TMI Blog2003 (9) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, Bhilai Steel Plant v. Union of India [1983] 139 ITR 937, which was followed by a learned single judge of this court in Indian Bank Officers' Association v. Indian Bank [1994] 209 ITR 72 and then by a Division Bench of this court, to which I was a party, in ITO v. All India Vijaya Bank Officers' Association [1997] 225 ITR 37, and lastly by the Division Bench of the Andhra Pradesh High Court in Steel Executives Association v. Rashtriya Ispat Nigam Ltd. [2000] 241 ITR 20. Dr. Pal, who argued the case of one of the petitioners, submitted that similar questions are now being considered by the Supreme Court in a proceeding now pending before it, which has arisen out of a judgment delivered by a Division Bench of the Jharkhand High Court and where his clients have filed an application for transfer of the case of his clients, which is also now been considered by me along with other matters. Despite knowledge of the fact that the Supreme Court is considering similar questions, I have decided to deal with the matter for it appeared to me, upon perusing the judgment of the Division Bench of the Jharkhand High Court, that the issues raised by the petitioners before me were not dealt wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether there was any concession, one has to determine what was the rent. Once it is found that the rent is "X", only then it can be ascertained whether there is any concession in the matter of rent and that can be verified by comparing the rent so found with the rent that is being paid. In other words, it was submitted that if the rent is Rs. 100 and the employee concerned has been asked to pay Rs. SO, then it can be construed that the concession in the matter of rent is Rs. 50. Principally, therefore, it was contended that the expression "rent" used in sub-clause (ii) of clause (2) of section 17 is the rent which is payable. It was submitted that if the rent under the said sub-clause is payable at a particular amount and if anything less than that is paid, then the difference would be concession. But if the rent payable is the rent, which is being paid in fact, then there will be no concession and, accordingly, there would be no scope of ascertaining the value of perquisite. Learned counsel, therefore, submitted that the rent payable may vary from employer to employer. They submitted that when the landlord is, in fact, the Government, the rent payable in respect of the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners before the Madhya Pradesh High Court, before this court and before the Andhra Pradesh High Court approached the courts by filing writ petitions and in those, the above judgments were rendered. The rule making power is provided in section 295 of the Act. The relevant portion thereof is as follows: "(1) The Board may, subject to the control of the Central Government, by notification in the Gazette of India, make rules for the whole or any part of India for carrying out the purposes of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may provided for all or any of the matters:-... (c) the determination of the value of any perquisite chargeable to tax under this Act in such manner and on such basis as appears to the Board to be proper and reasonable;". The above provision makes it clear that while granting power to make rules without any restriction by sub-section (1) of section 295, the Legislature furnished, amongst others, an example as to in which direction such rule making power can be exercised and held out that such rule making power can be exercised for determination of value of any perquisite char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany (not being a company referred to in sub-clause (ii)(B) or sub-clause (ii)(D)) in which all the shares are held by a corporation referred to in sub-clause (ii)(B) or by a company referred to in that sub-clause, to any person employed by it;.... an amount equal to- (I) if the accommodation is unfurnished, 10 per cent. of the salary due to such person or officer, as the case may be, in respect of the period during which the said accommodation was occupied by him during the previous year: Provided that where the assessee claims and- the Assessing Officer is satisfied that the sum arrived at on the aforesaid basis exceeds the fair rental value of the accommodation, the value of the perquisites to the assessee shall be limited to such fair rental value;" The applicable rule in relation to other employees, as the same stood then, was as follows: "Rule 3, 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided such fair rental value is established. Anything paid by way of rent less than ten per cent. of the salary or less than the fair rent was to be treated as the concesison. In so far as others are concerned the previous rule provided that the value of the rent-free accommodation shall-be ten per cent. of the salary or fair rental value, whichever is lower, with the mandate that such fair rental value should correspond with the market rate of rent available in the same locality or determined on the basis of municipal valuation, whichever is higher. Normally, when an expression is used "fair rental value" without making any attempt to define the same, it would mean the reasonable rent. Since the fair rental value applicable to the employees of companies owned by the Government and of companies owned by such companies had not been defined and, on the other hand, what would be the fair rental value, in the case of others, had been defined, to my mind the question cropped up in the aforementioned judgments as to what should be the meaning of fair rental value used in the previous rule applicable to employees of companies owned by the Government and of companies owned by such companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of income-tax." Therefore, while construing what would be the fair rental value, the Madhya Pradesh High Court brought in the concept of normal rent for the accommodation. It held in other parts of the judgment that when the normal rent has been fixed by taking recourse to fundamental rule, that was the rent payable, which was also standardized and, accordingly, if that rent is paid, that should be treated to be the value of the said accommodation and if no rent is paid in relation thereto, the same would tantamount to be the value of the perquisite for a rent-free accommodation and if the same rent is being paid, there will be no concession and, accordingly, no question of valuing the concession will arise. It should be kept in mind that despite such pronouncement, the Madhya Pradesh High Court did not say that in every case the difference between ten per cent. of the salary and the rent actually paid should not be treated as perquisite. That made it explicit that in relation to every case, there may not be a fixation of the normal rent on the basis of the fundamental rules. The adoption of the concept of normal rent equivalent to fair rent by the Madhya Pradesh High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the accommodation provided to them by the bank is a 'concession', one has to ascertain the meaning of the word 'concession'." After ascertaining the meaning of the word "concession", the court observed: "Therefore, in this context, we have to see as to whether the accommodation provided to the employees on payment of standard rent is a 'concession' within the meaning of sub-clause (ii) of clause (2) of section 17 of the Act. The question of concession depends on the nature of accommodation provided to the employee, namely, the normal rent payable for such accommodation, provided to the employees, by other employees similarly situated and employed by the same employer and the actual rent paid by the assessee-employee concerned. It is not disputed before us that the rent paid by all the employees is of uniform rate and there is no departure of any kind in favour of any of the employees." In the Division Bench judgment of this court it was also held that the concept of normal rent equivalent to fair rent was introduced for the purpose of ascertaining the value of the perquisite if any. It was thus held that if the normal rent is to be treated as fair rent for the purpose of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Government companies and of companies owned by such companies and others, existence of two classes of employees has been thought-one is pure Government employees and the other is non-Government employees. The subject rule to the extent we are concerned here is as follows: "The value of residential accommodation provided by the employer during the previous year shall be determined on the basis provided in the Table below: -------------------------------------------------------------------------------------------- S1. Circumstances Where the accommodation is No. unfurnished -------------------------------------------------------------------------------------------- (1) (2) (3) -------------------------------------------------------------------------------------------- (1) Where the accommodation is pro- Licence fee determined by Union or vided by Union or State Govern- State Government in respect of ment to their employees either accommodation in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been provided accommodations by their respective employers, are concerned, the rule says that the value of rent-free accommodation would be ten per cent. of the salary if the accommodations are in certain cities and if the accommodations are in other cities, 7.5 per cent. of the salary and nothing else. The rule further provides that in relation to other employees, the value of the concession would be the difference between 10 per cent. or 7.5 per cent. of the salary, as the case may be, and the amount of rent actually paid. There is no scope for determination of fair rental value. The concept of fair rental value either on the basis of the normal rent or on the basis of the market rent available in the locality or on the basis of the municipal valuation has been done away with. It has said that when "X" is the value of the rent-free accommodation, then the amount paid less than "X" would be deemed to be the value of concession. How the value of "X" would be determined has been made explicit. One standard has been prescribed. There is now no scope of determining rent for non-Government employees on the yardstick of rent determined in accordance with the rules framed by the Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not arise. Even then rent-free value of such accommodations is required to be ascertained for the purpose of valuation of perquisites. 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. I would, therefore, not read either fair rent or normal rent or standard rent in the expression "rent" used in sub-clause (ii) of clause (2) of section 17 of the Act, for there was no just reason, nor there is any such reason therefor at all. This brings me to the last part of the submissions of Mr. Poddar. He submitted that there was no just reason for prescribing a standard for pure Government employees and yet another standard for employees of companies o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e classification. He submitted that Mr. Poddar's. clients had failed to establish that the classification between pure Government employees and the employees of Government companies and of companies owned by such companies was not permissible. In this connection, Mr. Kapoor cited a judgment of the Supreme Court in the case of Malwa Bus Services Pvt. Ltd. v. State of Punjab, AIR 1983 SC 634. In that case, Rs. 35,000 was levied as annual tax on a motor vehicle used as a stage carriage, but only Rs. 15,000 was levied as such tax on a motor vehicle used as a goods carriage. It was contended that this was discriminatory and there was no reasonable nexus for the classification. In this connection, the Supreme Court observed, amongst others, as follows: "A law of taxation cannot be termed as being discriminatory because different rates of taxation are prescribed in respect of different items, provided it is possible to hold that the said items belong to distinct and separate groups and that there is a reasonable nexus between the classification and the object to be achieved by the imposition of different rates of taxation." Mr. Poddar in his reply submitted that the Supreme Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges payable for using such accommodation. Any other employer including a company owned by the Government or a company owned by such a company may also device the matter in such a manner that an accommodation belonging to it may not be actually available in the market and, accordingly, its market value may not be ascertained, but it cannot be said that such an accommodation has no rental value. At the same time it cannot be said that the rental value of such an accommodation if ascertained on the basis of the device adopted by the Government for assessing the rental value of the accommodations owned by it, would be the true reflection of rental value of such accommodation. For the reasons aforesaid, I have no other option but to hold that the present writ petitions have no merit at all. Those are, accordingly, dismissed. All interim orders stand vacated. But, as aforesaid, this order will remain stayed until such time the Supreme Court decides the transfer application filed before it by the clients of Dr. Pal. There will be no order as to costs. Let urgent xerox certified copies of this order, if applied for, be delivered to learned counsel for the parties. - - TaxTMI - T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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