1992 (10) TMI 77 - HC - Income Tax

High Court clarifies perquisite valuation for residential accommodation provided to managing director

The High Court of Delhi addressed the interpretation of perquisites concerning residential accommodation provided to a managing director by a company. The ... Perquisite, Rent-free Accommodation, Salary, Value Issues:1. Interpretation of the value of perquisites in respect of residential accommodation under the Income-tax Act, 1961.2. Determination of fair rent and its impact on assessing the value of rent-free accommodation provided by a company to its managing director.3. Consideration of standard rent determined by the Rent Controller under the U. P. Urban Buildings Act, 1972, in assessing the value of perquisites.4. Application of previous court decisions regarding the determination of rent-free accommodation value for tax purposes.Analysis:The High Court of Delhi addressed the issue of interpreting the value of perquisites in respect of residential accommodation provided by a company to its managing director. The Income-tax Tribunal referred a question regarding the assessment years 1970-71 to 1972-73, questioning the correctness of limiting the value of perquisites to the amount fixed by the local authority under the U. P. Urban Building Act, 1972. The Tribunal had earlier based the estimate of the value of rent-free accommodation on a percentage of the managing director's salary.Regarding the determination of fair rent, the Tribunal considered the standard rent fixed by the prescribed authority under the U. P. Urban Buildings Act, 1972, for similar accommodation occupied by another individual. The Tribunal relied on Supreme Court decisions and the principle of determining hypothetical rent under the Income-tax Act, 1961, to reduce the value of rent-free accommodation based on the standard rent fixed by the authority.The Court also analyzed the impact of previous court decisions on the assessment of rent-free accommodation value. It distinguished a case where the premises were provided at a concessional rate from the present case, where the fair rent was determined by the Sub Divisional Magistrate based on market rents. The Court emphasized that the fair market rent determined by the authority was the basis for assessing the value of perquisites in the case.Furthermore, the Court referred to a Division Bench decision that highlighted the importance of determining the value of rent-free accommodation based on standard rent, even when the property belongs to the company. This decision was contrasted with a previous judgment that considered the premises as provided at a concessional rate. Ultimately, the Court answered the question of law in favor of the assessee, emphasizing the significance of determining the value of perquisites based on fair rent fixed by the authority.In conclusion, the Court's judgment clarified the approach to assessing the value of rent-free accommodation provided to a managing director, emphasizing the relevance of fair rent determined by the prescribed authority under the U. P. Urban Buildings Act, 1972, in determining the value of perquisites for tax purposes.