Interest subsidy received by the assessee was not taxable as per the provisions of the Income Tax Act, 1961 and relevant circulars.

S.B. Majmudar, C.J.—In this writ petition, the petitioner-assesses has brought in challenge the refusal of the assessing authority to grant him exemption from computing taxable income of an amount of Rs. 3,556 being interest subsidy. The assessing authority took the view that as a welfare measure, the company reimbursed the interest paid in excess of the Central Government Employees House Building Advance Rates and the interest reimbursed is assessable to tax under section 17(2)(iv) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), since the assessee would have paid even if the employer had not reimbursed it. It was further held that the Chairman, Central Board of Direct Taxes, has clarified that the interest subsidy is not taxable when the employer borrows money and in turn advances it to its employees. It was also further held that since the assessee directly borrowed loan from the HDFC, his claim for exemption could not be considered and the interest subsidy reimbursed is assessable under the head "Salary"; and, therefore, Rs. 3,556 was added to the returned income for computation of tax. The assessee moved the matter before the revisional authority, who in exercise of the power under section 89(1) of the Act (sic), dismissed the revision by holding that there was no reason to interfere with the order under revision. That is why the assessee is before us.

2. The contention canvassed by learned counsel for the petitioner-assesses that the interest subsidy is not liable to tax, is fully covered by a decision of this court in Commissioner of Income Tax Vs. M.K. Vaidya, (1997) 224 ITR 186 KAR I.T.R.C. Nos. 161 and 162 at 1987, decided on June 11, 1992, by a Division Bench consisting of K. Shivashankar Bhat and R. Ramakrishna JJ. The Division Bench has held that the Legislature never intended to treat the interest as perquisite under section 17(2)(iii) of the Act. The referred question was considered and answered by the Division Bench in the affirmative, in favour of the assessee and against the Revenue.

3. Apart from the aforesaid Division Bench decision, there is Central Board of Direct Taxes Circular No. 421, dated June 12, 1985, which is found in (see [1985] 156 ITR 130. and 13.3 of the said circular are relevant for our present purpose. They read as under :

"13.1. Under sub-clause (vi) of clause (2) of section 17 of the Income Tax Act, inserted by the Taxation Laws (Amendment) Act, 1984, where the employer has advanced any loan to an employee for building a house or purchasing a site or a house and a site or for purchasing a motor car, and either no interest is charged by the employer on such loan or interest is charged at a rate which is lower than the rate of interest which the Central Government may specify in this behalf by notification in the Official Gazette, an amount calculated on the following basis is regarded as perquisite received by the employee and charged to tax accordingly :-

(i) in a case where such loan is advanced without charging any interest, the amount of interest on such loan at the rate notified;

(ii) in a case where such loan is advanced by charging interest, at a rate which is lower than the notified rate, the amount of the difference between the interest on such loan at the rate notified and the interest charged by the employer....

13.3. As a measure of relief to salaried taxpayers, the Finance Act has omitted the aforesaid provision with effect from the date of its insertion, namely, 1st April, 1985. In consequence thereof, sub-clause (vi) of clause (b) in Explanation 2 to section 40A(5) of the Income Tax Act, which defines the term 'perquisite' for the purposes of the said section to include the perquisite value represented by interest-free loans or loans at concessional rates of interest, has also been deleted. [Sections 6(b) and 12(a) of the Finance Act.]"

4. It becomes obvious by reading this circular that even the Central Board of Direct Taxes clearly opined that on