1986 (10) TMI 72 - AT - Income Tax

ITAT directs ITO to determine fair rental value for employee accommodation per standard rent or municipal valuation.

The ITAT partially allowed the assessee's appeal, setting aside the Commissioner(A)'s order on the fair rental value of rent-free accommodation provided ... - Issues:- Determination of the fair rental value of rent-free accommodation provided to an employee for taxation purposes.Analysis:The judgment deals with three appeals by the assessee against the Commissioner(A)'s order concerning the perquisite value of rent-free accommodation provided by the employer. The primary issue revolves around the interpretation of r. 3(a) of the IT Rules, 1962, specifically regarding the fair rental value of the premises. The assessee, an employee of M/s CEAT Tyres of India Ltd., was provided with a rent-free accommodation in Malabar Hill, Bombay. The municipal valuation of the flat was Rs. 9,349 per annum, and the fair rental value was disputed between the assessee and the tax authorities.In the return filed by the assessee, the municipal valuation was taken as the basis for determining the fair rental value. However, the ITO determined the fair rental value at Rs. 42,600 per annum, citing Expln. II to r. 3(a)(iii) of IT Rules, 1962, which considers what a similar accommodation would fetch in the area or the municipal valuation, whichever is higher. The assessee contended that the fair rent should be the standard rent, relying on various court decisions and a Tribunal ruling. The Commissioner(A) disagreed, citing a Delhi High Court decision and held that the standard rent under Rent Control Law has no nexus to the valuation of rent-free accommodation.The ITAT, in its judgment, analyzed the legal precedents cited by both parties. It noted that the Supreme Court's interpretation of similar language in a different context was applicable in determining the case under the IT Rules. The Tribunal also referred to its own decision in a previous case where it held that the standard rent represents the fair value for evaluating the perquisite of rent-free accommodation. The ITAT disagreed with the Commissioner(A)'s reliance on the Delhi High Court decision and set aside the orders, directing the ITO to determine the perquisite value based on the standard rent or municipal valuation, whichever is higher.The ITAT further addressed the argument regarding the distinction between tenancy and license in providing accommodation. It emphasized that the same yardstick should apply in both cases, as expecting a higher rent from an employee than a tenant would be unreasonable. Therefore, the ITAT partly allowed the appeal, restoring the matter to the ITO for reevaluation based on the standard rent or municipal valuation.