TMI Blog2006 (9) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... Act"). According to the appellants, amended rule 3 is inconsistent with the parent Act and also ultra vires article 14 of the Constitution. To understand the controversy raised in the present proceedings, the relevant factual background in Civil Appeal No. 3270 of 2003 may be stated; the appellants were employed as officers/executives by Tata Iron and Steel Co. Ltd. ("TISCO" for short). According to the appellants, usually public sector undertakings provide housing facilities or grant house rent allowance in lieu of accommodation to their employees. Normally, house rent allowance is granted where public sector enterprises are unable to provide housing accommodation to their employees. Such situations arise when officers/executives are posted in cities or metropolitan offices of the enterprises where company accommodation is either not available or is available to a limited extent. For the purpose of accommodating its employees, TISCO has constructed several residential bungalows/flats/ quarters/accommodations in the township of Jamshedpur and around its plants. They were allotted to its employees as also to other agencies including employees of the Central Government and State G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perquisites, benefits or amenities shall be determined on the basis of their cost to the employer except in respect of house and cars where different criteria would be adopted for simplicity". It was stated that in adopting and applying rule 3 as it existed prior to the impugned amendment, there being three classes of employees, the Revenue was facing difficulties with respect to various matters including the determination of the fair market value of the property which was found very cumbersome. Moreover, it did not take into account high rents in the metro towns. It has been averred in the reply-affidavit that the estimation of fair rent had been the subject-matter of litigation at various levels mainly on account of the fact that legislation with respect to rents being a State subject differed from State to State. The value of fair rent could not be determined as the standard rent was not uniform in all municipal areas. It was accordingly decided to simplify and rationalize the procedure for determining the perquisite value and accordingly as per the impugned rules, the employees have been divided only in two categories. The Revenue had also explained in the counter the rationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of article 14 of the Constitution. The correctness of the decisions of the High Courts of Jharkhand and Calcutta has been questioned in the present matters. We have heard learned counsel for the parties. Mr. Harish Salve, senior advocate appearing for the appellants raised several contentions. He urged that the condition precedent for exercise of power under section 17(2) of the Act read with rule 3 of the Rules is that it must be a "perquisite" within the meaning of the Act. Sub-clause (ii) of clause (2) of section 17 can be attracted provided there is a "concession" in the matter of rent respecting any accommodation provided by the employer to his employee. If there is no "concession", the sine qua non or condition precedent is absent and there is no "perquisite" as well. Since there is no concession in the instant case, section 17(2)(ii) of the Act would not apply nor is rule 3 of the Rules attracted and no liability has arisen. It was alternatively urged that the old rule 3, prior to its amendment in 2001, made available a "window" by providing that in cases where the assessee claimed and the Assessing Officer was satisfied that there was no "con cession", the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of population may not be objectionable but it is only when it is proved that there is a concession in the matter of rent respecting any accommodation provided by the employer to the employee that such method can be applied. He, however, contended that even in such cases, there must be a provision allowing or permitting the assessee to contend that there is no concession. Mr. Dhankar, senior advocate appearing for one of the petitioners, adopted the arguments of Mr. Salve. He, however, additionally contended that a distinction sought to be made between employees of the Government on the one hand and employees of companies, corporations or other undertakings on the other hand, is artificial and irrational, neither based on intelligible differentia nor has it any nexus to the object to be achieved. Difference of payment while considering "perquisite" between the two classes would thus be arbitrary, discriminatory and ultra vires article 14 of the Constitution. Mr. Parasaran, learned Additional Solicitor General appearing on behalf of the Revenue supported the decisions impugned in the present proceedings. He submitted that the rules prior to 2001 were based on "fair renta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer that there was no "concession". Regarding discrimination between employees of Government and employees of companies, corporations and other undertakings, he submitted that it is a valid classification and it has been based on intelligible differentia. It also seeks to achieve an object by considering the position of the two sets of employees. Such a provision cannot be struck down as infringing article 14 of the Constitution. Before we proceed to consider the rival contentions of the parties, it may be appropriate if we refer to the relevant provisions of the Act, the rules and important decisions on the point. Section 17 of the Act defines "salary", "perquisite" and "profits in lieu of salary". The relevant part of the said section reads thus: "17. For the purposes of sections 15 and 16 and of this section,- (1) ... (2) 'perquisite' includes- (i) the value of rent-free accommodation provided to the assessee by his employer; (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer ..." It is thus clear that the definition of the term "perquisite" covers various items mentioned ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts that a person responsible for paying any income chargeable under the head "Salaries" shall furnish to the person to whom such payment is made a statement giving correct and complete particulars of perquisites or profits in lieu of salary provided to him and the value thereof in such form and manner as may be prescribed. In exercise of the power conferred by section 295 of the Act, the Board framed rules known as the Income-tax Rules, 1962. Rule 3 lays down the method for computing valuation of perquisite. Before the amendment in 2001, relevant part of the said rule read as under: "3. Valuation of perquisites.- For the purpose of computing the income chargeable under the head 'Salaries' the value of the perquisites (not provided for by way of monetary payment to the assessee) mentioned below shall be determined in 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 a State; (B) by a body or undertaking under the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is household by reason of his employment shall be determined in accordance with the following sub-rule, namely:- (1) The value of residential accommodation provided by the employer, during the previous year shall be determined on the basis provided in the Table below: Table I Sl. No. Circumstances Where the accommodation is unfurnished Where the accommodation is furnished (1) (2) (3) (4) (1) Where the accommodation is provided by the Union or State Government to their employees either holding office or post in connection with the affairs of the Union or State or serving with any body or undertaking under the control of such Government on deputation. Licence fee determined by the Union or State Government in respect of accommodation in accordance with the rules framed by that Government as reduced by the rent actually paid by the employee. The value of perquisite as determined under column (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment) or if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the accommodation at the other place, the value of perquisite shall be determined with reference to only one such accommodation which has the lower value with reference to the Table above for a period not exceeding 90 days and thereafter the value of perquisite shall be charged for both such accommodations in accordance with the Table ...." Rule 3, before the amendment as also after the amendment of 2001 came up for consideration before various High Courts as well before this court in some cases. Learned counsel for the parties invited our attention to those decisions. Mr. Salve for the appellants placed heavy reliance on a decision of the Division Bench of the High Court of Madhya Pradesh in Officers' Association, Bhilai Steel Plant v. Union of India [1983] 139 ITR 937 . In that case, a petition was filed in the High Court by the Officers' Association, Bhilai Steel Plant and Divisional Manager (Construction). The Divisional Manager was in occupation of quarters the rent for which was Rs. 100 per month. The rent was fixed as the standard rent under rule 45A of the Fundamental Rules which had been applied to the officers. In deducting income-tax at source under section 192 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a concessional rent, the value thereof would be calculated in the manner provided in this rule. The effect of the rule in taking the value of rent-free unfurnished accommodation at 10 per cent, is not to lay down that the moment it is found that an employee is paying less than 10 per cent, of his salary as rent it must be deemed that he has been provided accommodation at a concessional rent. The court went on to consider that the question was whether an employee was in occupation of an accommodation at a concessional rate, that is, whether the employee had received any concession which could be termed a "perquisite" and gave the answer that it would depend upon two factors: (i) the normal rent for accommodation in occupation of the employee; and (ii) the rent actually paid by the employee. If the rent paid by the employee is the normal rent of the accommodation in his occupation, it cannot be said that he is receiving any concession in the matter of rent even though the rent paid by him is less than 10 per cent, of his salary. The court then made the following pertinent observations "... there is no deeming clause in the definition of 'perquisite' contained in section 17(2) tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Bench and the Division Bench in ITO v. All India Vijaya Bank Officers' Association [1997] 225 ITR 37 (Cal), confirmed the view taken by the learned single judge by dismissing the appeal. In Steel Executives' Association v. Rashtriya Ispat Nigam Ltd. [2000] 241 ITR 20 , again an identical question arose before the High Court of Andhra Pradesh. There accommodation was provided by the employer to the employees and the question that came up for consideration before the High Court was whether it was a perquisite within the meaning of the Act and the rules and whether the employer was required to deduct tax at source. The court relying upon the decisions in Officers' Association, Bhilai Steel Plant [1983] 139 ITR 937 (MP) and Indian Bank Officers' Association [1994] 209 ITR 72 (Cal) held that the provision would apply only in cases where the rent was paid at concessional charges. If the rent was not concessional, the Department could not ask the employer to deduct tax at source treating the standard rent as concessional rent and such an action could not be said to be legal or lawful. The court observed that reading the provision carefully, it was clear that it provided only f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, upheld the validity of rule 3 observing that the amendment was brought about as a consequence of the Budget Speech of the Finance Minister in Parliament. Moreover, the decision was taken on the recommendation of the expert group constituted to rationalise and simplify income-tax laws. Mr. Parasaran also referred to Coal Mines Officers' Association of India [2004] 266 ITR 429 wherein the High Court of Calcutta again considered the scope of the expression "concession" in the matter of rent under section 17(2)(ii) of the Act. There also, it was contended on behalf of the employees that since there was no "concession" in the matter of rent, it should not be termed a perquisite under section 17(2)(ii) of the Act. It was argued that whether or not there was a concession, must be decided first. For the said purpose, it was required to be determined as to what would be the rent and if the accommodation is provided by the employer to an employee at a rate lower than such rent, it would be treated as a "concession" under section 17(2)(ii) of the Act and has to be calculated under rule 3 of the Rules. The court, however, indicated that previous decisions dealt with rule 3 as it then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sense of the language used by the Legislature is the best way of understanding what the Legislature intended. If the Legislature intended that the meaning of the word 'rent' as used in sub-clause (ii) of clause (2) of section 17 of the Act would be as has been set out above, the Legislature could have used the same in the section itself .... The Legislature brought sub-clause (ii) in clause (2) of section 17 of the Act after introducing sub-clause (i) of clause (2) of section 17 of the Act. These two sub-clauses should not be read in isolation. They were intended to be read together and if read together, it makes it abundantly clear, and as was done previously as well as done presently, that the Legislature intended to value the rent-free accommodation for the purpose of arriving at the value of the concession by making a simple calculation of the difference between the value of rent-free accommodation and the rent actually paid." Our attention was also invited by Mr. Parasaran to BHEL Employees Association v. Union of India [2003] 261 ITR 15 (Karn). It related to fringe benefits and amenities as perquisites. The court held that the provision to treat fringe benefits as perqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as it is reasonably possible to do so, legislation should be construed as being within power. It has the practical effect that where an Act is expressed in language of a generality which makes it capable, if read literally, of applying to matters beyond the relevant legislative power, the court will construe it in a more limited sense so as to keep it within power." As observed by this court in Commissioner of Sales Tax v. Radhakisan [1979] 2 SCC 249; [1974] 43 STC 4 (SC), in considering the validity of a statute the presumption is always in favour of constitutionality and the burden is upon the person who attacks it to show that there has been transgression of constitutional principles. For sustaining the constitutionality of an Act, a court may take into consideration matters of common knowledge, reports, preamble, history of the times, object of the legislation and all other facts which are relevant. It must always be presumed that the Legislature understands and correctly appreciates the need of its own people and that discrimination, if any, is based on adequate grounds and considerations. It is also well-settled that courts will be justified in giving a liberal inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of a public act must be fair and reasonable. We must lean in favour of this interpretation because it helps sustain the validity of the law. Reading section 314 as containing a command not to issue notice before the removal of an encroachment will make the law invalid." In Salem Advocate Bar Association v. Union of India [2005] 6 SCC 344 this court had an occasion to consider the constitutional validity of certain amendments in Order 17 of the Code of Civil Procedure, 1908 effected by the Code of Civil Procedure (Amendment) Act, 1999 relating to adjournments. One of the amendments provided that no adjournment shall be granted more than three times to a party during a trial. Though it was an express provision, this court observed that there may be extreme cases or exceptional circumstances beyond the control of the party which may compel him to seek adjournment. Serious ailment, accident, sudden hospitalisation, earth quake, rioting, tsunami etc., are either vis major or unforeseen eventualities which may compel a party to ask for an adjournment. Literal interpretation may make the provision arbitrary, unreasonable and ultra vires. The court, therefore, stated that: "to save th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 31C from the challenge of unconstitutionally by reading into that article words which destroy the rationale of that article and an intendment which is plainly contrary to its proclaimed purpose." Similarly in Delhi Transport Corporation v. D.T.C. Mazdoor Congress [1991] Suppl SCC 600; [1991] 79 FJR 1 (SC), the validity and vires of regulation 9(b) of the Delhi Road Transport Authority (Conditions of Appointment and Service) Regulations, 1952, relating to "termination of service" was challenged. It provided for termination of service of permanent employees of the Corporation on one month's notice or pay in lieu of notice without any enquiry whatsoever. The provision was challenged, being ultra vires the Constitution, violative of principles of natural justice and inconsistent with section 23 of the Indian Contract Act, 1872. One of the questions raised before this court was whether it would be open to a court of law to apply the formula of "reading down" and save the provision by importing natural justice into it. The majority (4 : 1) held the provision ultra vires and unconstitutional by describing it as a "Henry VIII clause" and refusing to apply the doctrine of "reading do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delegation of power by the Legislature to the Executive and the provision was, therefore, ultra vires the parent Act as also violative of article 14 of the Constitution. Considering several cases on the point, the court held that section 295 of the Act conferred power to frame rules on a high functionary, i.e., the Central Board of Direct Taxes ("the CBDT"), subject to the control of the Central Government. It was also observed that the Board consisted of very high functionaries of the Government of India who were expected to have deep knowledge about the policy as envisaged for imposition of tax in the country. When power was conferred on such an expert body and after considering the relevant aspects, it took a decision, it could not be said to be unlawful or unwarranted. The legislative policy had been reflected in section 17 of the Act and the rule making authority, merely implemented the said policy on the basis of essential legislative functions performed by Parliament. The court, therefore, negatived the contention of excessive delegation. Any difficulty or hardship in an individual case or to a particular person would not make the rule ultra vires or unconstitutional. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price for a certain category of person". It is "a grant; ordinarily applied to a grant of specific privileges by Government, a special privilege granted by a Government, corporation or other authority". It is "an act of yielding or conceding as to a demand or argument; something conceded; usually employing a demand; claim or request"; "a thing yielded", "a grant" [Indian Aluminium Co. Ltd. v. Thane Municipal Corporation [1992] Supp 1 SCC 480]. "Concession" is a form of "privilege" [V. Pechimuthu v. Gowrammal [2001] 7 SCC 617]. It is, therefore, clear that before section 17(2)(ii) can be invoked or pressed into service and before calculation of concession as per rule 3 is made, the authority exercising power must come to a positive conclusion that it is a concession. "Concession", in our judgment is, thus a foundational, fundamental or jurisdictional fact. A "jurisdictional fact" is a fact which must exist before a court, Tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on the existence or non-existence of which depends the jurisdiction of a court, a Tribunal or an authority. It is the fact upon which an administrative agency's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollector to take possession of the land under section 17(1) of the Act. It is well-established that where the jurisdiction of an administrative authority depends upon a preliminary finding of fact the High Court is entitled, in a proceeding of writ of certiorari to determine, upon its independent judgment, whether or not that finding of fact is correct". In State of M.P. v. Sardar D.K. Jadav, AIR 1968 SC 1186; [1968] 2 SCR 823, the relevant statute abolished all jagirs including lands, forests, trees, tanks, wells etc., and vested them in the State. It, however, stated that all tanks, wells, and buildings on "occupied land" were excluded from the provisions of the statute. This court held that the question whether the tanks, wells etc., were on "occupied land" or on "unoccupied land" was a jurisdictional fact and on ascertainment of that fact, the jurisdiction of the authority would depend. The court relied upon a decision in White and Collins v. Minister of Health [1939] 2 KB 838; 108 LJ KB 768, wherein a question debated was whether the court had jurisdiction to review the finding of an administrative authority on a question of fact. The relevant Act enabled the local authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess a quasi-judicial authority, can confer jurisdiction on itself by deciding a jurisdictional fact wrongly. The question whether the jurisdictional fact has been rightly decided or not is a question that is open for examination by the High Court in an application for a writ of certiorari. If the High Court comes to the conclusion, as the learned single Judge has done in this case, that the Income-tax Officer had clutched at the jurisdiction by deciding a jurisdictional fact erroneously, then the assesses was entitled for the writ of certiorari prayed for by him. It is incomprehensible to think that a quasi-judicial authority like the Income-tax Officer can erroneously decide a jurisdictional fact and thereafter proceed to impose a levy on a citizen." From the above decisions, it is clear that existence of the "jurisdictional fact" is the sine qua non for the exercise of power. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. Once the authority has jurisdiction in the matter on the existence of the "jurisdictional fact", it can decide the "fact in issue" or "adjudicatory fact". A wrong decision on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opriate conditions including the amount of rent, if any, to be recovered by the employer. Mr. Salve also invited our attention to certain decisions wherein it had been held that residential facility provided by the employer to the employee was not held a "perquisite" within the meaning of income-tax laws. Mr. Salve placed reliance on a decision in Alexander Tennant v. Robert Sinclair Smith [1892] AC 150 (HL). There, the appellant who was an agent for the Bank of Scotland at Montrose, had been granted accommodation by his employer as part and parcel of his duty. The House of Lords held that he was bound as part of his duty as agent to live in the bank house as the nature of the employment required that he should live in his master's dwelling house or business premises instead of occupying a separate residence of his own. According to the court, "such an occupation could not be regarded as part of the appellant's income". He occupied the bank house as a part of his duty. It was observed that the situation could not be distinguished from that of the Master of a Ship who was spared the cost of house rent while afloat. His cabin, does not, on that account become a part of his income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and rule 3 operate in different fields and apply to different sets of assessees. The provision of the Act was enacted to provide for a ceiling on expenditure on employees. The object of the rule is to give relief to the employees. Applying rule 3 for the purpose of determining the deduction in relation to the assessment of the employer would be doing violence to and ignoring the legislative intent evident in section 40A(5)". We are, however, not inclined to enter into the larger question as in our view, it is not necessary in the light of the statutory provision relating to "concession" in the matter of rent respecting any accommodation in section 17(2)(ii) of the Act. We are of the view that rule 3 would apply only to those cases where a "concession" has been shown by an employer in favour of an employee in the matter of rent respecting accommodation. Thus, whereas the "charging provision" is found in the Act of Parliament (section 17(2)(ii)), the "machinery component" is in the subordinate legislation (rule 3). The latter will apply only after the liability is created under the former. Unless the liability arises under section 17(2) (ii) of the Act, rule 3 has no application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons equal treatment provided they are equals and are similarly situated. But, it is equally well established that article 14 seeks to prevent or prohibit a person or class of persons from being singled out from others situated similarly. If two persons or two classes are not similarly situated or circumstanced, they cannot be treated similarly. To put it differently, article 14 prohibits dissimilar treatment to similarly situated persons, but does not prohibit classification of persons not similarly situated, provided such classification is based on intelligible differentia and is otherwise legal, valid and permissible. Very recently in Confederation of Ex-Servicemen Associations v. Union of India decided on August 22, 2006, the Constitution Bench had an occasion to consider a similar question. Referring to State of West Bengal v. Anwar Ali Sarkar [1952] SCR 284; AIR 1952 SC 75 and several other cases, one of us (C.K. Thakker J.) observed that "it is clear that every classification to be legal, valid and permissible, must fulfill the twin test, namely:- (i) the classification must be founded on an intelligible differentia which must distinguish persons or things that are g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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