Standard-rent employee accommodation is not a perquisite; valuation rules cannot create tax liability without a substantive charge.

Residential accommodation provided to employees at the standard rent fixed under service regulations was not a perquisite under section 17(2) because no rent concession was established. The valuation rules for perquisites cannot be used to create a tax liability where the substantive charging provision is not satisfied. On that basis, retrospective tax recovery on the notional value of the accommodation lacked legal foundation, and deductions or circulars issued on that premise were liable to be set aside.

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Issues: (i) Whether accommodation provided by a nationalised bank to its employees at rent fixed under its service regulations constituted a perquisite within the meaning of section 17(2) of the Income-tax Act, 1961. (ii) Whether tax could be demanded retrospectively on the notional value of such accommodation as a perquisite.

Issue (i): Whether accommodation provided by a nationalised bank to its employees at rent fixed under its service regulations constituted a perquisite within the meaning of section 17(2) of the Income-tax Act, 1961.

Analysis: The relevant inquiry was whether the employees were receiving any concession in the matter of rent. The rent charged under the bank's regulations was the standard rent fixed by the competent authority and was uniformly paid by similarly situated employees. A concession cannot be inferred merely because the valuation rules prescribe a method for computing perquisites where a perquisite otherwise exists. The existence of a perquisite must be tested first under the substantive provision, and the rule for valuation cannot be used to create a liability not found in section 17(2). The accommodation was therefore not shown to be rent-concessional.

Conclusion: The accommodation did not amount to a perquisite under section 17(2) of the Income-tax Act, 1961.

Issue (ii): Whether tax could be demanded retrospectively on the notional value of such accommodation as a perquisite.

Analysis: Once the accommodation was held not to be a perquisite, no basis remained for assessing or recovering tax on any notional perquisite value. The retrospective recovery demanded on that footing consequently lacked foundation.

Conclusion: Retrospective demand of tax on the notional perquisite value was not permissible.

Final Conclusion: The employees' accommodation, being charged at standard rent fixed under the governing regulations, could not be treated as a taxable perquisite, and the impugned deductions and circulars issued on that premise were liable to be set aside.

Ratio Decidendi: Where residential accommodation is provided to employees at the standard rent fixed by the competent authority and no rent concession is established, the accommodation is not a perquisite under section 17(2) of the Income-tax Act, 1961, and valuation rules cannot be invoked to create a tax liability in the absence of a substantive charge.

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