1981 (9) TMI 60 - HC - Income Tax

Summary

Issues Involved:

1. Determination of the quantum of perquisite under the Income-tax Act, 1961.
2. Applicability of the Rent Control Act in assessing the value of perquisites.
3. Re-valuation of rent-free accommodation provided to a director.
4. Legal principles governing the assessment of perquisites.

Issue-wise Detailed Analysis:

1. Determination of the quantum of perquisite under the Income-tax Act, 1961:

The primary issue revolves around whether the value of the perquisite provided to the director can be re-evaluated by the Income-tax Department beyond the actual rent paid by the company. The assessee was provided a portion of the house for residence, for which the company paid a rent of Rs. 4,200 per annum. The Income-tax Officer (ITO) assessed the value at Rs. 12,500, which was upheld by the Appellate Assistant Commissioner (AAC) and the Tribunal. The court had to determine if the perquisite value could exceed the actual rent paid by the company.

2. Applicability of the Rent Control Act in assessing the value of perquisites:

The court examined whether the Rent Control Act's provisions should influence the assessment of the perquisite's value. The Rent Control Act restricts the rent to the standard rent, which was Rs. 4,200 in this case. The court referred to precedents, including Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee and Mrs. Sheila Kaushish v. CIT, which established that the standard rent should be considered for municipal and income tax purposes. Thus, the court concluded that the reasonable rent for the entire building was Rs. 4,200, and this should apply to the perquisite value as well.

3. Re-valuation of rent-free accommodation provided to a director:

The court discussed the principles of re-valuing rent-free accommodation provided to a director. It was emphasized that when the rent is known, re-evaluation is unnecessary. The court noted that the Rent Control Act creates anomalies in rent values due to varying construction dates, but the standard rent must be adhered to. The court stated that if the ITO did not re-determine the annual value in the hands of the owner, the value in the hands of the director should not exceed Rs. 4,200.

4. Legal principles governing the assessment of perquisites:

The court elaborated on the legal principles for assessing perquisites under Section 2(24) of the Income-tax Act, 1961. It clarified that perquisites could be paid in cash or kind, and the actual expenditure by the company determines the value. The court provided various scenarios:
- If an employer rents premises for an employee, the actual rent paid determines the perquisite's value.
- If a company provides its own premises, the standard rent determines the value.
- For shareholders receiving rent-free accommodation, the benefit was not taxable unless convertible into money, per the amendment in 1955.

The court referenced Wilkins (Inspector of Taxes) v. Rogerson to illustrate that the value of non-convertible perquisites is based on the actual expenditure by the employer. The court rejected the Department's argument that the rent was concessional and should lead to a higher annual value, stating that such contentions should be addressed in the assessments of the landlord or tenant, not the director.

Conclusion:

The court concluded that the perquisite value could not exceed Rs. 4,200, the actual rent paid by the company. The questions referred for the assessment years 1963-64 to 1966-67 and 1967-68 to 1968-69 were answered in favor of the assessee, holding that the quantum of perquisite should not be increased to Rs. 12,500. The assessee was entitled to costs, with counsel's fee set at Rs. 500.