Concessional rent as perquisite requires actual rent concession; valuation rules cannot deem one merely from salary-based thresholds.

Section 17(2) treats concessional rent as a perquisite only where the employee in fact receives a rent concession, which depends on the normal rent of the accommodation and the rent actually paid. Rule 3 of the Income-tax Rules, 1962 is only a valuation provision applied after a perquisite is otherwise established; it does not create a deeming fiction that every case where rent is below 10 per cent of salary is automatically a perquisite. The commentary states that treating the entire difference between actual rent and 10 per cent of salary as a perquisite would exceed the rule-making power under Section 295(2)(c) of the Income-tax Act, 1961.

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Issues: Whether the difference between the actual rent paid by an employee and 10 per cent of salary can, in every case, be treated as a perquisite for the purpose of deduction of income-tax at source.

Analysis: Section 17(2) of the Income-tax Act, 1961 brings within the meaning of perquisite the value of any concession in the matter of rent respecting accommodation provided by the employer. The decisive question is whether the employee in fact receives a concession in rent, which depends on the normal rent of the accommodation and the rent actually paid. Rule 3 of the Income-tax Rules, 1962 is only a valuation rule operating after a perquisite is otherwise established; it does not create a deeming fiction that every case where rent is below 10 per cent of salary is necessarily a concessional-rent case. To construe the rule otherwise would extend beyond the rule-making power under Section 295(2)(c) of the Income-tax Act, 1961.

Conclusion: The blanket treatment of the difference between actual rent and 10 per cent of salary as a perquisite was unlawful and the issue is answered in favour of the assessee.

Ratio Decidendi: A perquisite arises from an actual concession in rent, and valuation rules cannot be used to deem the existence of that concession in the absence of such factual foundation.

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