Government category residential accommodation under Rule 3 can defeat TDS on employee perquisite value

Rule 3 of the Income-tax Rules, 1962 distinguishes residential accommodation provided by Government from accommodation supplied by other employers. On the facts, the Tribunal treated the statutory organisation as falling within the Government category because of the Government's control over its constitution, officers, service conditions and directions under the governing statute. As a result, unfurnished residential accommodation provided to employees was not treated as a taxable perquisite requiring tax deduction at source, and the assessee-in-default finding was unsustainable.

---

---

Issues: Whether the assessee was liable to deduct tax at source on the perquisite value of unfurnished residential accommodation provided to its employees, and whether it could be treated as an assessee in default under the Income-tax Act.

Analysis: Rule 3 of the Income-tax Rules, 1962 classifies residential accommodation provided by the Central Government or any State Government to employees holding office or post in connection with the affairs of the Union or such State separately from accommodation provided by any other employer. The Tribunal examined the statutory scheme governing the assessee under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, including the Government's role in constituting and controlling the Central Board, appointing officers, regulating service conditions, and issuing directions. On that basis, the Tribunal held that the assessee could not be equated with a mere autonomous body governed by private bye-laws and that the accommodation provided to its employees fell within the Government category under Rule 3. The Tribunal further noted that the employees were not receiving rent-free accommodation in the sense attracting tax deduction on the alleged perquisite value.

Conclusion: The assessee was not required to deduct tax at source on the perquisite value of the residential accommodation, and the finding that it was an assessee in default was unsustainable.

Ratio Decidendi: Where a statutory organisation falls within the Government category for the purpose of Rule 3 of the Income-tax Rules, 1962, no TDS liability arises on the perquisite value of residential accommodation provided to its employees as unfurnished accommodation.

---