V.M. SALGAOCAR & BORS. vs COMMISSIONER OF INCOME TAX

The Supreme Court addressed the interpretation of Section 40A(5) and Section 17(2) of the Income Tax Act, 1961, in relation to the disallowance of interest on loans to directors. The Court upheld the Appellate Tribunal's decision that the Revenue failed to demonstrate that borrowed funds were directly diverted for the benefit of the directors, thus ruling that non-charging of interest on the debit balance did not constitute a perquisite. The appeal was allowed, reversing the High Court's decision which had favored the Revenue.