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2024 (5) TMI 450 - SUPREME COURTSalary income - Taxability of "fringe benefits" or "amenities" provided to employees - benefit enjoyed by bank employees from interest-free loans or loans at a concessional rate - what is included and taxed as ‘perquisite’ value of interest - vires of Section 17(2)(viii) of the Income Tax Act, 1961 challanged - Whether free or concessional loans is to be treated as ‘other fringe benefit or amenity’ for the purpose of Section 17(2)(viii) and, therefore, taxable as a ‘perquisite’? - method of valuation of the interest-free/concessional loan for the purposes of taxation Does Section 17(2)(viii) and/or Rule 3(7)(i) lead to a delegation of the ‘essential legislative function’ to the CBDT? - HELD THAT:- The subordinate authority’s power under Section 17(2)(viii), to prescribe ‘any other fringe benefit or amenity’ as perquisite is not boundless. It is demarcated by the language of Section 17 of the Act. Anything made taxable by the rule-making authority under Section 17(2)(viii) should be a ‘perquisite’ in the form of ‘fringe benefits or amenity’. In our opinion, the provision clearly reflects the legislative policy and gives express guidance to the rule-making authority. The enactment of subordinate legislation for levying tax on interest free/concessional loans as a fringe benefit is within the rulemaking power under Section 17(2)(viii) of the Act. Section 17(2)(viii) itself, and the enactment of Rule 3(7)(i) is not a case of excessive delegation and falls within the parameters of permissible delegation. Section 17(2) clearly delineates the legislative policy and lays down standards for the rule-making authority. Accordingly, Rule 3(7)(i) is intra vires Section 17(2)(viii) of the Act. Section 17(2)(viii) does not lead to an excessive delegation of the ‘essential legislative function’. Is Rule 3(7)(i) arbitrary and violative of Article 14 of the Constitution insofar as it treats the PLR of SBI as the benchmark? - Rule 3(7)(i) posits SBI’s rate of interest, that is the PLR, as the benchmark to determine the value of benefit to the assessee in comparison to the rate of interest charged by other individual banks. The fixation of SBI’s rate of interest as the benchmark is neither an arbitrary nor unequal exercise of power. The rule-making authority has not treated unequal as equals. The benefit enjoyed by bank employees from interest-free loans or loans at a concessional rate is a unique benefit/advantage enjoyed by them. It is in the nature of a ‘perquisite’, and hence is liable to taxation. By fixing a single clear benchmark for computation of the perquisite or fringe benefit, the rule prevents ascertainment of the interest rates being charged by different banks from the customers and, thus, checks unnecessary litigation. Rule 3(7)(i) ensures consistency in application, provides clarity for both the assessee and the revenue department, and provides certainty as to the amount to be taxed. When there is certainty and clarity, there is tax efficiency which is beneficial to both the tax payer and the tax authorities. These are all hallmarks of good tax legislation. Rule 3(7)(i) is based on an uniform approach and yet premised on a fair determining principle which aligns with constitutional values. A complex problem has been solved through a straitjacket formula, meriting judicial acceptance. To hold otherwise, would lead to multiple problems/issues and override the legislative wisdom. The universal test in the present case is pragmatic, fair and just. Therefore, Rule 3(7) is held to be intra vires Article 14 of the Constitution of India. We, accordingly, dismiss the appeals and uphold the impugned judgments of the High Courts of Madras and Madhya Pradesh.
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