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Preferential loans.
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9.—Section 122 of the Principal Act is amended—
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(a) in subsection (1)—
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(i) by substituting the following for the definition of “employee”:
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“ ‘employee’, in relation to an employer, means an individual employed by the employer in an employment—
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(a) to which Chapter 3 of this Part applies, or
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(b) the profits or gains of which are chargeable to tax under Case III of Schedule D,
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including, in a case where the employer is a body corporate, a director (within the meaning of that Chapter) of the body corporate;”,
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and
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(ii) in the definition of “preferential loan” by substituting “means, in relation to an individual, a loan, in respect of which no interest is payable or interest is payable at a preferential rate, made directly or indirectly to the individual” for “means a loan, in respect of which no interest is payable or interest is payable at a preferential rate, made directly or indirectly to an individual”,
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and
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(b) by substituting the following for subsection (2):
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“(2) Where, for the whole or part of a year of assessment, there is outstanding, in relation to an individual, a preferential loan, the individual shall, subject to subsection (4), be treated for the purposes of section 112 or a charge to tax under Case III of Schedule D, as having received in that year of assessment, as a perquisite of the office or employment with the employer who made the loan, a sum equal to—
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(a) if no interest is payable on the preferential loan or loans, the amount of interest which would have been payable in that year, if interest had been payable on the loan or loans at the specified rate, or
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(b) if interest is paid or payable at a preferential rate or rates, the difference between the aggregate amount of interest paid or payable in that year and the amount of interest which would have been payable in that year, if interest had been payable on the loan or loans at the specified rate,
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and the individual or, in the case of an individual who is a wife whose husband is chargeable to tax for the year of assessment in accordance with the provisions of section 1017, the spouse of the individual, shall be charged to tax accordingly.”.
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