TMI Blog2003 (11) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... al Federation of Insurance Field Workers of India have, challenged the Notification dated September 25, 2001, issued by the Central Board of Direct Taxes (hereinafter referred to for the sake of brevity as the C.B.D.T.). Facts: The petitioners have challenged the Notification dated September 25, 2001, issued by the Central Board of Direct Taxes. The petitioners have challenged the notification on four grounds. Firstly, on the ground that the impugned notification is issued in purported exercise of power conferred on the Central Board of Direct Taxes by section 295 of the Income-tax Act, 1961, read with section 17(2) and section 192(2C) of the Income-tax Act; that by virtue of the impugned notification, the Central Board of Direct Taxes has purported to supplement section 17(2) of the Income-tax Act by incorporating amendments in the existing Income-tax Rules. Secondly, the impugned notification is challenged on the ground of violation of the petitioner's fundamental rights under article 14 of the Constitution. In this connection, it is contended that the impugned notification is vague and arbitrary having no nexus with the object sought to be achieved. That it gives excessive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te under article 12 of the Constitution. In his arguments, he has categorised his challenge on the first ground by dividing the category of benefits into two parts. The impugned notification seeks to tax numerous benefits provided to the employees of the Life Insurance Corporation by the Life Insurance Corporation. However, it has been argued by learned counsel that the main item covered by the impugned notification is interest free loan/concessional loan given to the Development Officers by the Life Insurance Corporation vis-a-vis other facilities like free education, leave travel concession, free meals, etc. As stated above, the first ground of challenge is that the impugned notification issued by the Central Board of Direct Taxes exceeds the power vested in the Central Board of Direct Taxes under section 295 read with section 17(2) and section 192(2C) of the Income-tax Act. In this connection, it is argued that the Development Officers of the Life Insurance Corporation gain business for the Life Insurance Corporation. They have an important role to perform. They are required to possess cars in order to go to places to canvass business for the Life Insurance Corporation. For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Direct Taxes to identify interest free loan/concessional loan as a fringe benefit. It was argued that in the above judgment of the apex court in the case of V.M. Salgaocar and Bros. Pvt. Ltd. [2000] 243 ITR 383, the apex court has ruled that interest free loan/concessional loan is not a perquisite and if so, it was not open to the Central Board of Direct Taxes to say that interest free loan/concessional loan is a fringe benefit. It was argued that the Central Board of Direct Taxes was a rule-making authority. That Central Board of Direct Taxes had to act within the parameters laid down by Parliament under section 17(2)(vi). That under section 17(2)(vi) the Central Board of Direct Taxes was not empowered to value the fringe benefit and the Central Board of Direct Taxes was not empowered to identify interest free loan/concessional loan as a fringe benefit. That under the circumstances, the Central Board of Direct Taxes had issued the notification, which was not only contrary to section 17(2)(vi) of the Income-tax Act, but it was also contrary to the judgment of the apex court in Salgaocar's case [2000] 243 ITR 383. Hence, it was submitted that the impugned notification exceeds the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployees. However, by the Finance Act, 1985, taxing of interest free loan/concessional loan as perquisites was deleted. That clause (vi) of section 17(2) was deleted. However, there was no deletion under section 40A(5)(vi) and consequently, section 40A(5)(vi) came before the Supreme Court in Salgaocar's case [2000] 243 ITR 383, where it has been held that giving of interest free loan/concessional loan was not a perquisite. Therefore, it was argued that if the apex court has declared a particular item not to be a perquisite, it is not open to the Central Board of Direct Taxes to overrule the judgment of the apex court by issuing the impugned notification. Hence, the impugned notification should be struck down. As stated above, apart from interest free loan/concessional loan, the Central Board of Direct Taxes has purported to tax "other items" like free education, leave travel concession, free meals, etc. In this connection, it was submitted that clause (8) of the impugned notification is all pervasive. That under that clause, every conceivable benefit under the sun could be taxed by the Income-tax Officer as a perquisite. It is argued that clause (8) confers excessive powers on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of Parliament by the rule-making authority, i.e., the Central Board of Direct Taxes. It was argued that in the petition, it has been alleged that the rules/impugned notification was not placed before Parliament That there is no denial to this averment by the Revenue. It was, therefore, argued that section 296 had been violated and consequently, the impugned notification/rule was non est and voild ab initio. Lastly, it has been argued that the impugned notification is dated September 25, 2001, but it has been brought into force with effect from April 1, 2001. In this connection, it was further submitted that section 17(2)(vi) was inserted by the Finance Act, 2001, with effect from April 1, 2002, and, consequently, it was not open to the Central Board of Direct Taxes to issue the impugned notification dated September 25, 2001, with effect from April 1, 2001. It was further argued that clause (vi) was inserted in section 17(2) by Parliament by the Finance Act, 2001, with effect from April 1, 2002, and yet the impugned rules, 2001, have been brought into force with effect from April 1, 2001, and, therefore, it is bad in law and contrary to section 17(2)(vi); In this connection, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income. That under Chapter IV, one of the heads of income is salary. That Chapter IV covers sections 15, 16 and 17. Hence, he argued that interest free loans/concessional loans do have co-relationship with salary. He also invited our attention to the speech delivered by the Finance Minister at the time of introduction of the Finance Bill, 2001, under which he proposed to insert clause (vi) to section 17(2) so as to give an authority to the Central Board of Direct Taxes to determine the value of interest free loan/concessional loan on the basis of its cost to the employer. He, therefore, contended that there is no merit in the argument advanced on behalf of the petitioners that no policy has been prescribed by Parliament while enacting/inserting clause (vi) in section 17(2) of the Income-tax Act and that the Central Board of Direct Taxes has framed rules in excess of its authority. In this connection, he relied upon the judgment of the Karnataka High Court in the case of BHEL Employees' Association v. Union of India [2003] 261 ITR 15. He also relied upon the judgment of the Supreme Court in the case of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308. He, therefore, cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a High Court in the case of BHEL Employees' Association [2003] 261 ITR 15, which has held that there was no retrospective effect given by the impugned rules/notification. Mr. Posti, therefore, contended that there is no merit in the writ petition. Points for determination: (i) Whether the Central Board of Direct Taxes exceeded its authority in issuing the impugned notification and whether the Central Board of Direct Taxes usurped the essential legislative functions of Parliament in issuing the impugned notification? (ii) Whether the impugned notification violated the provisions of section 17(2)(vi) by identifying interest free loan, leave travel concession, free meals, club membership, etc., as fringe benefits under section 17(2)(vi)? (iii) Whether clause (8) of the impugned notification is arbitrary, unreasonable, vague and violative of article 14 and whether by the said notification excessive powers have been given to the Income-tax Officer to tax any and every benefit/amenity as fringe benefit under section 17(2)(vi)? Whether it is in breach of section 295(2)(c) of the Income-tax Act? (iv) Whether the impugned notification/rule is bad in law for non-compliance with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, there were numerous disputes pending in various High Courts not only on valuation but also on identification of benefit or amenity. In some cases, it was argued that small benefits like dub membership and credit card facilities did not constitute any substantial benefit. To put an end to such conflict, Parliament inserted clause (vi) in section 17(2) by the Finance Act No. 14 of 2001 with effect from April 1, 2002, by stating that even the value of any other fringe benefit as may be prescribed by the Central Board of Direct Taxes be included within "perquisite" as defined under section 17(2). The words "as may be prescribed" not only refer to value, but also to itemisation/identification of a particular benefit or amenity. Hence, the entire policy of Parliament is to cover all types of benefits/ amenities, including substantial and fringe benefits within the word "perquisite". This policy is discernible from the scheme of sections 14, 15, 16 and 17 of the Income-tax Act. Further, the Legislature has left it to the Central Board of Direct Taxes as the Central Board of Direct Taxes is an expert rule-making authority. The concept of perquisite, so as to include benefit, can be u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture has left it to the Central Board of Direct Taxes to prescribe and identify these benefits. It is for the Central Board of Direct Taxes to issue circulars from time to time to carry out the purpose of the Act. Interest free loan/concessional loan is a benefit or amenity. In the ordinary course, an employee is required to borrow at market rates, but in the case of interest free loan/concessional loan, he is not to pay interest at market rate. Hence, to this extent, his liability is discharged by the employer. Hence, it is a perquisite. The same is the case with leave travel concession, club membership, free meals, etc. Hence, interest free loan/concessionalloan has a nexus with the scheme of sections 15, 16, and 17 of the Income-tax Act. Issues Nos. 3 and 4: We do not find any merit in the argument of the petitioners that' the impugned notification/rule is vague and arbitrary and that it gives excessive powers to Income-tax Officers. Firstly, a concept like fringe benefits is difficult to define. Secondly, they can never be exhaustively defined and therefore the Legislature has left it to the Central Board of Direct Taxes. Thirdly, clause (8) of the impugned notification sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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