Fair rental value for rent-free accommodation is limited by standard rent where rent control law applies.

Rent-free furnished accommodation perquisite under the salary rules is valued by reference to fair rental value, and where rent control law applies that value is confined to the legally determinable standard rent. The text states that the expression "fair rental value" means the rent a property can lawfully fetch, not an unrestricted market figure, and treats the Delhi Rent Control Act ceiling as the outer limit of reasonable rent. It further notes that municipal valuation principles and Section 23(1)(a) are in pari materia for this purpose, while the argument that the employer's loss should measure the perquisite was rejected.

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Issues: Whether the fair rental value of rent-free furnished accommodation provided by an employer to an employee is to be limited by the standard rent determinable under rent control law, and whether the municipal valuation and Supreme Court principles on annual value govern the computation under the salary rules.

Analysis: The value of rent-free accommodation under the salary provisions and Rule 3 is limited where the fair rental value is lower than the presumptive percentage method. The expression "fair rental value" was construed as the fair rent a property can legally fetch, not an open-market figure unconstrained by rent control legislation. The Court applied the Supreme Court's rulings on reasonableness and annual value, holding that the Delhi rent control regime fixes the outer limit of reasonable rent and that the same principle applies because the municipal valuation provisions and Section 23(1)(a) of the Income-tax Act are in pari materia. The contention that the employer's loss should measure the employee's perquisite was rejected, and the argument of collusion in fixation of standard rent was found unsupported on the record.

Conclusion: The fair rental value had to be confined to the standard rent fixed under the Delhi Rent Control Act, and the assessee succeeded on the valuation issue.

Final Conclusion: The accommodation perquisite was required to be computed with reference to standard rent rather than an unregulated market estimate, resulting in reduction of the assessed value in the assessee's favour.

Ratio Decidendi: Where rent control law applies, fair rental value and annual value are governed by the legally determinable standard rent, and a hypothetical landlord cannot reasonably be assumed to expect rent above that ceiling.

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