High Court Of Kerala
Cochin Refineries Officers Association & Ors. vs. Union Of India & Ors.
Sections 17(2)(vi), 295(2)(c), Rule 3, ART. 14
P.R. Raman, J.
OP Nos. 6779 & 8425 of 2002 and 10767 & 10768 of 2003
12th March, 2004
Counsel Appeared
Sarangan, R. Sudhir, K.M.V. Pandalai & Parameswara Panicker, for the Petitioners : C.B. Sreekumar & P.K.R. Menon, for the Respondents
JUDGMENT
P.R. Raman, J. :
In all these writ petitions, common question arises for consideration. Hence, they are taken up together for hearing.
2. O.P. 10569 of 2003 and O.P. 8425 of 2002 were taken as the leading cases for argument. In O.P. 10569 of 2002 petitioners are officers of the third respondent scheduled bank. Respondents are (i) Union of India, (2) the CBDT, and (3) the Federal Bank.
3. The Federal Bank Officers Association itself filed an original petition before the Karnataka High Court, seeking for a declaration that r. 3(1)(ii) and r. 3(7)(i) notified by Ext. P1 as unconstitutional and unenforceable. The said writ petition was dismissed by a common judgment dt. 17th Feb., 2003 [reported as BHEL Employees’ Association vs. Union of India & Ors. (2003) 180 CTR (Kar) 412 : (2003) 261 ITR 15 (Kar)—Ed.]. It is thereafter that the present writ petitions were filed challenging the validity of s. 17(2)(vi) of the Act which, according to the petitioners, was not a subject-matter of challenge in the earlier writ petition. Petitioners seek for a declaration that s. 17 (2)(vi) of the IT Act, as inserted by Finance Act, 2001, is illegal and violative of Arts. 19(1)(g) and 246 of the Constitution of India, and a declaration that r. 3 of the IT Rules, 1962, as substituted by IT (22nd Amendment) Rules, 2001, by the second respondent under its Notification No. 940(E), dt. 25th Sept., 2001 as illegal and unconstitutional being hit by the vice of excessive delegation of power besides being ultra vires the rule-making power of the second respondent and to stay the operation of the aforesaid provisions. There are no detailed factual averments in the writ petitions supporting the contentions that the provisions are in any way arbitrary or illegal. However, among the grounds urged, it is averred that amendment to r. 3 is arbitrary since it seeks to discriminate between the Central/State Government employees on the one hand and public sector and private sector employees on the other and that the same is without any reasonable classification and having no nexus with the object sought to be achieved. It is also averred that the accommodation taken on lease and provided to the employee is not a perquisite and the reimbursement towards motor car allowance cannot be treated as a perquisite as, what is provided by way of motor car allowance is only a facility for reimbursement of petrol/diesel charges meant for journeys of officers from residence to office and back. It is also averred that fringe benefit does not include interest subsidy and is not perquisite. Therefore, taxing interest subsidy and reimbursement of conveyance allowance is opposed to s. 17(2) of the Act. It is the further case that petitioners are eligible to avail various loans such as house building loans, vehicle loan, etc. at concessional rate of interest from their employer as per the service rules and the intention of the legislature is not to treat interest-free loan at concessional rate as a ‘perquisite’ ‘by virtue of s. 17(2)(vi) as the same was withdrawn by deletion of sub-cl. (vi) of s. 17(2) with effect from the date of its insertion by enacting the Finance Act, 1985, which was a measure of relief to the salary taxpayers. Hence, the reintroduction of the same by exercising the power under s. 295(2)(c) of the Act is impermissible. It was further stated that even assuming that interest subsidy can be treated as a perquisite, the second respondent is not entitled to f10 per cent or 13 per cent as the benchmark rate for computing the value of perquisite. They also rely on the budget speech rendered by the Finance Minister for 20022003 which is extracted at p. 7 of the original petition to the effect that it proposes to provide that no perquisites will be assessed for the asst. yr. 2002-03 in the case of employees whose taxable salary, excluding perquisites, is upto Rs. 1,00,000 and for the subsequent years, to give an option to the employer to pay the tax on perquisites on behalf of the employees.
In the previous year, according to the minister’s speech, it had rationalised the rules for valuation of perquisites on the basis of their cost to the employer, except in respect of houses and cars where different criteria are adopted for simplicity. According to the petitioner, the intention of the legislature is to determine the value of perquisites on the basis of their cost to the employer. The cost of funds of the third respondent bank was 8.98 per cent for the year ended 31st March, 2001 which came down to 8.64 per cent for the year ended 31st March, 2002. The annual report of the bank is produced as Ext. P2 in support of the said contention. In O.P. 8425 of 2002 also, the petitioners are employees of another scheduled bank. In O.P. 6779 of 2002, first petitioner is the Cochin Refineries Officers Association which is a registered and recognised union and the second petitioner is the projects manager of the Kochi Refineries. In O.P. 10629 of 2003, petitioner is the Dhanalakshmi Bank Officers’ Organisation represented by its Dy. General Secretary and in O.P. 10767 of 2003, the Federal Bank Officers’ Association represented by its General Secretary is the petitioner. In O.P. 10768 of 2003, petitioners are the officer employees in the employment of the Lord Krishna Bank. As I have already stated earlier, similar contentions are raised challenging the provisions of s. 17(2) of the IT Act and r. 3 of the IT Rules.
A counter-affidavit is filed in O.P. 8425 of 2002 by the Addl. CIT, on behalf of the respondents. With regard to the submissions advanced by the petitioners that when the loans are given or arranged by the employer without interest or at concessional rate of interest, the same cannot be taken as perquisite upto the prescribed rate of 10 per cent in respect of HBA and conveyance loan and 13 per cent in respect of other loans, it is stated that the advance of either interest-free loan or loan at concessional rate of interest by the employer to its employees would result in benefit to the employees and it relieves the employee of his liability to pay interest on such loans if he is required to raise the loan from an outside agency. Hence, it could undoubtedly be treated as “fringe benefit” or “amenity”. The respondents also relied on the decisions of the Karnataka High Court in BHEL Employees’ Association vs. Union of India & Ors. (2003) 180 CTR (Kar) 412 : (2003) 261 ITR 15 (Kar), Rajasthan High Court in Aditya Cement Staff Club vs. Union of India & Ors. (2003) 182 CTR (Raj) 554 and the decision of the Jharkhand High Court in Tata Workers’ Union vs. Union of India (2002) 176 CTR (Jharkhand) 325 : (2002) 256 ITR 725 (Jharkhand) in similar writ petitions wherein the validity of the legislation were upheld. It is stated that s. 17(2)(vi) takes within the ambit of perquisite “the value of any other fringe benefit or amenity as may be prescribed”. Therefore, the legislature has included fringe benefits within the ambit of perquisite and not the Board, the delegated authority empowered to make rules, and ‘fringe’, going by the dictionary meaning, means extra benefit especially given to an employee in addition to the salary or wages. It is further averred that in s. 2(24) of the IT Act the word ‘income’ has been defined which includes value of any ‘perquisite’ or ‘profit in lieu of salary’ or any ‘allowance’ or any ‘benefit’. The word ‘income’ is a word of broadest connotation and it has been held that for the purpose of the Act, it should be interpreted in its widest amplitude. It does not merely include what is received but also what one gains by exploiting or using a relationship, property or benefit. Reference is also made to ss. 15 and 17 of the IT Act and contended that the word “salary” includes ‘any payment’ received by an employee from an employer which includes various benefits, perquisites, fees, commission, profits in lieu of or in addition to salary. Perquisites received by the assessee are taxable under s. 17(1)(iv) of the Act. Sec. 17(2) by an inclusive definition has defined the term ‘perquisite’ to include value of any rent-free accommodation and also value of any concession in rent for any accommodation provided to the employee by his employer. It is also contended that s. 295(1) gives powers to the CBDT to make rules and s. 295(2)(c) empowers the Board to frame rules and that the Board has powers to determine the value of any perquisite, which is chargeable under the Act. Likewise, accommodation provided by the employer is also a perquisite.
It is also stated that the rules framed as per s. 295 are to be laid unders. 296 of the Act before each House of Parliament so as to have a check whether any modification is required to be made with legislative sanction. For Government employees the value of perquisite in respect of accommodation provided was equal to the rent payable in accordance with the rules framed by the Government. In the case of semi-government employees, rent-free accommodation for the purpose of perquisite is taken as 10 per cent of the salary or fair market value, whichever is less. In the case of others, namely, private sector employees the basis was provided for in the unamended rules. But determination of fair market value was found to be very cumbersome and estimation of fair rent has been subject to many litigations. Further, rent legislation varies from State to State. Hence, it was decided to simplify and rationalise these rules with a view to reduce litigations. For the purpose of valuation of perquisites of accommodation, employees have been classified into two categories (a) Government and State Government employees, and (b) others. In the case of others it was decided that valuation of perquisite of accommodation would be 10 per cent or 7.5 per cent of salary as recommended by the expert group to rationalise and simplify IT Law, 1997. But in order to obviate difficulties to those taxpayers who were staying in cities with a population of less than four lakhs, the perquisite value is to be charged at 7.5 per cent of the salary and for other cities perquisite value was taken at 10 per cent of the salary. If the accommodation is taken on lease by the employer, the perquisite value was taken as the actual amount of lease rental paid or payable by the employer or 10 per cent or 7.5 per cent of the salary, whichever is lower. It is contended that the rate fixed cannot be considered as unreasonable for the purpose of consideration of the value of the perquisite. It is also contended that r. 3 is not violative of Art. 14 of the Constitution as even under Art. 14 a reasonable classification is permissible. Accordingly, it is prayed that the writ petitions may be dismissed. Heard the learned senior counsel, Sri Sarangan, on behalf of the petitioners and M/s R. Sudhir, K.M.V. Pandalai and Sri Parameswara Panicker appearing for the petitioners and the learned senior standing counsel Sri P.K. Raveendranatha Menon appearing for respondents 1 and 2.
8. Even according to the petitioner in O.P. 10569 of 2003, earlier challenge made to the rules was unsuccessful but they sought to include a challenge to s. 17(2) of the Act in this writ petition. As a matter of fact, the validity of s. 17(2) of the IT Act and r. 3 of the IT Rules, 1962, as notified by the notification dt. 25th Sept., 2001, arose for consideration before different High Courts and the constitutional validity of the provisions were upheld. The learned counsel, Sri Sarangan, reiterated his submission which were advanced before the Karnataka High Court in the decision reported in BHEL Employees’ Association vs. Union of India (supra). Firstly, it is submitted by him that sub-cl. (vi) of cl. (2) of s. 17 of the Act is required to be struck down on the ground that essential legislative function has been delegated to the executive and hence the same suffers from the vice of excessive delegation. It is his submission that the legislature cannot allow the Board to prescribe or say what is fringe benefit or amenity and it is for the legislature itself to state what they are. Even assuming that such an obligation is permissible in the instant case, there is no guidelines laid down for the executive to determine what is meant by “fringe benefits” or “amenity”. Secondly, it is submitted that the impugned r. 3 of the Rules providing for various types of “fringe benefits” or “amenities” is arbitrary and unreasonable and discriminatory and violative of Art. 14 of the Constitution of India, in so far as there is discrimination between the Central or State Government employees on the one hand and public sector and private sector employees on the other. Thirdly, it is submitted that under cl. (c) of sub-s. (2) of s. 295 of the Act, the Board is authorised to determine the value of any fringe benefit chargeable under the Act in such a manner and on such basis as appears to the Board to be appropriate and reasonable and in the absence of power conferred under s. 295 of the Act to determine what is meant by “fringe benefit” or “amenity” the prescription of “fringe benefit” and “amenity” by means of notification issued by the Board is illegal and without authority of law. According to him, in s. 17(2)(vi) the words “as may be prescribed” are linked only to the value and hence in the absence of specification in the statute what is meant by “fringe benefit” or “amenity”, the Board cannot prescribe what is meant by “fringe benefit” or “amenity”. Reference is also made in support of this contention to the decisions of the Supreme Court in Harakchand Banthia vs. Union of India AIR 1970 SC 1453, Ajay Kumar Banerjee vs. Union of India AIR 1983 SC 1130 and Devi Das Gopal Krishnan vs. State of Punjab AIR 1967 SC 1895 and other decisions. Fourthly, it is contended that the impugned provision which provides that, when loans are given or arranged by the employer without interest or at concessional rate of interest, they should be taken as perquisite upto the prescribed rate of 10 per cent in the case of house building and conveyance loans and 13 per cent in respect of other loans is totally illegal and unconstitutional since judicial pronouncements have declared them as “not perquisite”.
It is further submitted that the rules impugned, which provide that the entire cost of travel incurred by the employer to the spouse of the employee should be treated as a perquisite, is also unreasonable and arbitrary. According to him, the travel is undertaken by the employee at the behest of the employer and no benefit is derived by the employee. It is also contended that the impugned rule provides for extremely impractical, cumbersome procedure with regard to the use of motor cars provided by the employer to his/its employees inasmuch as the employee has to maintain complete details of journey undertaken for official purpose such as the date of travel, destination, mileage and the amount of expenditure incurred and to give a certificate that the expenditure was incurred for official purposes only and hence the procedure is wholly unwarranted and cumbersome and requires to be struck down as being unreasonable and arbitrary. It is their contention that the imposition of tax on the emoluments paid to a servant made available to the employee by its employer on the ground that either it is a perquisite or an amenity provided to the employee is liable to be struck down on the ground that it amounts to double taxation. Finally, it is submitted that r. 3 of the Rules is liable to be nullified on the ground that on the date of issue of the said notification, sub-cl. (vi) of cl. (2) of s. 17 of the Act was not in the statute book and as such the Board had no authority to make the impugned rule. Learned counsel Sri P.K. Raveendranatha Menon, on the other hand, repelled the contentions raised by the learned counsel for the petitioners. According to him, the challenge to s. 17(2)(vi) of the Act and r. 3 of the Rules having been tested by different High Courts and the constitutional validity was upheld for valid reasons after referring to the various provisions of the statute and the case law on the subject. He also reiterated the submissions that s. 17(2)(vi) does not suffer from the vice of excessive delegation nor is arbitrary or violative of Art. 14 of the Constitution of India. According to him, the expression “fringe benefit” is an inclusive definition and by various decisions it is now well settled as to what is “fringe benefit” and over and above the salary, amenities provided by the employer in the form of perquisites are under the head “salary income”. It is only the benefit or advantage of concession that is made subject-matter of tax and that there are guidelines in the statute. It cannot be said that the Board has no powers to frame rules to prescribe what are perquisites. The Board in exercise of the power having framed rules is also not contrary to s. 17(2) of the Act nor can it be said to be ultra vires the provisions of the Act. It is also his contention that no factual matrix is given by the petitioners in any of the writ petitions in discharge of their burden to show that r. 3 of the IT Rules, 1962, and s. 17(2) of the Act are in any way unconstitutional and violative of Art. 14 of the Constitution of India. In the absence of proper plea on the question of discrimination, according to him, the writ petitions lack merit.
The submissions made by the learned counsel for the petitioners were elaborately considered by the Division Bench of the Karnataka High Court in BHEL Employees’ Association’s case (supra) wherein reference is also made to the decision of the Supreme Court in Avinder Singh vs. State of Punjab AIR 1979 SC 321 in which it laid down the tests for a valid delegation of legislative power as (i) the legislature cannot efface itself, (ii) it cannot delegate the plenary or the essential legislative function, (iii) even if there is delegation, Parliamentary control over delegated legislation should be a living continuity as a constitutional necessity. It admits of no doubt that essential feature cannot be delineated in detail but at the same time delegation is a constituent element of legislative power under Art. 245 of the Constitution of India. [See Agricultural Market Committee vs. Shalimar Chemical Works Ltd. AIR 1997 SC 2502]. Therefore, the only question is whether the delegation is excessive or whether the legislature has abdicated its essential functions? In this connection, it has to be examined the scope of s. 17(2)(vi) of the IT Act as to whether it is liable to be struck down on the ground of excessive delegation? Sub-cl. (i) to (v) of cl. (2) of s. 17 specifies what are to be treated as perquisites. The definition itself is an inclusive definition. The value of rent-free accommodation provided to the assessee by his employer, value of concession in the matter of rent respecting any accommodation, value of a benefit or amenity granted or provided free of cost are specifically included in the definition clause itself. As per cl. (vi) of s. 17(2) the value of any other “fringe benefit” or “amenity” to be prescribed is included in the definition “perquisite”. Therefore, any value of fringe benefit or amenity would also come under the purview of the term “perquisite”. Going by Webster’s Encyclopaedic Unabridged Dictionary, the term “fringe benefit” means a benefit, a free life of health insurance, received by an employee in addition to his regular pay and “amenity” means the quality of being pleasing or agreeable in situation, prospect, disposition, etc. The meaning of the expression in other dictionary also would show that what it actually means is an advantage obtained by an employee. It cannot, therefore, be said that the word “fringe benefit” or “amenity” are expressions which have not gained specific understanding both in daily and commercial use. Further, while considering a challenge that the provision is bad because of its excessive deletion, it has to be found whether legislature has left the essential functions to be legislated by delegated authority or merely left the execution of it. as held by the apex Court in The Delhi Laws case AIR 1951 SC 332 it is open to the legislature to formulate the policy as broadly and with as little or as much details as it thinks proper and it may delegate the rest of the legislative work to a subordinate authority to work out the details within the framework of that policy. In the light of s. 17(2) of the Act and the inclusive definition contained therein of the term “perquisite” and also the fact that the expression has been understood as an advantage or a benefit conferred to an employee and considering the fact that it is an inclusive definition and following the various decisions of the Supreme Court as referred to above, it cannot be said that s. 17(2)(vi) of the Act should be struck down on the ground that it confers unguided or uncontrolled power on the rule-making authority. Further, the Rajasthan High Court in Aditya Cement Staff Club vs. Union of India & Ors. (supra) also held that cl. (vi) of s. 17(2) cannot be dubbed in any manner as violative of any provisions of the Constitution or parent Act. In fact none of the provisions under s. 17(2) or under the impugned rules deviate from the basic concept of perquisites and fringe benefits as part of salary in its wider sense. It was also held that no legislative function has been bestowed on the rule-making authority to make a substantive provision to bring something to tax, which is not envisaged under the parent Act under the head “income from salaries” by inserting the impugned provision.
It is in the nature of clarification and making it more obvious to remove doubts, if any, about the fact that fringe benefits which an employee receives from his employer by way of a personal advantage because of status as an employee and have nexus with the employer-employee relationship to be included in the wholesome expression “perquisite”. Sec. 17(2)(vi) was inserted w.e.f. 1st April, 2002, and hence applicable to income during the year ended on 31st March, 2002. Therefore, it cannot be said that it is violative of any well-settled principle of computing income of previous year 2001-02 as per substantive law prevailing on 1st April, 2002, by applying existing machinery provision. Finally, it was concluded that insertion of cl. (vi) in s. 17 (2) by the Finance Act, 2001, is not violative of any provisions of the constitution or the parent Act, since only valuation of other fringe benefits has been left to be detailed by the subordinate legislation, there is no abdication of essential legislative function and neither cl. (vi) of s. 17(2) nor the amended r. 3 suffers from any invalidity. A Division Bench of the Allahabad High Court in P.N. Tiwari & Ors. vs. Union of India (2003) 185 CTR (All) 1 : (2004) 265 ITR 224 (All) also upheld the validity of s. 17(2)(vi) of the IT Act, 1961, following the decision of the Karnataka High Court in BHEL Employees’ Association vs. Union of India (supra). Reference was also made to the decision of the Supreme Court in Amalgamated Tea Estate Co. Ltd. vs. State of Kerala 1974 CTR (SC) 192 : (1974) 94 ITR 479 (SC) and various other decisions relevant for consideration. In view of the decision of the Karnataka High Court in BHEL Employees’ Association’s case (supra) and the Allahabad High Court in P.N. Tiwari’s case (supra) and after considering the reasons given therein, I am in respectful agreement with the view expressed by those High Courts. As I have already noticed, I do not find that there is any excessive delegation nor is there any delegation of essential legislative functions to the rule-making authority. In the circumstances, the validity of s. 17(2)(vi) of the IT Act cannot be struck down as violative of any of the constitutional provisions. The next question is as to whether r. 3, as contended, is liable to be struck down on the grounds urged by the petitioners.
The contention that there is a discrimination between the State Government and Central Government employees on one hand and the public sector and others on the other hand, is discriminatory, does not hold any merit. Apart from the fact that no factual pleadings are there, even the grounds urged merely stating that the classification between the Government employees and non-Government employees is violative of Art. 14 has to be decided in the light of policy and objects of the legislation. If the classification is rational and based on intelligible differentia which distinguishes the other persons or things then the basis of the differentiation if it has actually rational nexus and relation with the object sought to be achieved cannot be held to be discriminatory. There is a difference between discrimination and differentiation. If the differentiation is rational having due regard to the objects sought to be achieved, then such differentiation is not discriminatory. The Governmental power is exercised by the State while making laws to operate differently with different groups or class of persons. Therefore, there cannot be any strict formulae or doctrine to be applied for testing as to whether such exercise is violative of Art. 14 of the Constitution. But Art. 14 only forbids unreasonable classification. Therefore, it is for the petitioners to show that what has been done is irrational and unreasonable. There is always a presumption in favour of the constitutionality of the statute. I do not find anything in the writ petition providing sufficient and relevant factual background to discharge the burden as cast on the petitioners to support the case of arbitrariness in action complained of. The Supreme Court, in the case of Kunnathat Thathunni Moopil Nair vs. State of Kerala AIR 1961 SC 552, observed that if the taxation, generally speaking, imposes a similar burden on everyone with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not be open to attack on the ground of inequality, even though the result of the taxation may be that the local burden on different persons may be unequal. Therefore, if the legislature has classified persons or properties into different categories, which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal. No doubt, it is true that taxation laws must also pass the test of Art. 14. In deciding whether taxation law is discriminatory or not it cannot be forgotten that the State has a wide discretion in the matter of selecting the persons or objects to be taxed. In Jaipur Hosiery Mills (P) Ltd. vs. State of Rajasthan 26 STC 341 (SC), the Supreme Court observed as follows : “…….it has to be borne in mind that in matters of taxation, the legislature possesses the large freedom in the matter of classification. Thus, wide discretion can be exercised in selecting persons, or objects which will be taxed and the statute is not open to attack on the mere ground that it taxes some persons or objects and not others. It is only when within the range of its selection the law operates unequally and cannot be justified on the basis of a valid classification that there would be a violation of Art. 14”.
17. Hence, the classification of Central Government and State Government employees on the one hand and the employees of public sector and private sector on the other for the purpose of determining the value of perquisite with reference to accommodation provided to those employees by their employer cannot be said to be unreasonable or violative of Art. 14 of the Constitution of India. They belong to distinguished and different classes of employees. Their work responsibility, service conditions, etc. also differ. Therefore, they cannot be held to be similarly situated and what is provided in the rules is only prescriptions of rate of rent-free accommodations to some State Government and Central Government employees in terms of Art. 309 of the Constitution of India and the service conditions are governed by the said rules framed by the President of India and Governors, respectively. Therefore, they stand as Government servants as specified by specific service rules. The provision for a fixed rate of 7.5 per cent and 10 per cent commensurate with the H.R.A. granted to those employees who are not provided with house, cannot be said to be in any way arbitrary or unreasonable or violative of Art. 14 of the Constitution of India. As per cl. (c) of sub-s. (2) of s. 295 of the IT Act, the Board is authorised to determine not only the fringe benefit chargeable under the Act but also can determine what is meant by fringe benefit or amenities. As a matter of fact, sub-cl. (vi) of cl. (2) of s. 17 provides for determination of fringe benefit or amenity by means of prescription in the Rules. The provisions contained in s. 295 (2)(c) are wide enough to empower the Board to frame rules for the purpose of identifying the types of fringe benefits or amenities. The expression “as may be prescribed” occurring in cl. (vi) of sub-s. (2) of s. 17 of the Act has necessarily to be understood as conferring power on the rule-making authority to prescribe what is “fringe benefit” or “amenity” and it is not shown what is actually prescribed is not fringe benefit at all. It is also not shown that no benefit is conferred by the employer on its employees. In such circumstances, there is no merit in the contention that under cl. (c) of sub-s. (2) of s. 295 of the Act, the Board has no power to determine what is meant by “fringe benefit” or “amenity”.
The next contention advanced is that when loans are given or arranged by the employer without interest or at a concessional rate of interest, the same cannot be taken as a perquisite upto the prescribed rate of 10 per cent in respect of H.R.A. and conveyance allowance and 13 per cent in respect of other loans. If interest-free loan is provided or loan is provided at a concessional rate of interest by the employer to the employees, certainly that would result in the benefit of the employee since he derives the benefit by such concession and reduces his financial liability. Therefore, it is the income in his hands. It cannot be said that it is not a fringe benefit or amenity given to the employee. Therefore, interest-free loans or loans advanced at concessional rate of interest to the employee has necessarily to be treated as perquisite and the contention contra is only to be rejected.
20. But the further question is whether the prescription of interest rate at 10 per cent in the case of house building allowance and conveyance allowance and 13 per cent in respect of other loans for determining the value of perquisite is rational. As in the case of conveyance allowance or in respect of other loans, no factual data is provided in any of these writ petitions that the fixation of such percentage will be offending the very term “perquisite” in that no benefit is derived by the employees. On the other hand, the argument proceeds that even if loans are given on such concessional rates, it cannot be taken as a perquisite which I have already considered and rejected. However, in the case of house loans granted by the employer prescription of interest rate at 10 per cent is contended to be arbitrary and also works out to be a taxation on an amount which cannot be called a perquisite at all. It is the contention of the petitioners that a fringe benefit or perquisite must be an amenity or concession extended by the employer to the employee. If the rate of interest for the housing loan given by the employer is equal to or higher than the prevailing rate of interest given by the nationalised and other banks, then there is no question of receiving any benefit or concession from the employer. In the case of life insurance, it is at 7 per cent per annum. According to the petitioners, the percentage of interest is excessive in the context of fall of interest market rate since various other financial institutions are giving loan charging interest at lower than 10 per cent. While this question was considered by the Uttranchal High Court in National Federation of Insurance Field Workers of India & Anr. vs. Union of India & Ors. (2004) 187 CTR (Uttranchal) 180 : (2004) 265 ITR 84 (Uttranchal) on behalf of the CBDT it was submitted that they are considering this aspect and it was held that the CBDT can be moved by filing appropriate representations in this regard as they are empowered to issue circulars under s. 295 of the IT Act and finally the CBDT was directed to consider lower rate of interest in valuing fringe benefits in tune with market rates of interest and according to the learned counsel, Sri P.K. Raveendranatha Menon, this is an aspect which can be taken note of by the CBDT or by the assessing authority at the time of assessment. When as per rules 10 per cent is fixed and any loan granted at interest rate below 10 per cent has to be taken as a perquisite liable to be taxed, no discretion is vested with the ITO to consider as to whether the rate of interest on the loan provided by the employer has conferred any benefit or concession on its employees having due regard to the prevailing interest rate of any other financial institutions and banks for such type of loans is beyond his powers. According to the petitioner, when the interest rates are varying from time to time, fixing a particular percentage below which it is deemed to be a perquisite has no rational basis. Unless it is shown that the employee has received any concession or benefit or that the rate of interest payable by the employee as per the rules is a concessional rate, that cannot be termed as a perquisite or amenity received or conferred on the employee. In O.P. 10569 of 2003 the annual report of the bank is produced. The cost of funds of the third respondent bank is 8.98 per cent for the year ended 31st March, 2001 and 8.64 per cent for the year ended on 31st March, 2002. It is averred in the original petition that the Finance Minister in his budget speech made on 28th Feb., 2002 has stated that in the previous year he has rationalised the rules for valuing perquisite on the basis of their costs to the employer. Therefore, according to the petitioner, in the light of the Budget speech of the Finance Minister, the benchmark rate fixed by the second respondent for determining the value of perquisite in so far as interest-free or concessional rates loans is arbitrary. He also relied on the decision of the Supreme Court in Kerala State Industrial Development Corporation Ltd. vs. CIT (2003) 180 CTR (SC) 192 : (2003) 259 ITR 51 (SC) in support of his contention that the Finance Minister’s speech before introducing the bill can be relied on to throw light on the object and purpose of the provisions. This aspect of the matter has not been specifically met with in the counter-affidavit. On the other hand, the definite stand taken by the Board is that this matter will be looked into by them as noticed in the decision of the Uttranchal High Court in National Federation of Insurance Field Workers of India & Anr. vs. Union of India & Ors. (supra). In such circumstances, I direct that unless and until suitable circulars are issued by the CBDT, the provisions shall be read down and understood with a rider that the rate provided in the rule will be applicable unless the assessee proves to the satisfaction of the AO that rate of interest or any part thereof charged by the employer does not amount to any concession or benefit having due regard to the rate of interest charged for such type of loan by public financial institutions.
The next contention as to whether the travel benefits given to the spouse is a fringe benefit does not arise in any of these original petition in the absence of any factual pleadings to that effect. Regarding the contention that the employee has to maintain details regarding the journey to be undertaken by him and procedure to be followed as impracticable, I do not find there is any merit in this contention. Merely because a particular mode of proof is required, it may be inconvenient or causing difficulty to employee is not a ground to nullify the validity of the rule. There is no question of any double taxation in the present case. As per s. 4(1) of the Act, income-tax shall be charged on every person and income earned by an employee has to be exempted as per the status of that service and the employee is required to pay tax only in respect of the income he or she receives. I am unable to find any merit in the contention. Further, how it actually works out to be double taxation is also not pleaded in any of the writ petitions. Lastly, it has to be held that s. 17(2)(vi) of the Act came into force from 17th April, 2002, and that is applicable to the asst. yr. 2002-03 (2001-02 being the financial year). I respectfully agree with the view expressed by the Karnataka High Court and other High Courts on the point. No other points are argued. In the result, the original petitions are dismissed subject to what is indicated above in respect of the percentage of interest fixed by rules before calculating the value of fringe benefits. The amount deposited by the employer as per the interim direction shall be paid over to the IT Department with details of deduction made for each of the employees within three weeks from today. Since the amount was deducted but not paid over as per the order of the Court, the employer will not be liable to pay any interest thereon.
[Citation : 271 ITR 178]
