions cannot be considered an information, on the basis of which one could have reason to believe for initiating reassessment proceedings under s. 147. Considering these facts in the light of the foregoing settled proposition of law, we are of the opinion that the reassessment proceedings were initiated only on the basis of suspicion and the AO, having failed to apply his mind, could not have reason to believe that any income had escaped assessment. Consequently, the initiation of proceedings under s. 147 having been initiated without satisfying the condition precedent, was bad in law, and, therefore, both proceedings get vitiated. This finds support from the decisions reported as (supra), and (supra).
7. It is also a settled law that there must be a direct nexus or live-link between the material coming to the knowledge of the AO and formation of belief. It is not any and every material, however, vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief. As far as the facts of the present case are concerned, we are of the opinion that this direct nexus or live-link is missing absolutely and, therefore, the AO could not have reason to believe that any income had escaped assessment on the basis of information received from the Dy. Director of Income-tax (E). This view finds support from the decisions , (supra) Acchut Kumar S. Inamdar vs. P. R. Hajarnavis & Anr. and Nirmal Kumar Ashok Kumar & Anr. vs. K. V. Gopi ITO & Anr. .
8. It is also settled law that if there is no rationale and intelligible nexus between the reason and belief so that on such reasons no one properly instructed on facts and law could reasonably have the belief; the conclusion would be inescapable that the AO could not have reason to believe and in such cases, the notice issued by the AO has to be struck down. As far as assessees case is concerned, we have already noticed that there was no direct nexus or live-link between the information and formation of belief and, therefore, we have no hesitation to hold that the notice under s. 148 issued on the basis of such initiation was bad in law. This proposition finds support from the decision of the Honble Supreme Court in (1980) 130 ITR 1 (SC) (supra).
9. From the facts on record, we find that the notice under s. 148 has been issued at the behest of the Dy. Director of Income-tax (E) and the AO has not applied his mind at all. From the provisions of s. 147, we find that for initiating valid proceedings under s. 147, it is the AO alone who could form his own belief which can be done by applying his mind to the facts and circumstances of the case. If he fails to do so, then the initiation will be without jurisdiction. This view of ours find support from the decision of the Honble Calcutta High Court in Panchanan Hati vs. CIT .
10. As far as assessees case is concerned, we find from the assessment order as well as the order of the CIT(A) that the proceedings under s. 147 have been initiated at the behest of the Dy. Director of Income-tax (E) as directed in his order under s. 144A and AO has not applied his mind at all. Even the market value has been taken as estimated/assumed by the Dy. Director of Income-tax (E). We therefore hold that initiation of proceedings under s. 147 was bad in law on this score also. In case, the justification of reopening is considered on the ground of existing facts of the transaction which is available from the assessees return of income itself. Assessee had duly disclosed the fact of purchase of flat cost price as well as the purchase of investment by way of a note on the statement of computation of income furnished along with return of income and extracted by us in p. 14 at page 11 of this order; then also in our view, the reassessment proceedings are bad in law because such an action amounts to change in opinion.
11. In view of the aforesaid discussion and conclusions, we hold that proceedings initiated under s. 147 were bad in law and consequently the subsequent action i.e. assessment also gets vitiated. We, therefore, declare the initiation of the proceedings under s. 147 as well as the assessment order passed as a result of that as bad in law and void ab initio.
Ground Nos. 3 to 9
12. All these grounds of appeal relate to the taxability of the perquisite amounting to Rs. 32,34,000 in the hands of the assessee. The counsel for the assessee as well as the learned Departmental Representative advanced their consolidated arguments against all these grounds and hence these grounds are taken together.
13. We have heard the counsel for the assessee as well as the learned Departmental Representative.
The assessees counsel, first of all, submitted that the transfer of the flat in assessees name was not because of his being employee of the Cotton Textiles Export Promotion Council (hereinafter referred to as Council) rather was a commercial transaction on the basis of a verbal agreement for sale of property arrived at between the assessee and the Council in the year 1981. To support this proposition, the counsel for the assessee referred to item No. 6 of the Councils Resolution dt. 30th August, 1988, assessees reply before the AO dt. 31st March, 1994 (especially para 3 at p. 6 of the paper-book) placed at p. Nos. 20 to 29 and p. 4 to 7 of assessees paper-book and affidavit of Mr. R. S. Mehra. From the contents of these documents, he submitted that the transfer of the flat was not because of assessee being employee of the Council and, therefore, no perquisite had accrued to the assessee. For this proposition, the counsel for the assessee relied on the order of the Tribunal Hyderabad Bench A in the case of A. K. Chelani vs. ITO (1983) 3 ITD 194 (Hyd).
The learned Departmental Representative on the other hand, submitted that the transfer was only because the assessee was the Councils employee and not otherwise, and perquisite bad accrued in assessees hands as a result of the transfer of the flat in his name. To support his submissions, the learned Departmental Representative relied on the order of the Tribunal Allahabad Bench, in the case of IAC vs. S. R. Bhavsinghka (1986) 15 ITD 25 (All).
14. We have considered the submissions and have gone through the material on record as well as the decisions relied upon by both the parties. To decide this issue, we would like to reproduce the relevant facts and details as a result of which the flat was transferred to the assessees name.
The facts of the case are that the appellant was working with the Council since 1965 and till 1977, he was posted outside India for a period of 12 years. He was recalled back to India in 1977 to look after the Bombay office of the Council and the flat No. 24-B, Miramar, Nepean Sea Road, Bombay, was allotted to him because he was not having any accommodation of his own. Since he had no accommodation of his own, so, he wanted to purchase the said flat in 1977 and as a result of his desire, the Committee of Administration which was managing the affairs of the Council had offered this flat for sale to him during the year 1977-78 for a price of Rs. 2,31,000 which was the cost price of the flat paid by the Council. At the time, Mr. R. S. Mehra, was the Vice-Chairman of the Committee of Administration. The flat was actually not transferred at that time because of the assessees financial constraint. This offer to sell the flat by the Council to the assessee remained unanswered till the year 1981, when the assessee conveyed his acceptance of the offer for sale of flat to the assessee, Sri R. S. Mehra gave a firm commitment to Sri M. M. Ratnam that the flat will be transferred to him. The flat was actually transferred in assessees name in the year 1983 and the transaction was as a result of the Councils resolution dt. 30th August, 1988. Item No. (6) of the Resolution which relates to the transaction under reference reads as under :
“(6) Chairman reported to the Committee the following :
The Committee is aware that Shri M. M. Ratnam joined the Council 1965 and was posted to Frankfurt as the Councils officer in Europe. After 12 years stay in Frankfurt and Manchester, when he was recalled to Bombay in 1977, he requested for a permanent accommodation. The Council had asked him to purchase its flat, New Miramar Co-operative Housing Society at the cost price of Rs. 2,31,000 which was comparable to the market price then. Shri Ratnam asked for some time as he did not wish to block up his funds so soon after shifting to India with his family. He has been living in this flat since the time he returned to India in 1977. Subsequently when he asked the then Chairman Shri R. S. Mehra in 1981 to transfer the flat to him, Shri Mehra gave a firm commitment to Shri Ratnam that the flat will be transferred to him.
Chairman said that he consulted the seniors and reported that they are in agreement to transfer the flat at cost to Shri Ratnam. The Committee endorsed the decision of the seniors and agreed to transfer the Councils flat in New Miramar Co-operating Housing Society to Shri Ratnam at Rs. 2,31,000 (Rs. two lakhs thirty one thousand). The Committee authorised the Chairman and office bearers to complete the necessary formalities.
Sd/-Secretary.”
In the computation of total income along with the return of income for asst. yr. 1989-90, the assessee declared the fact of purchase of flat under consideration by way of the following note :
Note : During the year, I have purchased a flat for Rs. 2,31,000 which is financed as follows :
Rs.
PF withdrawals
1,85,000
PF loan
43,000
Savings
3,000
2,31,000
Later, on the Dy. Director of Income-tax (E) passed an order under s. 144A in the case of the Council and withdraw the exemption available to it of being a charitable institution. The Dy. Director of Income-tax (E) sent a copy of order under s. 144A passed in the case of Council, to the assessees AO directing him to initiate proceedings under s. 147 because according to the Dy. Director of Income-tax (E), the market value of the flat was not less than Rs. 35 lakhs and as a result of the transfer of this flat for a consideration of Rs. 2,31,000, the taxable perquisite had accrued in assessees hands. On the basis of this information, the AO initiated proceedings under s. 147 and during the course of assessment proceedings, the assessee submitted, as per para-3 of his reply dt. 31st March, 1994, that the transfer of the flat in his name was not because of his being an employee of the Council. The requisite reply is extracted as under :
“(3). Without prejudice to the above, I submit that the flat was transferred to me without taking into any consideration of my services with my employer viz., the Council. This is amply clear from the record, of the Minutes given above, which no where takes into account my past services while agreeing to sell the flat to me. Since the sale transaction was thus wholly unconnected with the services rendered by me as an employee, the question of valuing any benefit given to me by the Council as employer, does not arise at all.”
15. The submission of the assessee was not accepted by the AO as well as by the CIT(A) and it has been held that the transfer of the flat in assessees name was not an ordinary commercial transaction, but was in consideration of the assessee being Councils employee.
16.1 Now, we proceed to discuss the relevant provisions under which any perquisite could have accrued in assessees hands as a result of the transaction under reference and first of all we think it necessary to reproduce the provisions of s. 17(2) as under :
“perquisite” includes :
(i) the value of rent-free accommodation provided to the assessee by his employer;
(ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer;
(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 as employee who is a director thereof;
(b) by a company to an employee being a person who has a substantial interest in the company;”
To analyse the provisions of s. 17(2) first it is necessary to discuss the meaning of perquisite. The ordinary meaning of perquisite is defined in Websters New International Dictionary, inter alia, as “a gain or profit incidentally made from employment in addition to regular salary or wages, especially one of a kind expected or promised”. In Murrays English Dictionary it is defined as “any casual emolument, fee or profit attached to an office or position in addition to salary or wages”. Similarly, the “casual emolument fee or profit attached to an office or position in addition to salary or wages (sic)”. “Perquisite” has a known normal meaning, namely, a personal advantage. The word would not apply to a mere reimbursement of a necessary disbursement [Owen vs. Pook (1969) 74 ITR 147 (HL)]. In order to come within the ordinary meaning of the word “Perquisite”, it ought to be emolument, fee or profit attached to the office or position or an addition to salary or wages. What is of the essence is to see the nature of the benefit given; a name given to the payment is not by itself conclusive [CIT vs. J. Jenkin Thomas ].
16.2 A reading of s. 17(2) along with s. 15 would make it clear that in order that a benefit or payment may be termed a perquisite, a right is conferred on the employee in respect of that perquisite to receive it from his employer. One cannot be said to allow a perquisite to an employee if the employee has no right to the same. It cannot apply to contingent payments to which the employee has no right till the contingency occurs. In short, the employee must have a vested right therein [See CIT vs. L. W. Russel . In other words unless and until any payment or concession is proved to be as a result of employees vested right i.e. if the payment or concession is in pursuance of the contract of service then and only then such a payment or concession can be termed as perquisite otherwise the payment will be a gratuitous, which can never be a perquisite though it may be a gift from the employer to the employee.
This view of ours is supported by the decision of Honble Supreme Court in case of CIT vs. L. W. Russel (supra), and of Delhi & Bombay High Courts in CIT vs. Lala Shri Dhar ; CIT vs. Venay Bharat Ram and CIT vs. M. N. Nandkarni (1987) 161 ITR 544 (Bom). In Russels case the Honble Supreme Court had occasion to consider the circumstances under which a perquisite can be said to have accrued in employees hands and held :
“Salary – Perquisites – Pension Scheme for employees-employers Contribution – Whether assessable as income of employee – Test of assessability – Contingent interest whether sufficient – Indian IT Act, 1922 s. 7(1).”
“Contributions made by an employer to provide pensionary or deferred annuity benefits to employees cannot be taxed in the hands of the employees under s. 7(1) of the Indian IT Act, 1922, unless a vested interest therein accrues to the employees.
The English and Scottish Joint Co-operative Wholesale Society Ltd. had established a superannuation scheme for the benefit of a certain class of its employees. Every such employee became a member of the scheme as a condition of employment. Under the terms of the scheme, which were incorporated in a trust deed and certain rules, the Society had to contribute every month one-third of the premium payable by each employee, who paid the remaining two-thirds for effecting a policy of insurance. The Society as trustees had to take out policies of insurance securing a deferred annuity upon the life of each employee equivalent to the pension to which he would be entitled on his attaining the age of superannuation. If an employee left the service of the Society or was dismissed from service or died in the service of the Society he was entitled only to be repaid the total amount of the portions of the premiums paid by him, though the trustees in their discretion under certain circumstances could give him a proportion of the premiums paid by the Society. It was also open to a retiring employee to elect to surrender the right to the annuity and receive the amounts paid by him and by the Society by way of premiums with interest :
Held : (i) that until an employee attained the age of superannuation he did not acquire any vested right in the employers share of the contributions towards the premiums : at best he had a contingent right therein;
(ii) that the expression “perquisites which are allowed to him by or are due to him, whether paid or not, from, or are paid by or on behalf of … a company” in s. 7(1) of the Indian IT Act, 1922, applied only to such sums in regard to which there was an obligation on the part of the employer to pay and a vested right on the part of the employee to claim : it could not apply to contingent payments to which the employee had no right till the contingency occurred. The employers contribution towards the premiums were not perquisites allowed to the employee by the employer or amounts due to him from the employer within the meaning of s. 7(1) r/w cl. (v) of the Explanation thereof.”
16.3 We have considered the submissions from both sides of the parties and have gone through the copy of the Councils resolution, the ITOs order, the CIT(A)s order as well as the affidavit of Shri R. S. Mehra, the then Vice-Chairman dt. 10th April, 1996, furnished before the Tribunal and nowhere find that the flat was transferred in assessees name in consideration of his being the employee of the Council or the assessee had vested right to get the flat. From the facts and records available before us we find that it was never the case of the Department that the assessee had a vested right to get the flat or transfer of the flat in assessees name was in pursuance of the contract of service. The Revenue has not pleaded nor has brought any evidence on record to prove that the flat was transferred in assessees name in pursuance of the contract of the service, except reliance on Councils letter dt. 9th December, 1991 written to Dy. Director of Income-tax in which reference to assessees past carrier of 26 years is mentioned. We are, therefore, of the opinion that it is a case of ordinary commercial transaction as is evidenced by the various facts on record. In the year 1977, on the desire of the assessee, the Council had offered to sell the flat to him for a price of Rs. 2,31,000 which was the actual price at that time and therefore, it cannot be assumed that the offer to sell the flat to the assessee in 1977; was as a result of his being the Councils employee or was at a concessional rate. Since this offer remained pending till 1981 and when the assessee conveyed his acceptance, the Council, though could have retracted its offer, but accepted the acceptance given by the assessee, and therefore, the contract was complete in the year 1981 itself. These being the facts, we are unable to agree with the Departmental Representative that is was not an ordinary commercial transaction. The assessee was not only the employee of the Council. So, had the sale of the flat to the assessee been because of his being the employee, then, the other employees could have also demanded such a concession; and there is nothing on record or the Revenue has not brought any thing to our knowledge, that such a demand was from other employees also. This peculiar fact also confirms that the sale of the flat to the assessee was not because of his being the employee, but was purely a commercial transaction. Consequently, we hold that the transfer of the flat in assessees name, though was made in 1988, was purely a commercial transaction; and consequently no perquisite had accrued to the assessee. This view is squarely supported by the decision in the case of A. K. Chelani vs. ITO (supra), on which the counsel for the assessee had also relied. As far as the decision in the case relied upon by the learned Departmental Representative is concerned, we are of the opinion that the facts and circumstances of the case were quite different than the facts and circumstances of the present case and, therefore, that decision is not applicable. We, therefore, hold that the transaction being commercial in nature, no perquisite had accrued in the name of assessees hands.
16.4 Our aforesaid view is further supported by the decisions reported as ITO vs. R. N. Singhania (1986) 25 TTJ (Del) 301, ITO vs. B. L. Tibrewal (1986) 25 TTJ (Del) 559, ITO vs. G. D. Kasera (1986) 26 TTJ (Del) 336, A. K. Chelani vs. ITO (1983) 3 ITD 194 (Hyd) and ITO vs. Surinder Chand Banta (1986) 17 ITD 1223 (Chd).
17. Having held so, it is not necessary to decide as to whether the transaction of the flat in assessees name in 1988 was a result of agreement/contract arrived at in the year 1981 or not; and also it is not necessary to determine the valuation of the perquisite, but as both he parties have advanced their arguments on these aspects also, so we proceed to decide the same as under :
17.1 The question for our consideration is whether the transfer in 1988 was as a result of agreement/contract arrived at in the year 1981, i.e. was there any agreement or contract for sale of the flat by the Council to the assessee in 1981, or not. Before considering as to whether there was any contract between the assessee and the Council in 1981, let us first discuss the relevant provisions of Indian Contract Act, 1972, which are as under :
“Sec. 3 : The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively are deemed to be made by any act or omission of the party proposing, accepting or revoking, by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.”
“Sec. 4 : The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. The communication of an acceptance is complete, – as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the proposer. The communication of a revocation is complete, – as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it;
as against the person to whom it is made, when it comes to his knowledge.”
“Sec. 5. A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.”
“Sec. 6 : A proposal is revoked :
(1) by the communication of notice of revocation by the proposer to the other party;
(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;
(3) by the failure of the acceptor to fulfil a condition precedent to acceptance; or
(4) by the death or insanity of the proposer, if the fact of his death/or insanity comes to the knowledge of the acceptor before acceptance.”
“Sec. 7 : In order to convert a proposal into a promise, the acceptance must (1) be absolute, unqualified;
(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer, may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance.”
“Sec. 8 : Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.”
“Sec. 9 : Insofar as the proposal or acceptance of any promise is made in words, the promise is said to be express. Insofar as such proposal or acceptance is made otherwise than in words, the premise is said to be implied.”
“Sec. 10 : All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”
“Nothing herein contained shall affect any law in force in India, and not hereby expressly repeated, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.”
From the facts on record and the order of the CIT(A), it is noticed that assessees contention regarding existence of agreement of sale between the Council and the assessee in the year 1981 has been negatived only on the plea that there is no written agreement between the Council and the assessee and the authorities have proceeded to compute the value of perquisite by comparing consideration for transfer with the market value of the flat as in the year 1988 forgetting that the assessee had never made a claim that there was a written agreement for this transaction. On the other hand, the assessees case from the very beginning was that the Council had offered to sell the flat to him in the year 1977 for a consideration of Rs. 2,31,000 which was the cost price at that time. But the assessee did not convey his acceptance at that time as he did not want to block his funds. The assessee, however, conveyed his acceptance to purchase the flat for a consideration of Rs. 2,31,000 in the year 1981 which was accepted by the then Vice-Chairman of the Council Sri R. S. Mehra who gave a firm commitment that the flat will be transferred to the assessee at the offered price and ultimately the flat was transferred in assessees name in the year 1988.
18. It is well settled that if a fact cannot be proved from the existing material, then, it can be proved by way of an affidavit. The assessee has tried to prove the existence of a verbal agreement of the sale of the flat which was complete in the year 1981, before the lower authorities by his own explanation as well as by way of copy of Councils resolution. Before the Tribunal, the assessee has filed the copy of those documents as well as the affidavit of Mr. R. S. Mehra, the contents of which are as under :
(1) Resolution .. (contents have been reproduced already on p. 10 above.)
(2) Affidavit of Sri R. S. Mehra (extracted below) :
“I, R. S. Mehra, residing at Sneha Sadan, N. Gamadia Road, Bombay-26, do hereby solemnly affirm and say as under :
(1) That I was a member of the Committee of Administration of the Cotton Textiles Export Promotion Council. The said committee manages the affairs of the Council and exercises all such powers of the Council and does all such acts and things as are not required to be exercised by the Council as a company limited by guarantee in general meeting. In the year 1977, I was the Vice-Chairman of the Committee of the Administration.
(2) That Shri Viswanath was the Director General of the Council in 1976. Shri Viswanath sold the flat owned by him being flat No. 24B, Miramar, 3, Nepean Sea Road., Bombay -36, for Rs. 2,13,000 to the Council in November, 1976.
(3) That Sri M. M. Ratnam was an employee of the Council since 1965 and prior to 1977, he was posted to Frankfurt-Manchester for about 12 years. Shri M. M. Ratnam was recalled to India in the year 1977 to look after the Bombay office.
(4) That the Common Textiles Export Promotion Council had offered to sell the Flat No. 24B, Meramar, 3-Nepean Sea Road, Bombay – 36, to Shri M. M. Ratnam, in the year 1977 for Rs. 2,31,000. I was then the Vice-Chairman of the Committee of Administration.
(5) That Sri M. M. Ratnam asked for some time to make the payment in view of his financial constraints. The Council however allotted Shri M. M. Ratnam to occupy the said flat. Shri M. M. Ratnam has thereafter continued to stay in the said flat since the year 1977 after his return to India.
(6) That in the year 1981 Shri M. M. Ratnam requested for a transfer of the said flat. A firm commitment to transfer the said flat to Shri Ratnam was given in 1981. However, the Council felt that it should be advisable to defer the actual transfer.
(7) That the Committee of administration of the Common Textiles Exports Promotion Council has noted the above facts in its meeting held on 30th August, 1988, and agreed to abide by its earlier commitments to transfer the said flat to Shri M. M. Ratnam at Rs. 2,31,000 and to complete necessary formalities for the transfer of the said flat.
(8) That the Minutes of the meeting of the Committee of Administration Notes that in 1981 I had given a firm commitment to Shri Ratnam to transfer the flat to him. I say that before I gave such a commitment to Shri Ratnam I had consulted my colleagues of the Committee of Administration and had obtained their consent for the same.
(9) That the said flat was transferred to him for – Rs. 2,31,000 as agreed earlier in the year 1988-89.
(10) Solemnly affirmed at Bombay this 10th day of April, 1996.
Sd/- R. S. Mehra.”
After analysing the contents of the aforesaid documents, in the light of provisions of Contract Act, we are of the opinion that the agreement/contract for sale of the flat for a consideration of Rs. 2,31,000 was complete in the year 1981 when Mr. R. S. Mehra accepted the acceptance given by the assessee and made a verbal commitment on behalf of the Council to transfer the flat in assessees name at the price which was offered by the Council in the year 1977.
In our opinion, the Council, by its resolution passed in 1988, had done nothing new, but had only fulfilled the terms of verbal contract/agreement for sale of the flat to the assessee which was arrived at between the Council (through its then Chairman, Sri R. S. Mehra) and the assessee in the year 1981, as a result of Councils offer made in the year 1977 to sell the flat to the assessee for a consideration of Rs. 2,31,000 (which was the cost price at that relevant time). We are, therefore, clear in our view that a verbal contract to sell the flat to the assessee for Rs. 2,31,000 was completed in the year 1981 itself. Had there been no contract to sell the flat for Rs. 2,31,000 in the year 1981, then there was no question for the Council which was, as is found from the details of the constitution of its managing committee filed by the assessee, that it was consisting of 17 members in 1977 and 14 Members each in the years 1981 and 1988 and out of whom one member in all these years was the Textile Commissioner (Govt. representative) and the rest were the elected members from the public and also out of the elected members in 1988, 7 were not members either in 1981 or 1977 whereas out of 14 members in 1981, 5 were not members in 1977; to agree for the sale of the flat to the assessee for a consideration of Rs. 2,31,000 because the Govt. representative (Textile Commissioner) and atleast the 7 new elected members could have easily objected to the passing of the resolution and could have forestalled the deal. Passing of unanimous resolution in spite of aforesaid facts, clearly confirms that there existed a contract, though verbally to sell the flat in 1981.
As far as the existence of a written agreement is concerned, we are of the opinion that generally it is desired of the concerned parties to execute the agreement in writing, but if both the parties to the contract have acted upon or are prepared to enter upon their duties, in pursuance of even a verbal contract, then the execution of a formal document is not necessary for the completion of the contract. Consequently, we are of the opinion that the verbal agreement arrived at between the parties in the year 1981 for transfer of flat in assessees name for a consideration of Rs. 2,31,000 was a valid agreement in the eyes of law. The aforesaid proposition finds support from the decision in the case of Gujarmal Ramrattan vs. Governor General of India (1942) Pesh. 33 : 200 IC 429. We are further of the opinion that assessees plea 1which is supported by the Councils resolution as well as by a sworn affidavit of Sri R. S. Mehra cannot be disbelieved and especially when there is no material with the Revenue to entertain a belief contrary to the one canvassed and proved by the assessee. In view of the above conclusions, we are of the opinion that the value of the perquisite, if any, has to be determined by comparing the consideration with the market value of the flat in the year 1981 – when the contract was complete and not with the market value of the year 1988.
19. Even otherwise and if for the sake of arguments it is assumed that there was no contract at all in the year 1981 then also, as already held by us; no perquisite had accrued in assessees hands and, therefore, existence/absence of a contract in the year 1981 is of no importance.
20. The next question for our consideration is, that if at all, any perquisite had accrued in the assessees hands, then what was its value. The counsel for the assessee has submitted that there being no provision for determining the value of such type of perquisite, so the market value could have been determined on the basis of provision under the WT Act, according to which the market value even in the year 1988 was less than the consideration paid by the assessee. The learned Departmental Representative on the other hand supported the value determined by the AO.
20.1 After careful consideration of the submissions, we are of the opinion that the Dy. Director of Income-tax (E) as well as the AO had no jurisdiction to determine the market value of the flat of their own and consequently, their action (sic-was) void ab initio for want of jurisdiction.
21. As per letter dt. 3rd April, 1996, the assessee has sought to raise, 3 additional grounds, but at the time of hearing, the counsel for the assessee neither sought nor argued the ground No. 3 and, therefore, this ground is dismissed as such. As regards to ground Nos. 1 and 2 which are reproduced below :
“(2) The learned AO erred in not appreciating the facts and circumstances of the case that interest under s. 234B & 234C is not leviable in respect of tax calculated on the amount of Rs. 32,34,000 treated by him as perquisite and added to the returned income while completing the assessment.
(3) The learned AO erred in not appreciating the fact that the appellant is not liable to pay any advance tax on the said amount of Rs. 32,34,000 in view of the provisions of s. 209 of the IT Act whereby advance tax payable by an assessee on any income is to be reduced by the amount of income-tax which would be deductible or collectible at source during the relevant financial year under any provisions of the Act from any such income.”
The counsel for the assessee sought permission, which was allowed after giving the Departmental Representative an opportunity who expressed his no-objection. The counsel for the assessee in support of these grounds submitted that if at all any perquisite was taxable in the assessees hands, then the same being income under the head Salary was liable to be tax deducted at source and consequently, to determine the assessees liability for advance-tax, the tax which was deductible on this amount had to be excluded. He, therefore, submitted that if the tax deductible on the quantum of perquisite is excluded, then, the assessee was not liable to pay and advance-tax and consequently, was not liable to pay advance-tax under s. 234B & 234C. The learned Departmental Representative on the other hand submitted that the levy of interest is in accordance with the provisions of law.
22. We have considered the submissions and would like to reproduce the s. 209 which relates to computation of assessees liability to pay advance tax :
“Sec. 209(1) – The amount of advance-tax payable by an assessee in the financial year shall, subject to the provisions of sub-s. (2) and (3) be computed as follows, namely :
(a) Where the calculation is made by the assessee for the purposes of payment of advance-tax under sub-s. (1) or sub-s. (2) or sub-s. (5) or sub-s. (6) of s. 210, he shall first estimate his current income and income-tax thereon shall be calculated at the rates in force in the financial year;
(b) the income-tax calculated under cl. (a) or col. (b) or cl. (c), shall in each case, be reduced by the amount of income-tax which would be deductible or collectible at source during the said financial year under any provisions of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account is computing the current income or, as the case may be, the total income aforesaid; and the amount of income-tax as so reduced shall be the advance-tax payable.”
From the provisions of sub-cl. (d) of s. 209(1) extracted above, it is very clear that to arrive at the amount of advance-tax payable by the assessee, income-tax calculated under cl. (a) or cl. (b) or cl. (c) has to be reduced by the amount of income-tax which would be deductible or collectible at source during the said financial year under any provisions of the Act, from any income which has been taken into account in computing the current income or as the case may be the total income; and the amount of income-tax so reduced shall be the advance-tax payable.
23. In the light of these express provisions, we are of the opinion that if any perquisite was taxable in assessees hands, then, it was liable to be deduction of tax at source because the same was taxable under the head Salary.
24. We are further of the opinion, that if this was taxable under the head Salary, then, it was the responsibility of the employer to deduct the tax at source and for the failure of the employer, the assessee cannot be fastened with the liability to pay such amount by way of advance-tax. Therefore, the question of charging interest under s. 234A, 234B & 234C do not arise at all and consequently the same are cancelled.
25. In the result :
(i) the reassessment which is the subject-matter of appeal before us is declared void ab initio and hence quashed;
(ii) We further hold that as a result of the sale of Flat No. 234B, Miramar, Nepean Sea Road, Bombay by the Council to the assessee, in 1988, no perquisite had accrued to the assessee and, therefore, no amount was assessable as perquisite in assessees hands in the asst. yr. 1989-90.
(iii) Interest charged under s. 234A, 234B & 234C are cancelled.
Assessees appeal is allowed.
A. KALYANASUNDHARAM, A.M. : 30TH MAY, 1996
I have the benefit of going through the order passed by my learned brother. On the point of reopening, I find from the paper-book the statement of total income for the year 31st March, 1990, placed at p. 1 of the paper-book, which is stated to have been placed both before the AO as well as before the learned CIT(A). In this computation of income the assessee has stated as under :
“Income from House Property
Flat at 24-B Miramar, 3, Nepeansea Road, Bombay 400 006
Being self-occupied Nil”
The said statement of total income has the following Note attached to it :
“During the year, I have purchased a flat for Rs. 2,31,000 which is financed as follows :
Rs.
PF withdrawals
1,85,000
PF loans
43,000
Savings
3,000
2,31,000
The above indicates that the assessee have placed on the record of the AO, the fact of he having purchased the flat for a total consideration of Rs. 2,31,000 and that he has used the same for his self-occupation and for this reason the income from the said property has been shown as Nil.
2. The grounds of appeal as raised by the assessee before the CIT(A) had not touched upon this aspect of assessee having furnished the said information along with its return of income or during the assessment proceedings that were completed at the first stage. It, therefore, appears that the said statement of income was perhaps furnished for the first time during the reassessment proceedings. Even before us, the assessee had not stated in its grounds of appeal that the said information was provided at the first instance i.e., during the course of original assessment and thereby the information as was necessary to be provided to the AO having been provided, the Department could not have reopened the assessment. In fact, it was never the argument of the counsel for the assessee during the course of hearing that the assessee had provided some information in regard to purchase of flat for Rs. 2,31,000. In the event of the said information being available during the course of original assessment, it could be taken that the assessee had provided primary information. Whether such information is full or complete could be a debatable issue because it could be argued that the AO could have called for further information on the basis of information supplied by the assessee. In the certificate provided by the assessee it is not stated that the statement of total income is the one that was furnished along with the return of income or during the assessment proceedings when the assessee was originally completed. However, since it was not brought out by the Departmental Representative that the said statement of income was not available in the record of the AO during the original assessment proceedings, giving the benefit of doubt it could be in these circumstances be treated as filed during the course of original assessment proceedings. For the reasons mentioned above, i.e. the said information being primary disclosure, whether it could be called as full and complete being a debatable issue, I would hold that the reopening for the above reasons only could be held to be invalid. However, if the Department is in a position to establish from the record that the statement of total income as filed before us at p. 1 of the paper book is not filed during the course of original assessment proceedings, this being a factual matter to this extent may require rectification of the order.
3. On the merits of the case I have to make a few observations.
Sec. 2 of the Indian Contract Act defines various terms such as promise, consent, contract, void contract, etc.
The term proposal has been defined as one person signifying to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence.
Promise has been defined as when the person to whom a proposal is made signifies his assent that to the proposal is said to be accepted, and such accepted proposal becomes a promise.
Consideration has been defined as at the instance of the promissor, the promisee has done or has abstained from doing or does or abstains from doing, or promises to do or to abstain from doing something such act or abstinence or promise is a consideration for the promise.
The term Agreement has been defined to mean as every promise and every set of promises forming the consideration for each other.
The term reciprocal-promise has been defined to mean, promise which form the consideration or part of the consideration for each other or with reciprocal promises.
A Contract has been defined to mean an agreement which is enforceable by law.
A Voidable Contract has been defined to mean that an Agreement which is enforceable by law at the option of one or more of the parties thereto but not at the option of the other or others..
A void Contract has been defined as one which ceased to be enforceable by law. The above definitions have been brought out only to highlight that the term intention or proposal is not the same as promise. This is necessary to appreciate in the circumstances of the case. In 1977 the employer had offered to sell the flat for a consideration of Rs. 2,31,000 which offer is nothing but a proposal. According to the definition of promise till such time the assessee gives his assent to the proposal made by the employer, it does not convert the proposal of the employer into a promise to act upon the proposal. Likewise, the offer that is stated to have been made by the assessee in 1981 was not assented to in 1982. Any proposal which is not assented to within a reasonable period to time, such proposal lapses by time and any belated assent by the offer would be nothing more than a counter-proposal. Both the parties i.e. the assessee as well as the employer if had converted the proposal into a promise but having not acted upon it for over six years makes it all the more clear that all that remained was a proposal or an intention. The employer had sold the flat in the year 1988 to the assessee at a consideration of Rs. 2,31,000. The effort of the assessee as well as that of the employer by passing the resolution which is reproduced by our learned brother in his order is only to show that the consideration of Rs. 2,31,000 was fixed by them in 1977 and commitment as such because the proposal in 1977 got converted into the promise on the part of the employer. Going by the proposition advanced by the assessee in the absence of the proposal being converted into a promise in 1977, there was no enforceable contract by law and, therefore, it had become void. The contract could not have been enforced because there was the absence of promise which was a consequence of the assessee not assenting to the proposal made by the employer. The same section applies to the offer or proposal in 1981 and the so-called acceptance in 1982. Therefore, there being no enforceable contract persisting from 1977 till 1988, the consideration of Rs. 2,31,000 between the assessee and its employer in 1988 not being the true consideration but an act with full knowledge carried out by the employer to part with the property owned by him for a consideration which was lower than it would otherwise fetch in the open market, in 1988.
4. The employer had sold the property to the employee at Rs. 2,31,000 in 1988 and it is absolutely clear that the employer would not have sold the said property for the same consideration to any other outsider. This feature goes to show that the employer had sold the property at a price to its employee because of the employer-employee relationship only. The assessee having received the property at a lesser value than its true market value, it is obvious that the assessee had received some benefit from his employer. The amount paid by the employee being lower than the market value it is equivalent to the employer providing the benefit at a concessional rate. Therefore, to that extent there is an element of perquisite which has earned by the assessee which is taxable under s. 17(2) (iii).
5. Coming to the aspect of the valuation of the benefit, the plea of the assessee that the property is one which is encumbered because of it being a rent-out property is not acceptable proposition because the tenant is none other than the employee himself. Further, the employee is occupying the property owned by the employer by virtue of employment and, if the employment ceases the employee cannot make any claim of the tenancy on the property owned by the employer. Therefore, the said property is like any other property i.e. lying vacant and possession of which could be completely given to the buyer. Therefore, the value of the property is to be what it could fetch in the open market when it is so sold. However, in the instant case it is not clear from the records as to whether the value indicated of Rs. 34,64,000 is based on any sale incidents of a similar property of assessee. I would, therefore, direct the AO to limit the value by comparing to actual sale instances and providing an opportunity to the assessee of being heard.
6. Insofar as the argument of the assessee about various modes of valuation following methods were come into operation only when the property is encumbered and is not in a position to be sold without such encumbrance. As already observed, the property being occupied by the employee himself, subsequently purchased which situation is not the same as a tenant occupying the property of a landlord where there exist no employer and employee relationship. The property at no circumstances could be said to be encumbered so as to attract the other modes of valuation suggested by the learned Sr. Counsel Mr. Dastur and I would accordingly, allow the appeal in part.
[REFERENCE UNDER S. 255(4) OF THE IT ACT, 1961]
The members are unable to come to a common conclusion insofar as the facts of the case are concerned and the point of difference is brought out in the question which needs to be considered by the Honble Third Member.
Question No. 1 : “Whether the transaction of sale by the employer to the employee of Flat No. 24-B, Miramar, 3-Nepean Sea Road, Bombay-400 036 for a consideration of Rs. 2,31,000 is the true consideration and that no additional benefit is passed on to the employee ?”
MANZOOR AHMED BAKSHI, J.M.
This appeal had come up for hearing before the Division Bench constituted of Shri A. Kalyansundharam, Accountant Member and Shri I. S. Verma, Judicial Member. Since a difference of opinion arose among the Honble Members a reference under s. 255(4) has been made to me as Third Member. The question referred to me under s. 255(4) is as under :
“Whether the transaction of sale by the employer to the employee of Flat No. 24-B, Miramar, 3, Nepean Sea Road, Bombay-400 036 for a consideration of Rs. 2,31,000 is the true consideration and that no additional benefit is passed on to the employee ?”
2. Relevant facts in this case are that the assessee Shri M. M. Ratnam was an employee of The Cotton Textiles Export Promotion Council since 1965.
He had been posted to Frankfurt, Manchester, for about twelve years, i.e., till 1977 when he was recalled to India to look after the Bombay office. Shri Ratnam on assuming his charge in India required an accommodation for his residence. It seems that The Cotton Textiles Export Promotion Council had offered to sell Flat No. 24-B, Miramar, 3, Nepean Sea Road, Mumbai-36, to the assessee in consideration of Rs. 2,31,000 in the year 1977. This flat had been purchased by The Cotton Textiles Export Promotion Council from one Shri Viswanath, the then Director General of the Council, in November, 1976. Shri Ratnam expressed financial constraints in respect of payment of Rs. 2,31,000. Thus, the flat was not transferred to Shri Ratnam in the year 1977. It is claimed by the assessee that in the year 1981 he had requested The Cotton Textiles Export Promotion Council to transfer the flat to the assessee. Shri R. S. Mehra in his affidavit dt. 10th April, 1996, filed before the Tribunal for the first time, has stated that a firm commitment was made by him to Shri Ratnam in 1981 for the transfer of the flat in 1981. He has further stated that the Council had felt that it was advisable to defer the actual transfer. In the year 1988 a resolution was passed by the Board of Directors of The Cotton Textiles Export Promotion Council agreeing to transfer the flat in New Miramar Co-operative Housing Society to Shri Ratnam for Rs. 2,31,000. From the minutes of the meeting it is evident that the meeting of the Committee of Administration held on 30th August, 1988, in which the aforementioned resolution was passed was attended by 12 members out of 25 members. Shri Ratnam who was the Executive Director of the Council in the year 1988 had also attended the meeting.
3. The AO had initiated action under s. 147 in the case of the assessee on the ground that by reason of transfer of the flat by the Council to the assessee at less than the market rate, a benefit had been granted to the assessee by the employer which was assessable under s. 17(2) (iii) of the IT Act, 1961. The reopening of the assessment was done on the basis of the information received from Dy Director of Income tax (Exemption) by way of an order under s. 144A passed in the case of The Cotton Textiles Export Promotion Council.
4. Assessee had pleaded before the AO that since there was an agreement of sale in the year 1977 of the assessee with The Cotton Textiles Export Promotion Council and since the flat had been transferred at the market rate prevalent in the year 1977 no perquisite had been granted to the assessee within the meaning of s. 17(2) (iii). The AO has summarised the claim of the assessee as under :
“1. (a) The Committee of Administration, who manages the business of the Cotton Textiles Export Promotion Council, had offered this flat to the assessee during the year 1977-79 for Rs. 2,31,000 which was the price at which the flat was purchased by the Council in the year 1977-78.
(b) The sale of the flat was completed in October, 1988 pursuance to an agreement of sale in 1977 which was followed by a firm commitment to transfer the flat to the assessee by the Council in 1981. Hence, the adequacy of consideration has to be determined with reference to the date of agreement of sale. The assessee has given reference to the minutes of the meeting held on 31st August, 1988.
(c) Since the flat was transferred at Rs. 2,31,000 which was the price prevalent at the time of agreement of sale, the consideration paid by the assessee was adequate.”
5. The AO referred to the order under s. 144A dt. 31st December, 1991 in the case of The Cotton Textiles Export Promotion Council and quoted from p. 6. “It is recorded that there was not any agreement of sale in respect of flat sold to Mr. Ratnam prior to 1988 when the flat was actually transferred.”
“Thus, it is apparent that there was no legal act which was the cause of low sale price”.
6. The AO with reference to the claim of the assessee that the transfer did not take place in consideration of his services to the Council, has referred to the published accounts in the case of The Cotton Textiles Export Promotion Council from where it is clear that the flat was transferred to the assessee as he was the Executive Director of the Council. The AO has quoted from para.-5 of the order under s. 144A in the case of employer, i.e., Council “in view of the valuable services rendered by Mr. Ratnam over a period of about 26 years the provision of residential accommodation is allocated”. Again the AO quoted from para.-4 p. 4 of the said order as under :
“The only argument advanced by the assessee (i.e., the employer) is that the flat has been given to Mr. Ratnam at cost in view of his long services of 26 years with the company.”
Thus, the AO concluded that the flat had been transferred to the assessee only because he was an Executive Director of the Council. With reference to the last contention of the assessee that he was in continuous occupation of the flat and, thus, there was encumbrance attached to the flat; as an occupier he was protected by the Bombay Rent Control Act and hence, would not have vacated the flat under circumstances and that the property was being encumbered would not fetch much price, the AO has again quoted from the order under s. 144A wherein reference has been made to the contention on behalf of the employer of the assessee that the flat was not encumbered with the burden of tenancy. It was further stated that the flat was in possession of Mr. Ratnam since 1977 as the companys executive. The AO has also pointed out that there is no mention in the minutes of the meeting of Committee of Administration held on 30th August, 1988 that the lower sale price charged from the assessee was by reason of the tenancy.
7. Dealing with the contention raised on behalf of the assessee that he was a protected tenant under the Bombay Rent Control Act and hence would not have vacated the flat under any circumstances, the AO had referred to the decision of the Supreme Court in the case of Indian Hotels Co. Ltd. vs. Its Employee B. K. Karve, Times of India dt. 24th March, 1992, (LR 32/36 Bombay) wherein Division Bench of the Supreme Court has dismissed SLP against the decision of the Bombay High Court which has held that the Board of Directors of a company have no right whatsoever in disposing of company property to employees at discount price. It was, accordingly, held that the assessee was not a protected tenant. The AO further held that the employer, viz., The Cotton Textiles Export Promotion Council have transferred the flat to the assessee in consideration of Rs. 2,31,000 which is far less than the market value of the flat. The fair market value of the flat measuring 1165 sq. ft. was estimated at Rs. 34,65,000. Difference of Rs. 32,34,000 was treated as perquisite and added to the total income of the assessee.
8. The CIT(A) vide order dt. 28th November, 1995, upheld the action of reopening as well as valuing the perquisite in respect of sale of flat to the assessee by the employer at Rs. 32,34,000.
9. The assessee appealed to the Tribunal and the learned Judicial Member proposed an order in which proceedings under s. 147 were held to be void ab initio. It was further held that by reason of sale of Flat No. 24-B, Miramar, 3, Nepean Sea Road, Bombay by the Council to the assessee in 1988 no perquisite had accrued to the assessee and, therefore, no amount was assessable on that account in the assessment of the assessee in asst. yr. 1989-90. The learned Judicial Member while coming to the aforementioned conclusion has also held that the transfer of the flat to the assessee was ordinary commercial transaction and that there was no evidence on record to prove that the flat was transferred in assessees name in pursuance of the contract of service. The learned Judicial Member has also referred to the provisions of the Contract Act to come to the conclusion that the contract between the assessee and his employer was completed in the year 1981. He has, accordingly, held that value of perquisites, if any, has to be determined by comparable cases with the market value of the flat in the year 1981. The learned Judicial Member has further held that the Dy Director of Income-tax (Exemption.) as well as the AO had no jurisdiction to determine the market value of the flat on their own and consequently their action was void ab initio for want of jurisdiction.
10. The learned Accountant Member agreed in principle with the learned Judicial Member that if assessee had furnished the information relating to the transaction of transfer of flat in the original return, then reopening of assessment would not be valid. He has, however, expressed a doubt about the statement of income having been filed along with the original return. According to him the statement of income might have been filed for the first time in reassessment proceedings. In the absence of evidence in this regard, the learned Accountant Member has held that the reopening of assessment was not valid. This is subject to the condition that the Department has the liberty to seek rectification in case on verification it was found that the said statement of total income containing a reference to the transfer of the flat had not been filed along with the return in the original proceedings. On this issue there is no reference to me and, therefore, I need not express my opinion.
11. The learned Accountant Member has totally disagreed with the learned Judicial Member in regard to the assessment of perquisite value in the hands of the assessee. It has been held by the learned Accountant Member that the property having been transferred to the employee in 1988 for Rs. 2,31,000 which amount was much less than the market value, it was clear that the transfer was by reason of assessee being an employee of the Council. It is further pointed out that the Council would not have sold the property for the same consideration to any outsider. He has, accordingly, concluded that the employer had sold the property to the employee at concessional rate because of employer-employee relationship only. It has, accordingly, been held that a benefit having accrued to the assessee, the perquisite value was assessable under s. 17(2) (iii).
12. The learned Accountant Member has also not agreed with the contention advanced on behalf of the assessee that the property was encumbered by reason of assessees occupation of the same. It has been mentioned that the occupation of the property by the assessee was by reason of the employment and the property was that like any other property lying vacant possession of which could be given to the prospective buyer. He has, accordingly, held that the value of the property was to be determined as it would fetch in the open market.
13. The learned Accountant Member has, however, not confirmed the valuation of perquisite at Rs. 34,64,000 as, according to him, it was not based on any sale incident of similar property. He has, accordingly, directed the AO to limit the value of the perquisite by considering the actual sale transaction and after providing an opportunity to the assessee. Referring to the contention raised on behalf of the assessee regarding modes of valuation, the learned Accountant Member has held that since the property was not encumbered the various modes of valuation referred to on behalf of the assessee were inapplicable. He has further held that the market value of the property was to be determined as it would fetch in the open market without considering any encumbrance.
14. I have heard the rival contentions and perused the records. The learned counsel for the assessee Mr. Soli Dastur sought to support the decision of the learned Judicial Member. Reiterating the facts he insisted that the decision to transfer the property to Mr. Ratnam had been taken in the year 1977 and since Mr. Ratnam could not pay the consideration the transfer did not take place in that year. However, in the year 1981 when funds were available to Mr. Ratnam he had requested the Council to transfer the property to him and it is clear from the resolution dt. 30th August, 1988 as also the affidavit of Shri R. S. Mehra that the Council had agreed to transfer the flat in 1981. He further stated that Shri Ratnam had been allowed to stay in that flat right from the year 1977 and no rent had been charged. The learned counsel further contended that the issue as to when the transaction relating to the transfer of flat was complete, the following factors need to be considered.
(a) Resolution dt. 30th August, 1988, confirming the events as they existed in this case.
(b) Affidavit of Shri R. S. Mehra.
(c) Finding of the learned Judicial Member and the agreement of both the Members that there was an offer to the assessee in the year 1977 to sell the flat. Though the offer could not be acted upon there was a counter-offer in the year 1981 which had been accepted by The Cotton Textiles Export Promotion Council.
The learned counsel further sought to support the finding of the learned Judicial Member that the transaction of transfer of the flat to the assessee was a commercial transaction insofar as it had been decided in 1977 to transfer the flat at the market rate prevalent at that time. The learned counsel further contended that, firstly, there was no perquisite granted to the assessee by the employer and in any case if at all it was assessable, then the value of the property as in 1981 shall have to be determined for purposes of assessments of perquisite under s. 17(2) (iii). The learned counsel further contended that there are no rules under the IT Act for determination of fair market value of the property and in such circumstances, the WT Rules are applicable. In this connection reliance is placed on the decision of the Bombay High Court in the case of Madhusudan Dwarkadas Vora vs. Superintendent of Stamps . The learned counsel pointed out that the decision of CED vs. J. Krishna Murthy finds reference in the case of Madhusudan Dwarkadas Vora (supra). Relying on the decision of the Bombay High Court in the case of Jehangir Mahomedali Chagla vs. M. V. Subrahmanian, Addl. First ACED , the learned counsel contended that the valuation of the property shall have to be determined with reference to the rateable value in the identical manner as for purpose of wealth-tax. When that is done, according to the learned counsel, the value of the property works out to far less than Rs. 2,31,000. It was, accordingly, contended that no perquisite value was assessable under s. 17(2) (iii) as rightly held by the learned Judicial Member.
15. The learned Departmental Representative, on the other hand, sought to support the decision of the learned Accountant Member. It was contended that Shri R. S. Mehra was not competent to contract on behalf of the Council and as such his assurance to the assessee in 1981 that the property would be transferred to the assessee was of no consequence. Referring to the resolution dt. 30th August, 1988 passed by The Cotton Textiles Export Promotion Council, the learned Departmental Representative pointed out that the Council is constituted of leading businessmen and assessee is to ex-Executive Director. Since lot of benefits are conferred by the Executive Director to the Members of the Council, the decision to transfer the property in the name of the assessee was influenced by extraneous consideration. According to the learned Departmental Representative, the members of the Council had not accorded approval to the decision of transfer of flat to the assessee with free will. Referring to the decision of the Bombay High Court in the case of Indian Hotels Co. Ltd. (supra), the learned Departmental Representative contended that the transfer of immovable property to the Director of a public limited company was illegal and against public policy. According to him there was no monetary consideration paid either in 1977 or in 1981 nor was there any written agreement in regard to the transfer of immovable property, i.e., the flat. According to the learned Departmental Representative, there is no proof that the contents of the resolution dt. 30th August, 1988, are based on facts. The affidavit of Shri R. S. Mehra, according to the Departmental Representative, was doctored as ordinarily no person would remember the events of 16 years. It was further contended that the market value of the flat in 1988 when the transfer took place was substantially higher and, therefore, a perquisite has been granted to the assessee by the employer which is assessable to tax under s. 17.
16. Referring to the decisions of the Bombay High Court relied upon by the assessee, the learned Departmental Representative contended that these decisions related to estate duty where there was a specific provision for adoption of WT Rules or determination of the market value. The said decisions, according to the Departmental Representative, are inapplicable to the facts of this case. My attention was invited to s. 2(22) (b) by virtue of which market value is defined. Reliance was placed on the decision of the Calcutta High Court in the case of CWT vs. Executors to the Estate of Sir EC Benthal in support of the contention that the IT and WT Acts were different and not pari materia. Reliance was also placed on the decision of the Bombay High Court in the case of CWT vs. Keshub Mahindra in support of the contention that for determination of the fair market value of the property under the IT Act, rules of valuation under different Acts were not to be adopted. It was contended that the WT Rules are provided for the purposes of assessment under the WT Act and for purposes of assessment of the benefit granted to the assessee, the fair market value has got to be assessed as per s. 2(22) of the IT Act, 1961. The learned Departmental Representative further contended that the transaction by the Council with the assessee was not a commercial transaction. No offer was made to any other person for the sale of the flat. The offer to the assessee by reason of being a senior executive of the Council and as such the fair market value was assessable as perquisite under s. 17.
17. In counter reply, the learned counsel for the assessee has referred to the Commentary of Kanga & Palkhivala in support of the contention that there is an integrated scheme of taxation under various Acts and, therefore, it was contended that in the absence of rules under IT Act for determination of the fair market value, the WT Rules are required to be applied. It was further contended that assessee had been offered property in 1977 at a price at which it had been purchased in that year. In response to a query from the Bench, the learned counsel confirmed that 10 per cent of the salary was assessed in the hands of the assessee as perquisite up to asst. yr. 1987-88 for assessee having occupied the flat belonging to the Council.
18. I have given my careful consideration to the rival contentions. The issue relating to the reopening of an assessment has already been decided as a result of which assessment would be quashed after the issue of the appellate order in this appeal. Thus, the controversy relating to assessment of perquisite, in these circumstances, is admittedly academic unless the decision relating to the validity of reopening is reversed by any superior forum. However, since the learned Members have decided the issue and the reference has been made to me, I have no option but to express my opinion in regard to the difference arising in this case.
19. I have already stated the facts of this case in detail and, therefore, it is unnecessary for me to reiterate the same. It has not been disputed that when the assessee returned from abroad after serving there for 12 years, the flat purchased by the assessees employer shortly before the formers transfer to India, was offered to him for sale in consideration of Rs. 2,31,000, i.e., the amount for which the Council had purchased the flat. It is also not disputed that the assessee did not pay the consideration and accordingly no further action was taken in this regard. From these facts it is evident that the offer of the Council for transfer of the flat did not culminate into any agreement of sale. The contention on behalf of the assessee that the Council had extended the time for payment is not supported by any material. In fact, conduct of the parties establishes otherwise. It was stated that in 1981 assessee requested the Council to transfer the flat as he was willing to pay the consideration and that a firm commitment was made to him by Shri R. S. Mehra for the transfer of the flat. If the Council would have extended the time for payment of consideration of Rs. 2,31,000 in the year 1977 there was no need for the assessee to make a request to the Council in the year 1981 for making a commitment for the transfer of the flat. As is clear from the affidavit of Shri R. S. Mehra, the Council had not agreed to transfer the flat in the year 1981. Thus, the claim that there was an agreement in the year 1977 for the transfer of the flat as and when consideration of Rs. 2,31,000 was paid is not well founded.
Now let me consider as whether the benefit was conferred to the assessee in the year 1981. Shri R. S. Mehra in his affidavit vide para 6 has admitted that in the year 1981, the Council felt that it was advisable to defer the transfer. Para 6 of the aforementioned affidavit may be quoted below :
“That in the year 1981, Shri M. M. Ratnam requested for transfer of the said flat. A firm commitment to transfer the said flat to Shri Ratnam was given in 1981. However, the Council felt that it should be advisable to defer the actual transfer.”
20. As per the averment of Shri R. S. Mehra referred to above, though there was an offer of Shri Mehra in 1981 for the transfer of the flat and though a commitment was given to the assessee for the transfer of the same by Shri Mehra, yet, the actual transfer was deferred by the Council. The reasons for deferring the actual transfer are neither indicated in the affidavit nor have these been indicated before any authority. Whatever may be the reason for the decision of the Council not to transfer the property in the year 1981, one fact is established that the property in question was not transferred in the year 1981 as the Council did not agree for the actual transfer in that year. Thereafter, in the year 1988 the flat is actually transferred to the assessee. There are two aspects of the matter. First is as to whether Shri R. S. Mehra was competent to make a commitment for transfer of the property belonging to the Council to the executive director and; secondly, in view of the flat that the Council did not agree to actually transfer the property in the year 1981, can it be said that a benefit had accrued to the assessee in the year 1981 as against in the year 1988. As held by their Lordships of the Bombay High Court in the case of Indian Hotels Co. Ltd. (supra) even the Board of Directors of a company have no right whatsoever in disposing of companys property to employees at discounted rates. The commitment of Vice-Chairman, even with the consent of his so-called seniors, can at best be said to be a promise which was subject to approval of the Council. Since the Council did not consider it advisable to transfer the flat in 1981, the promise of Shri Mehra to transfer the flat to the assessee was without any legal consequences. In my view when the Council had actually decided not to transfer the property to the assessee in the year 1981, assessee had no right to compel to Council for transfer of the property on the basis of a commitment made by the Vice-Chairman of the Council. Under s. 292 of the Companies Act, Boards sanction is required for certain contracts in which particular directors are interested. Thus, when the Board did not approve the transfer of the flat to the assessee in 1981, the commitment of Shri R. S. Mehra to transfer the same, as already pointed out, was of no consequences. However, in 1988, it seems that Shri Ratnam has been able to persuade the Council for the transfer of the flat in his name. Accordingly, in a meeting of the Council of Administrators, it was decided to transfer the flat and the actual transfer also has taken place only in the year 1988 and not earlier.
21. The learned Judicial Member has referred to various provisions of the Contracts Act in order to come to a conclusion that there was a commercial transaction between the assessee and the Council with regard to the transfer of flat to the assessee in 1977 when offer made by the Council to transfer the flat in consideration of Rs. 2,31,000 was accepted by the assessee. In this connection, it is necessary to point out that a contract is not formed unless one partys offer has been fully accepted by the other party. Conditional acceptance of the offer amounts legally to the making of a counter-offer that must in turn be accepted by the first offerer. Moreover the validity of a contract depends, apart from the agreement of the parties, on compliance with certain formal and intrinsic requirements. The validity of the contract also depends on compliance with any applicable, regulatory, directory or prohibitory views – (Encyclopaedia-N. Britania, p. 989).
22. Applying these principles to the facts of the present case it is observed that there was an offer to the assessee in the year 1977 for the transfer of the flat by the Council in consideration of Rs. 2,31,000. The offer for transfer was subject to the condition of payment of Rs. 2,31,000 as consideration. Assessee admittedly did not comply with the condition of payment of Rs. 2,31,000. It is stated that assessee had accepted the offer with the condition that the payment would be made on a future date. As has been pointed out above, conditional acceptance of an offer does not complete the contract but it amounts to a counter-offer. There is no evidence that the counter-offer made by the assessee was accepted by the Council. On the other hand, facts and circumstances, indicated elsewhere in this order, establish otherwise. Therefore, there was no contract completed in the year 1977 between the assessee and the Council for transfer of the flat.
23. In 1981, assessee, it is claimed, had offered Rs. 2,31,000 and requested for transfer of the flat. This again amounts to an offer by the assessee to the Council. Shri Mehra claims to have made a firm commitment to the assessee with the consent of his seniors to transfer the flat in the name of assessee. In para 6 of the affidavit quoted above Shri Mehra admits that the Council decided not to transfer the flat in the name of the assessee as it was not thought advisable. The reasons as to why it was thought not advisable to transfer the flat in the name of the assessee are not spelt out. Whatever might have been the reason for not transferring the flat in the name of the assessee, one thing is crystal clear that the Council did not agree to transfer the flat in the name of the assessee in the year 1981. The firm commitment as is stated by Shri Mehra, the then Vice-Chairman of the Council to transfer the flat was of no consequence as it had no formal approval of the Council. The transaction between the assessee and the Council also lacks ingredients of a commercial transaction. A commercial transaction would be a transaction which is concluded by a merchant in the exercise of his profession. Since the Council did not transfer the flat to the assessee in exercise of formers profession or business, the transaction is not a commercial transaction. Moreover, a commercial transaction would more often than not be a transaction concluded on commercial considerations. In this case, the flat purchased in the year 1976 for Rs. 2,31,000 is transferred in the year 1988 for the same price. In the light of prices of immovable properties having sky-rocketed in this period it cannot be said that the transaction was purely on commercial considerations. The transaction between the assessee and the Council in my view was purely a transaction between the employer and the employee. The transaction in question could not have materialised but for the assessee having influential capacity as an executive director of the Council. In this connection reference may be made to the order under s. 144A dt. 31st December, 1991 in the case of the Council where reference has been made to the published accounts of Council para 5 “in view of the valuable services rendered by Shri Ratnam over a period of 26 years the provision of residential accommodation is allocated”. The AO has further quoted from para 4 p. 4 of the said order :
“The only argument advanced by the assessee (i.e., the employer) is that the flat has been given to Mr. Ratnam at cost in view of his long service of 26 years with the company.”
The AO has further quoted from page-6 of the aforementioned order :
“It is recorded that there was no agreement of sale in respect of flat sold to Mr. Ratnam prior to 1988 when the flat was actually transferred”.
Considering the totality of the facts and circumstances of the case, I am inclined to agree with the conclusion of the learned Accountant Member that the transaction between the Council and the assessee of transfer of flat is not a commercial transaction but a transaction of conferring a benefit by the employer to the employee. Thus, provisions of s. 17(2) (iii) are clearly attracted.
24. Now I deal with the valuation of the perquisite. The learned Judicial Member has referred to the arguments on behalf of the assessee that the WT Rules would be applicable in regard to the valuation of the property in order to work out the value of the perquisite granted to the assessee. He has not recorded a finding either in favour or against the assessee. Perhaps it was not necessary for him to do so when he had come to the conclusion that no perquisite value is to be added in the hands of the assessee under s. 17(2) (iii). The learned Accountant Member has directed the AO to value the flat by making enquiries about its market value and accordingly assess the perquisite value. Thus, the contention raised on behalf of the assessee that the WT Rules should be applied in working out the value of the flat so as to assess the benefit granted to the assessee has not been accepted by the learned Accountant Member. I, in principle agree with the conclusion of the learned Accountant Member that the value of the benefit is to be worked out by determining the market value of the flat on the date of the transfer for the purpose of which it is necessary to find out the value of the flat it would fetch if sold in the open market. Under s. 17(2) (iii), it is not the market value of the flat which is assessable to tax but it is the benefit that has been granted to the assessee by the employer which is assessable to tax. If WT Rules are applied for determination of the market value of the property, we are bound to get absurd results. The learned counsel for the assessee has himself pleaded that the market value of the flat if worked out as per WT Rules would be far less than the sum of Rs. 2,31,000, i.e., the cost price. Therefore, to my mind application of WT Rules for determination of market value in the absence of compelling reasons to do so is not warranted.
25. At this stage it may be useful to refer to the decision of the Bombay High Court in the case of Keshub Mahindra (supra) where at p. 43 of the report, Their Lordships have held as under :
“The difficulty of drawing an analogy from the provisions of the Indian IT Act, with reference to an assessment under the Act, is pointed out by the Madras High Court in A & F Harvey Ltd. vs. CWT , when it dealt with the ratio of the decision of Jamnadas vs. CWT , the Division Bench observed as follows :
“We may also point out that there can be no analogy of the provisions of the IT Act with reference to the assessment under the Act.”
At p. 44, their Lordships have quoted from the decision of the Calcutta High Court in the case of Executors to the Estate of Sir E. C. Benthal (supra) as under :
“Though the language used in s. 24B of the IT Act, 1922, and s. 19(2) of the WT Act are similar, the subject-matter of the charge and the scheme of these two Acts being totally different, these two sections cannot, in our opinion, operate the same field. These two sections must be read and understood in their own context and must also be construed in the light of the respective schemes of the respective Acts including the respective charges under the respective Acts. These two Acts are not in pari materia as held by this Court in the case of CIT vs. Balai Chandra Paul , and, accordingly, I am not inclined to be inspired by the above decision of the Supreme Court in CIT vs. Amarchand N. Shroff , construing s. 19(2) of the WT Act.”
26. It is evident from the above quoted reference that the WT Rules are not to be applied in every situation for determination of the market value of the property without considering the contexts and purpose for which the valuation is required. I have pointed out elsewhere in this order the purpose of valuation is to determine the benefit granted to the assessee by the employer and that purpose can be achieved only by determining the actual fair market value on the basis of prevalent market rates in the vicinity of the property, transferred to the assessee. The difference between market price and the price paid by the assessee would be the actual benefit granted to the assessee.
27. To sum up, for attracting the provisions of s. 17(2) (iii) it is necessary that there should be a benefit granted by the employer to the employee which is assessable to tax. In this case, there is a relationship of employer-employee between the person who has granted the benefit and the person who has received the benefit. The benefit has actually been granted in the year 1988 and the same has got to be assessed at the market value as on the date of grant.
28. Thus, agreeing with the view of the learned Accountant Member I hold that the transfer of Flat No. 24-B, Miramar, 3, Nepean Sea Road, Bombay-36 to the assessee by his employer for consideration of Rs. 2,31,000 was not for commercial consideration and that the transfer was as a result of employer-employee relationship. There was no transfer of the flat in the year 1977 or in the year 1981, the transfer was in the year 1988. Therefore, a benefit was granted by the employer to the employee assessee in the year 1988. The value of the perquisite would be the difference between the market value of the flat on the date of transfer and the actual consideration paid by the assessee. The answer to the question referred to me under s. 255(4) given by me, thus, is in negative.
29. Now let this order be placed before the regular Bench for passing consequential order in accordance with law.
