TMI Blog2012 (8) TMI 646X X X X Extracts X X X X X X X X Extracts X X X X ..... n relation to improvement, repairs or renovations, as falling within the meaning of "perquisite" - thus, as regards Section 17 (2) (iv), the argument on behalf of the revenue that repairs and renovation expenses constituted an obligation of the employee/assessee, which was borne by his employer, is meritless - if the AO had returned a finding that the premises were to be valued at market value (of the rental), in case it increased as a result of the renovations, the only prescribed mode was to apply the method indicated by Rule 3 (a) (iii) of the Valuation Rules and not have included the entire expenses, and spread it over a period of five years, for the purpose of saying that the whole of such expense constituted a perquisite - in favour of assessee. - IT APPEAL NO. 285 OF 2003 - - - Dated:- 17-8-2012 - S. RAVINDRA BHAT AND R.V. EASWAR, JJ. JUDGMENT S. Ravindra Bhat, J. - The present appeal is directed against an order of Income Tax Appellate Tribunal (ITAT) dated 21.08.2012 in ITA No.1617/Del/97. The following question of law was framed for consideration in the present appeal on 30.07.2004. "Whether the amount spent by the employer towards the repair of building wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that if the expenses are only towards repairs or maintenance they could have been taken as expenditure incurred in order to keep the house habitable. The Assessing Officer, thus, concluded that: "Thus, looking to the fact that these expenses were incurred by the employer and these would have otherwise been payable by the assessee, they are a perquisite value in terms of Sec. 17(2)(iv). Another important point to be noted is that the perquisite value in terms of Rule 3 is determinable only on the basis of the rent paid by the employer to the landlord and which has been determined as per the terms of lease agreement and, therefore, that cannot be further modified in view of the alleged case in the fair rental value. In subsequent years, the lease rent may be enhanced by the landlord but that will not be based on any modifications carried out by the landlord, as this has been paid by the lessee for modification in the building. An increase in the lease rent in the subsequent financial years will be attributable to the overall increase in the rent within Delhi and not because of these modifications. Accordingly, the expenses incurred on modifications will not form part of the leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which was discharged by the employer and therefore, taxable in the appellant's hands. Contentions of the Appellant 6. It is argued by the appellant, that the Tribunal fell into an error in upholding the contention of the Revenue that expenditure of Rs.50,51,977 was a perquisite without any sustainable reasoning. It is urged that the perquisite value of rent free accommodation under Section 17(2)(i) had been declared by the appellant in return of his income which was assessed. In these circumstances, the reference to Section 17(2)(i) was unwarranted because the assessee was under no obligation to incur the expenses on repairs and renovation or modification of rent free accommodation. Reliance is further placed on Clause 3 of the Service Contract in support of the submission that the employer had to provide the assessee with furnished accommodation including maintenance, security and services. The employer had to renovate and upgrade the facilities upto the mark having regard to assessee's status in the company. Reliance is also placed upon Clause 11 of the lease deed between the assessee and the landlord which read as follows: "11. That in consideration for payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the employer. By no stretch of imagination could it be excluded from the definition of " perquisite". 10. The learned counsel for the Revenue also relied upon the judgment of the Karnataka High Court in CIT v . Motor Industries Co. Limited 1988 173 ITR 374 in support of his submission. The relevant extract is as under: "We are of the view that the entire approach made by the Tribunal is not sound. After all, each and every amount spent on buildings cannot be treated as spent on repairs. The term "repairs" has a special meaning. What is necessary for the upkeep and maintenance of a building which necessarily includes periodical colour/whitewashing and painting can undoubtedly be treated as repairs. But, the amounts lavishly or even unnecessarily spent just to satisfy the ego or the eccentricities of an employee cannot be treated as an amount spent on repairs. Bearing this and other relevant principles, the Tribunal had to decide the claim of the assessee on repairs which it had failed to do. We have, therefore, no alternative but to answer on the expenditure on repairs as above." 11. Before analyzing the submissions of the parties it would be necessary to extract c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with the following clauses, namely: - [( a ) The value of rent-free residential accommodation shall be determined on the basis provided hereunder, namely: - {( i ) where the accommodation is provided - (A) by Government to a person holding an office or post in connection with the affairs of the Union or of State; ** ** ** ( iii ) In any other case, - (A) the value of rent-free residential accommodation which is not furnished shall ordinarily be a sum equal to 10 per cent of the salary due to the assessee in respect of the period during which the said accommodation was occupied by him during the previous year: Provided that --- (1) where the fair rental value of the accommodation is in excess of 20 per cent of the assessee's salary, the value of the perquisite shall be taken to be 10 per cent of the salary increased by a sum equal to the amount by which the fair rental value exceeds 20 per cent of the salary; so, however, that the [Assessing Officer] may, having regard to the nature of the accommodation, determine the sum by which 10 per cent of the salary is to be increased, as a percentage (not exceeding 100 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to India, he decided to occupy the same premises. At the same time, he needed to get them repaired and carry out extensive renovations to match the position he was employed in, and the life style he was used to in the United States. The lease deed in this case spelt out clearly that the lessor had the right to carry out major repair works. At the same time, it also clarified that in the event of the assessee moving out of India, his successor in office could occupy the premises. 16. A careful reading of the Lease Deed nowhere suggests that the assessee had agreed to an obligation to renovate the expenses. It would be useful, in this context, to recollect that of the original sum of Rs. 50.51 lakhs, Rs. 10 lakhs was spent towards furniture; the Assessing Officer took that into consideration while working out the value of furnished residence, for the purpose of calculating the tax liability. Having done so, the question is whether, he could have ignored the method of calculating a higher rent, or "fair" rent, after renovation of the premises. The other way of looking at the issue is whether the Income tax authorities could have deviated from the prescribed method of computing t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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