2005 (12) TMI 218 - AT - Income Tax

Appeal partly allowed on furnished accommodation and stock options, assessee wins on non-pecuniary reductions. Interest issue remanded.

Garrick D'silva. Versus Joint Commissioner Of Income-tax.

The appeal was partly allowed for statistical purposes. The Tribunal upheld the AO's determinations on the perquisite value of furnished accommodation and ... Rent-free Accommodation Issues Involved:1. Enhancement in the Indian rupee value of salary due to exchange rate difference.2. Non-pecuniary reductions from base salary on account of housing contribution and auto norm.3. Perquisite value of furnished accommodation.4. Maintenance charges incurred by the employer.5. Net gain on sale of exercised stock options.6. Corporate club membership paid by the employer.7. Perquisite value of electricity on an estimated basis.8. Charging of interest under section 234B.Detailed Analysis:1. Enhancement in Indian Rupee Value of Salary Due to Exchange Rate Difference:The assessee opted not to press this ground. Therefore, it was dismissed.2. Non-Pecuniary Reductions from Base Salary on Account of Housing Contribution and Auto Norm:The AO observed that housing contribution and auto norms were deducted from the assessee's salary against specific amenities provided by the employer. The AO treated these as perquisites provided at a concessional rate and added them back to the salary income. The CIT(A) upheld this view. The Tribunal examined the employer's tax equalization policy and found that these deductions were not part of the taxable salary. It was concluded that the deductions were notional and did not result in actual income to the assessee. The Tribunal ruled that the deductions on account of housing norms and auto norms should not be included in the taxable salary.3. Perquisite Value of Furnished Accommodation:The AO determined the fair rental value of the accommodation provided to the assessee by comparing it with another farmhouse in the same locality. The AO computed the perquisite value at Rs. 5,51,719 after allowing credit for the housing contribution deducted by the employer. The CIT(A) upheld this determination. The Tribunal reviewed the provisions of Rule 3 of the IT Rules and concluded that the fair rental value should be determined as per the rules, considering the interest-free security deposit. The Tribunal upheld the AO's determination of the perquisite value.4. Maintenance Charges Incurred by the Employer:The assessee opted not to press this ground. Therefore, it was dismissed.5. Net Gain on Sale of Exercised Stock Options:The AO treated the gain on the sale of stock options as a perquisite under section 17(2)(iii) of the IT Act. The CIT(A) upheld this view, stating that the gain was taxable as salary. The Tribunal examined the relevant provisions and the decision of the AAR in a similar case. It concluded that the benefit derived from the exercise of stock options is a perquisite and taxable under section 17(2)(iii). The Tribunal agreed with the AO's determination and upheld the addition.6. Corporate Club Membership Paid by the Employer:The assessee opted not to press this ground. Therefore, it was dismissed.7. Perquisite Value of Electricity on an Estimated Basis:The AO estimated the value of free electricity provided to the assessee at Rs. 50,000 and treated it as a perquisite. The CIT(A) upheld this estimation. The Tribunal reviewed Rule 3(d) of the IT Rules, which provides that the value of the benefit should be the amount paid by the employer. The Tribunal upheld the CIT(A)'s decision, stating that the estimation was reasonable in the absence of actual bills.8. Charging of Interest Under Section 234B:The CIT(A) omitted to adjudicate this ground. The Tribunal restored the matter to the CIT(A) for re-adjudication by passing a speaking order.Conclusion:The appeal was partly allowed for statistical purposes, with specific directions for re-adjudication on the issue of interest under section 234B. The Tribunal upheld the AO's determinations on the perquisite value of furnished accommodation and the gain on the sale of stock options, while ruling in favor of the assessee on the issue of non-pecuniary reductions from the base salary.