2016 (5) TMI 935 - HC - Income Tax

Constitutionality of Income Tax Act Sections Upheld: Rule on Valuing Fringe Benefits Valid

All India Union Bank Officers Federation and Others Versus Union of India and Others

All India Union Bank Officers Federation and Others Versus Union of India and Others - [2016] 385 ITR 114 Issues Involved:1. Constitutionality of Section 17(2)(viii) of the Income Tax Act, 1961.2. Constitutionality of Rule 3(7)(i) of the Income Tax Rules, 1962.3. Violation of Article 14 of the Constitution of India.4. Hardship caused by Rule 3(7)(i).5. Alleged overruling of the Supreme Court judgment in Arunkumar Vs. Union of India.Issue-wise Detailed Analysis:1. Constitutionality of Section 17(2)(viii) of the Income Tax Act, 1961:The petitioners challenged Section 17(2)(viii) which includes the value of any other fringe benefit or amenity as prescribed by the government as a perquisite. The court observed that the Parliament has left it to the Government to prescribe what constitutes a fringe benefit or amenity. The method of valuation of perquisites is prescribed under Rule 3 of the Income Tax Rules, 1962. The court found no constitutional infirmity in Section 17(2)(viii) as it provides a clear mandate for the inclusion of fringe benefits or amenities as perquisites.2. Constitutionality of Rule 3(7)(i) of the Income Tax Rules, 1962:The petitioners argued that Rule 3(7)(i) is ultra vires Section 17(2)(viii) as it deprives employees of their right to contest whether what was granted to them was a concession or benefit. The court rejected this argument, stating that Rule 3(7)(i) provides a definite method for valuing the fringe benefit, thus eliminating the need for individual adjudication by Assessing Officers. The court held that the rule is valid and does not violate the principles laid down in Arunkumar Vs. Union of India.3. Violation of Article 14 of the Constitution of India:The petitioners contended that Rule 3(7)(i) violates Article 14 by treating unequals as equals, as it pegs the rate of interest charged by individual banks to the rate of interest offered by the State Bank of India. The court found that the rule does not treat unequals as equals but rather provides a uniform method for valuing the perquisite of concessional loans. The court reasoned that the impact of Rule 3(7)(i) varies depending on the rate of interest charged by different banks and the income bracket of the employees, thus not violating Article 14.4. Hardship caused by Rule 3(7)(i):The petitioners argued that the rule causes hardship to employees as it taxes the privilege of concessional loans. The court dismissed this argument, stating that the rule merely taxes a privilege enjoyed by bank employees, which is a reasonable measure. The court held that the rule does not cause undue hardship and is a valid exercise of the government's power to tax perquisites.5. Alleged overruling of the Supreme Court judgment in Arunkumar Vs. Union of India:The petitioners claimed that Rule 3(7)(i) overrules the Supreme Court judgment in Arunkumar. The court clarified that the judgment in Arunkumar dealt with Section 17(2)(ii) and not Section 17(2)(viii). The court held that Rule 3(7)(i) was not intended to overrule the judgment in Arunkumar and was validly introduced to prescribe the method of valuation for fringe benefits under Section 17(2)(viii).Conclusion:The court dismissed all the writ petitions, holding that Section 17(2)(viii) and Rule 3(7)(i) are constitutionally valid and do not violate Article 14. The court found that the rule does not cause undue hardship and does not overrule the Supreme Court judgment in Arunkumar. Consequently, all connected pending miscellaneous petitions were also dismissed with no order as to costs.