April 2013
Salary: Benefit or perquisite: A. Ys. 1996-1997 to 2001-02: Assessees directors of company CRS: CRS effected its sale through franchisees which were owned by HUFs of assesses: Assessing Officer treated personal expenses of assessees and their family members paid by company as income of assessee’s by invoking section 2(24)(iv): Addition not proper:
By K. B. Bhujle, Advocate
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CIT vs. Srivatsan; 213 Taxman 413 (Mad): 30 Taxman. com 423 (Mad):
The assessees were directors of the company ‘CRS’ which was engaged in the business of retail-selling of silk sarees and other textiles. ‘CRS’ effected its sale through franchisees which were owned by different HUFs of the assessee. Said franchisees were paid commissions for the sale effected by them. The Assessing Officer treated the personal expenses of the assessees and their family members (Franchisee commission paid to different HUF) paid by the company as the income of the Directors, by invoking the provisions of section 2(24)(iv). The Tribunal held that the personal expenses met out of the company’s money could not be treated as income in the hands of the assessees u/s. 2(24)(iv) as the money had not been paid directly to them, but to the franchisees, which their HUF owned.
In appeal, the Revenue contended that when the factum of each of the Directors, having received benefit towards the personal expenses, was not disputed, it was irrelevant and immaterial whether such expenses were directly paid by the company or through franchisees. The Madras High Court upheld the decision of the Tribunal and held as under:
“i) The Tribunal has taken note of the following aspects and has given the specific findings:-
a) CRS paid franchise commission to various firms owned by HUF of Directors.
b) This has been done on the basis of agreement entered into which were in force.
c) The payment by CRS on the basis of franchise agreement to various persons cannot be treated as payment to Directors who have substantial interest in the company and section 2(24)(iv) cannot be invoked.
ii) The findings rendered by the Tribunal do not warrant any interference, as it is supported by factual matrix and legal reasoning.”
