Real net income and employee perquisites: Delhi High Court upheld set-off, salary-linked rent exemption, and rejected estimated additions.

Accommodation-related and other employee amenity additions were rejected where the factual findings showed that the employer had not provided the alleged perquisites and the assessments were made on estimate; the deletions were sustained. Exemption under section 10(13A) was allowed because the salary receipts could not be recharacterised as income from other sources in the absence of material denying an employer-employee relationship, so the rent-related allowance remained eligible within statutory limits. Interest paid on borrowing for land purchase was set off against interest received on delayed sale proceeds from the same counterparty because both arose from one integrated transaction with a direct nexus, and taxability had to be computed on real net income; the set-off was upheld.

---

---

Issues: (i) Whether amounts towards accommodation-related and other employee amenities could be taxed as perquisites in the hands of the assessees; (ii) Whether exemption under section 10(13A) was admissible on rent paid from salary; (iii) Whether interest paid on borrowing used for purchase of land could be set off against interest received on delayed sale proceeds from the same counterparty.

Issue (i): Whether amounts towards accommodation-related and other employee amenities could be taxed as perquisites in the hands of the assessees.

Analysis: The additions towards security, servants, gardener, telephone, car, club, electricity and similar items were rejected on the factual finding that the employer had not incurred such expenses as perquisites for the assessees and that the assessments were made on estimate. The Tribunal's findings were treated as findings of fact and no material was shown to dislodge them. In the connected matters, the amounts paid to security guards, servants and gardener were found debited in the books of the firm and the rent and related concessions were not shown to be employer-provided perquisites.

Conclusion: The additions were not sustainable and the issue was decided in favour of the assessees.

Issue (ii): Whether exemption under section 10(13A) was admissible on rent paid from salary.

Analysis: The claim for exemption was denied by treating the salary receipts as income from other sources. That approach was rejected because there was no material to show absence of an employer-employee relationship. Once the receipts were assessable under the head salary, the statutory exemption for rent-related allowance became available subject to the prescribed limits.

Conclusion: The assessees were entitled to the exemption under section 10(13A), and the issue was decided in favour of the assessees.

Issue (iii): Whether interest paid on borrowing used for purchase of land could be set off against interest received on delayed sale proceeds from the same counterparty.

Analysis: The interest receipt and interest liability arose from the same transaction chain and for the same period, namely the delayed remittance of sale proceeds and the corresponding delay in repayment of the borrowing. The court applied the principle that where the two items have a direct and sufficient nexus, netting is permissible and the taxable figure is the real income after adjusting the closely connected outgoing. The reasoning was supported by the approach to netting and mutual adjustment recognised in tax law.

Conclusion: The interest paid was allowable to be set off against the interest received, and the issue was decided in favour of the assessees.

Final Conclusion: All the revenue appeals failed; the deletions and allowances granted by the appellate authorities were sustained, leaving the assessees' tax positions undisturbed.

Ratio Decidendi: Where factual findings show that alleged perquisites were not : provided by the employer, and where receipt and payment of interest arise from the same integrated transaction with a direct nexus, taxability must be determined on the basis of the real net income and not on a gross or artificial estimate.

---