Employer accommodation valuation: separate amenities payments were not lease rent and were assessable independently under rule 3(8).

For valuation of employer-provided residential accommodation, only lease rental paid or payable for the premises can be included under rule 3(1) of the Income-tax Rules. Payments made under a separate amenities agreement to a third-party service provider for plastering, painting, housekeeping, car parking and similar services are not lease rental merely because they relate to employee occupation. Such compensation is independently assessable as amenities under rule 3(8). The employee accommodation benefit was therefore required to be valued separately, and the addition was sustained in favour of the Revenue.

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Issues: Whether amounts paid under an amenities agreement for plastering, painting, housekeeping, car parking and other services in connection with employer-provided residential accommodation could be treated as lease rental and valued only under rule 3(1) of the Income-tax Rules, or whether such payments were separately taxable as amenities under rule 3(8).

Analysis: Rule 3(1) is confined to the value of residential accommodation taken on lease or rent by the employer and the lease rental actually paid or payable. Payments that are not lease rental cannot be brought within that computation merely because they relate to the employee's occupation of the premises. The compensation paid under the amenities agreement was made to a service provider, was described as compensation, and was for specified services and amenities rather than for grant of lease or tenancy. It was neither paid to the landlord nor shown to be in lieu of lease rental. Such expenditure therefore did not form part of rent for purposes of rule 3(1). The employer had, however, provided separate benefits and services through the service provider, and their value was liable to be determined under rule 3(8).

Conclusion: The compensation paid under the amenities agreement could not be treated as lease rental under rule 3(1) and was rightly taxed as amenities under rule 3(8); the addition was sustained in favour of the Revenue.

Ratio Decidendi: For valuation of employer-provided accommodation, only lease rental paid or payable for the premises can be included under rule 3(1), while separate payments for amenities or services to a third-party service provider are assessable independently under rule 3(8).

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