TMI Blog2003 (7) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... e respective staff associations of M/s. Aditya Cement and M/s. Birla White Cement Plants which are two separate and independent units of Grasim Industries Limited. The issue raised and the reliefs claimed in both these writ petitions are identical and hence they were heard together and are being decided by a common order. The reliefs claimed in both the writ petitions are identical and as under: (i) The Notification No. S.O. 940(E), dated September 25, 2001, reported, be quashed as violative of articles 14, 300A, 301 and 304 of the Constitution of India; (ii) Section 17(2)(vi) as Parliament has delegated without authority of law and without any guideline, to select the items of perquisites and the valuation thereof to the executive and the rule-framing authority be quashed and declared ultra vires the Constitution. (iii) The assessing authorities constituted under the Income-tax Act to permanently refrain from enforcement of the Notification No. S. O. 940(E), dated September 25, 2001. (iv) Any other appropriate order or direction which this court deems just and proper may kindly be issued. From the perusal of the above reliefs claimed by the petitioners in the context o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of computation of income to be taxed for the assessment year 2001-2002 which is earned in the previous year relevant to the assessment year 2001-2002, i.e., financial year ending on March 31,2001, cannot be altered retrospectively as ex-hypothesi, the tax on such income stands determined at close of the previous year in which the income of the assessee is earned as per the law prevalent at the time when the taxing event took place. Learned counsel contends that law as it stands on April 1, 2001, at the commencement of the assessment year 2001-2002, with reference to which income is to be assessed, is applicable, for computing taxable income of any assessee for the assessment year 2001-2002. The basis of computing the value of perquisites, while computing the total taxable income for the assessment year 2001-2002 has been altered by giving effect to the amended rules retrospectively, with effect from April 1, 2001. This retrospectivity, according to learned counsel, is not only contrary to law relating to assessment of income for any particular assessment year, but results in violation of article 14 of the Constitution as it is unreasonable and also discriminatory. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue that in a taxing statute, more latitude has been given to the persons entrusted with the implementation of the fiscal statute to fill in the details once the subject of levy has been specified clearly by the parent statute. Impugned amendment: Vide the Finance Act, 2001, the following sub-clause (vi) has been inserted in clause (2) of section 17 after existing clause (v): "the value of any other fringe benefit or amenity as may be prescribed." Here it may be noticed to clarify that in the Finance Bill, 2001, the aforesaid sub-clause was numbered as sub-clause (viii) to be inserted after existing sub-clause (vii). Clause (vi) was originally inserted vide Act No. 67 of 1984 with effect from April 1, 1985, in different form to state that where an employer advances interest-free loan or loan at concessional rate to any employee for the purpose of building a house or purchasing a site or a house and a site or for purchase of a motor car, the value of such benefit be included in the income of such employee by valuing the advantage so received with reference to the rate of interest notified by the Central Government in that regard. However, the employees of the Central Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 deals with heads of income. It provides that save as otherwise provided by this Act, all income shall, for the purposes of charge of incometax and computation of total income, be classified under the following heads of income: A. Salaries. B. Interest on securities (omitted by the Finance Act, 1988, with effect from April 1, 1989). C. Income from house property. D. Profits and gains of business or profession. E. Capital gains. F. Income from other sources. The computation of income under the head of "Salaries" has been dealt with in Part A of Chapter IV of the Act, which consists of sections 15 to 17 of the Act. Section 15 deals with various factors which constitute the income chargeable to income-tax under the head "Salaries". Section 16 deals with deduction from salaries. Details of these provisions need not detain us for the present purpose. Section 17 which is relevant for the present purpose defines "salary", "perquisite" and "profits in lieu of salary". Section 17 of the Act reads as under: "17. For the purposes of sections 15 and 16 and of this section,- (1) 'salary' includes- (i) wages; (ii) any annuity or pension; (iii) any gratuity; (iv) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f cost or at concessional rate for the purposes of this sub-clause; (iiia) omitted by the Finance Act, 2000, with effect from April 1, 200l. (iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee; (v) any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund or a Deposit Linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, section 6C of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), to effect an assurance on the life of the assessee or to effect a contract for an annuity; and (vi) the value of any other fringe benefit or amenity as may be prescribed (inserted by Finance Act, 2001, with effect from April 1, 2002)." From the aforesaid, two things are very obvious. Firstly, that the total income chargeable to tax had to be assessed for any assessment year. The income is one which is earned, accrued or received by the assessee during the previous year relevant to the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisites" and "fringe benefits" as understood generally and as dealt with under taxing statute. If we look at the ordinary dictionary meaning of "perquisite", it reflects anything-benefit, amenity or profit, attached to office or entitlement under employment in addition to regular fixed payment of salary in its narrower sense. In Webster's English International Dictionary, its meaning is: "A gain or profit incidentally made from employment in addition to regular salary or wages especially one of a kind expected or promised". The Oxford Dictionary gives "perquisite" its meaning as: "A casual emolument, fee or profit attached to an office or position in addition to salary or wages." The Random House Dictionary of English Language says "perquisite" to be: "An incidental emolument fee or profit over and above fixed income, salary or wages. Also called perk [perq]". By way of illustration it has enumerated, use of a servant, a servant's customary right to claim used or discarded items, any bonus or fringe benefits granted to an employee as free use of company car. This is by no means exhaustive to encompass all that comes within the purview of the term perquisite in its ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(24), the term perquisite has been defined comprehensively in section 17(2) of the Act by way of an inclusive definition which has been reproduced hereinabove. It may be noticed that section 17(2) which defines the term "perquisite" does not define it exhaustively but provides an inclusive definition. It is well-settled that when there is an inclusive definition, ordinarily the ordinary meaning of the word prevails over and above the words of inclusive definition for the purposes of that statute. The scope of an inclusive definition cannot be restricted to those categories only which occur in the definition, but an inclusive definition will extend to so many other things ordinarily falling within the parent expression, which are not talked of in the section. The definition has tried to split the various types of perquisite attached with employment in three broad categories that may be within the sphere of the expression "perquisites" and form part of the taxable income under the head "Salary". However, one thing which as a common characteristic appears from the provision is that in order that such benefit, amenity or payment may be termed a perquisite, it must be in pursuanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the provisions of Chapters IX-A and IX-B do not apply, to effect an assurance on the life of the assessee or in respect of a contract for an annuity on the life of the assessee. A combined reading of the substantive part of section 7(1) and clause (v) of Explanation 1 thereto makes it clear that if a sum of money is allowed by the employee by or is due to him from or is paid to enable the latter to effect an insurance on his life, the said sum would be a perquisite within the meaning of section 7(1) of the Act and, therefore, would be exigible to tax. But before such sum becomes so exigible, it shall either be paid to the employee or allowed to him by or due to him from the employer. So far as the expression 'paid' is concerned, there is no difficulty, for it takes in every receipt by the employee from the employer whether it was due to him or not. The expression' due' followed by the qualifying clause 'whether paid or not' shows that there shall be an obligation on the part of the employer to pay that amount and a right on the employer to claim the same. The expression 'allowed', it is said is of a wider connotation and any credit made in the employer's account is covered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of any accommodation provided to the assessee by the employer, which as perquisite is to be included in the computation of income from salaries. In fact, there is no dispute about the inclusion of the value of any advantage, benefit or amenity falling under items Nos. (i) to (v) of clause (2) of section 17. Closely looked at sub-clause (iii) and sub-clause (iv) read together provide a wholesome scheme of including all benefits, amenities extended to the assessee, or expenses of the assessee borne by the employer which otherwise were to be borne by the employee in the taxable income of the person receiving the same as salary. Section 17(2)(iii) refers to the value of any benefit or amenity provided free of cost or at a concessional rate to a person as a director of a company or to a person who is a joint director but he has substantial interest in the company within the meaning of clause (32) of section 2 and in respect of other employees who are in receipt of cash emoluments includible in salary, excluding the value of all benefits or amenities, exceeding Rs. 50,000. This limit has been increased from time to time. Sub-clause (iv) of clause (2) includes in its terms all s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisite and are liable to be taxed under the head "Income from salaries", of course, subject to other provisions of the Act. That is to say where certain expenses though properly falling within perquisites have been exempted under section 10 or the Central Board of Taxes in its wisdom has thought it fit to exclude its inclusion in the computation of total income or under the same, or under other provision of the Act the same is not included. But the list of benefits or amenities which could form part of perquisites cannot be laid down exhaustively and for any item to be part of perquisites, the entitlement of an employee to it has to be adjudged on its own in the light of statutory provisions about the same. In fact, salary, namely, the periodical wage payment, the benefits attached to the employment as perquisites and other advantages flowing because of such employment with the employer constitute part of remuneration or emoluments in constituting the wage structure in general, which part of it and the extent to which such emoluments are taxed or are kept out of tax ken is part of the fiscal policy projected in fiscal statutes. As per Davis-Bacon Wage Survey life insurance pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been used as a synonym of perquisite and in some cases, the distinction is made while the perquisite is a part of the salary package offered as per the terms of employment and fringe benefits are advantages that flow to an employee or member of his family because of his status as an employee of a particular establishment but it is directly annexed with the employment of the assessee. No benefits, which flow de hors the status of an employee of an establishment can be treated as fringe benefit. Therefore, any amenity, benefit or personal advantage capable of expression in terms of money value becomes part of salary in view of the very comprehensive definition of salary given under section 17(1) which includes value of any perquisite and profit in lieu received by the employee from his employer. To what extent, such perquisites and other benefits are to be included in the taxable income, how they are to be valued, and to what extent they are to be excluded from the purview of taxation is a matter of legislative policy and details. Viewed in that light, the definition of perquisites being an inclusive definition and not exhaustive, the insertion of sub-clause (vi) by the Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit to the employee resulting from the supply of gas, electric energy or water for his household consumption, whether free of cost or at concessional rate; Sub-rule (5) deals with the value of benefit to the employee resulting from the provision of a free or concessional educational facilities for any member of his household; Sub-rule (6) provides for value of any benefit or amenity resulting from the provision by any undertaking engaged in the carriage of passengers or goods to any employee or to any member of his household for personal or private journey free of cost or at concessional rate, in any conveyance owned, leased or made available by any other arrangement by the undertaking; Sub-rule (7) deals with some specific items with reference to sub-clause (vi) of clause (2) of section 17 which, inter alia, includes the following: (i) Interest-free loan or loan at concessional rate of interest. (ii) The value of travelling, touring, accommodation and any other expenses paid for or borne or reimbursed by the employer for any holiday availed of by the employee or any member of his household, other than concession or assistance referred to in rule 2B, is to be determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provides the value of the benefit to the employee arising from the transfer of any movable asset belonging to the employer directly or indirectly to the employee or any member of his household at less than the depreciated value to be computed at the annual rate of 10 per cent. of such cost for each completed year during which asset was put to use by the employer and further reduced by the amount, if any, paid or recovered from the employee being the consideration for such transfer. Provided that in the case of computers and electronic items, and motor cars the depreciation has been envisaged at a higher rate. After prescribing the valuation of these specific common perquisites and fringe benefits a residuary clause has been included as under: (8) The value of any other benefit or amenity, service or privilege provided by the employer shall be determined on the basis of cost to the employer under an arm's length transaction as reduced by the employee's contribution, if any. However, nothing contained in this sub-rule shall apply to the expenses on telephones including a mobile phone actually incurred on behalf of the employee by the employer. This clearly shows that neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets the limits of power delegated, are to be construed by the Legislature by declaring the policy of the law and by laying down the standards for guidance of those on whom the power to execute the law is conferred and the delegatee is only empowered to carry out the policy within the guidelines laid down by the Legislature. The principle was adverted to by referring to cases from U.S. Supreme Court. In Article 143, Constitution of India and Delhi Laws Act (1912), In re AIR 1951 SC 332, hon'ble Mukherjea, J. referred to the aforesaid two decisions and some others and approved the principle of the law laid by it and held that the policy of the law-making body and the standards to guide the administrative agency may be laid down in very broad and general terms. It is enough if the Legislature lays down an intelligible principle which can be implemented by the subordinate authorities for specific cases or classes of cases. In Tata Iron and Steel Co. Ltd. v. Workmen of Tata Iron and Steel Co. Ltd., AIR 1972 SC 1917, it was held as under: "The legal position as regards the limitation of this power is, however, no longer in doubt. The delegation of legislative power is permissible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous provisions of the Act itself. Not only what constitutes an income or not, under which head, it is to be classified for the purpose of computing income from all sources, is also discernibly clear from the provisions laid down in provisions relating to computation of income and other ancillary provisions providing for exemptions, deductions and laying down of conditions and limitations subject to which income is to be computed. For inclusion of value of any perquisites received by a person from his employer forms part of income from salary, and an inclusive definition has been provided to perquisite under section 17(2) which is otherwise a well-known expression in legal world. Thus, detailed policy of taxing perquisites as part of income from salaries has been unfolded in the Income-tax Act, 1961. What has been left to the delegated legislation is to provide for the method and mode of determining the money value of perquisites, viz., any personal advantage, fringe benefit or reimbursement expense otherwise the responsibility of the employee to incur, has been left to be gone into by the rule making authority. This is primarily to achieve more practicable uniformity in the proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or valuing any fringe benefit which may come to the fore without there being any specific provision hereinbefore and which needs laying down a uniform standard for assessing the same. In view of the clear legislative policy of taxing provision providing for levying income-tax on such income from salaries of an assessee, the provision cannot be said to suffer from conferring legislative authority on subordinate legislation without any discernible legislative policy laid down by the Legislature itself which could make it suffer from the vice of being a power without guidelines. It cannot be said that the insertion of sub-clause (vi) in clause (2) of section 17 by the Finance Act, 2001, suffers from any vagueness so as to make it a redundant provision resulting in abdication of essential legislative function. Whether notification dated September 25, 2001, violates the limits of subordinate legislation Coming to the challenge to the vires of notification dated September 25, 2001, with particular reference to rule 3 as has been substituted by the aforesaid notification with effect from April 1, 2001. Before examining the issue in the light of the contentions raised by learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch challenge on the ground of legislative competence of the legislation to enact the law relating to the subject as to what constitutes the taxable income. What consideration can be taken in computing the taxable income for levying the charge under the parent income-tax law. The provision has been challenged on the ground that it confers authority on the delegate to include something within the province of taxable income which is not income under the parent Act. The discretion has been left to the delegates for such inclusion of fringe benefits and amenities without providing the guidelines in that connection. This contention in view of the discussion made aforesaid, cannot be sustained. Neither can it be said that unbridled and uncanalised power has been vested with the rule making authority which may amount to abdication of essential legislative function. The second contention in respect of declaring rule 3 with effect from April 1, 2001, being beyond the enabling provision of the parent Act also cannot be countenanced in view of our conclusion aforesaid. In fact, nothing has been included in making provision for valuing the perquisite in terms of section 17(2) with part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing assets. In this context, rule 18B of the Wealth-tax Rules, 1957, was brought into force with effect from April I, 1979, prescribing the method for valuing any house wholly or mainly used for residential purpose- The matter came up before the Supreme Court in CWT v. Sharvan Kumar Swarup and Sons [1994] 210 ITR 886 and when the controversy arose whether prescribing the method and mode of valuation alters the substantive right or the rule is merely procedural and whether it applies to all pending assessments that is to say the proceedings which have been initiated even before the commencement of the relevant assessment year but were to be completed the Supreme Court held the provisions to be procedural in nature and applicable to pending proceedings. The court in coming to this conclusion approved the principle enunciated by Justice Shah in Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 (SC) on which there was no contrary opinion in considering the impact of section 7(2) of the Wealth-tax Act as it provided for valuation of assets owned or possessed by the assessee on the date of valuation. Justice Shah had observed as under: "Section 7(2) merely provides mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. The perquisites have been considered substantively to be forming part of the salary and the value of different perquisites are required to be included in the computation of total taxable income under the head "Income from salaries". We have also noticed the connotation of the term "perquisites" in the context of its understanding in law and also in the context of the provisions of the Income-tax Act and the rules in question. Apparently, once it is determined that a particular advantage, benefit or amenity received forms part of perquisite as defined under section 17(2) of the Act, the question of its quantification falls within the machinery provision for quantification of proper tax liability of the taxpayer, which can be left to be determined according to the well known principles of valuing a particular advantage to the assessee when he receives it with reference to the cost which the assessee is likely to incur in securing that advantage and to enquire into the price which it was likely to pay for getting those amenities or benefits. Applying the test approved by the Supreme Court in Kesoram Industries and Cotton Mills Ltd. [1966] 59 ITR 767 and Murarilal Mah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation of house accommodation free of rent or at concessional rent by reiterating the points which we have noticed above and secondly that sub-clause (vi) of section 17(2) having been brought into effect from April 1, 2002, the rules brought into effect with effect from April 1, 2001, apparently has given retrospective effect prior to the date substantive provision comes into operation. Whether amended rule 3 violative of article 14 The next contention is about the resultant violation of article 14 of the Constitution in implementing rule 3 in relation to valuing the perquisite of free residential accommodation or providing accommodation at concessional rate. Valuing the perquisite of rent free accommodation or accommodation at concessional rate by linking it to the salary is a well known method applied in the case of working out total emoluments of an employee. Valuing perquisites in respect of accommodation free or at concessional rate is primarily a device to sustain the uniformity of perquisites relating to house accommodation at comparatively lower level than actual rent rates prevailing in the market by prescribing the percentage of salary as the basis of its valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity To the last question with regard to the retrospectivity of the rule, we do not find any substance in that contention either. Section 295 (1) confers upon the Central Board of Direct Taxes the power to frame rules for the purpose of the Act generally. In particular clause (c) of sub-section (2) of section 295 without prejudice to the generality of sub-section (1) confers specific power to frame rules to provide for determination of the value of any perquisite chargeable to tax under the Act in such manner and on such basis as appears to the Board to be proper and reasonable. In exercise of such powers rules of 1962 were framed and rule 3 of the Income-tax Rules, 1962, deals with the valuation of perquisites chargeable to tax under the head "Income from salaries". Thus the statutory authority under the parent Act for laying down the method, manner and procedure for valuing the perquisite chargeable to tax under the Act expressly exists. It is also the contention of learned counsel for the petitioner and it is a well known principle that income chargeable to tax is to be assessed for the assessment year and therefore the law which governs the chargeability to tax and compu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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