Valuation of rent-free accommodation turns on what counts as salary, including employer-paid tax and reimbursements, but not car use.

Employer-paid income-tax is includible in an employee's salary for valuing rent-free accommodation under the salary definition in Rule 3, because it forms part of the computation by reference to the corresponding older rule. Electricity charges and profession tax reimbursed by the employer are also includible as salary components for that purpose. By contrast, the use of a car is not treated as an allowance within salary and must be excluded from the valuation base. The discussion therefore distinguishes monetary reimbursements and tax payments, which are counted, from a non-monetary car benefit, which is not.

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Issues: (i) Whether income-tax paid by the employer forms part of the assessee's salary for the purpose of valuing rent-free accommodation under Explanation 2 to Rule 3 of the Income-tax Rules, 1962; (ii) whether the use of a car by the assessee forms part of salary for that purpose; (iii) whether electricity charges and profession tax reimbursed by the employer form part of salary for that purpose.

Issue (i): Whether income-tax paid by the employer forms part of the assessee's salary for the purpose of valuing rent-free accommodation under Explanation 2 to Rule 3 of the Income-tax Rules, 1962.

Analysis: The definition of salary in the explanation to Rule 3 was construed in the light of the corresponding provision in Rule 24A of the Indian Income-tax Rules, 1922. The amount of income-tax paid by the employer on behalf of the assessee was held to be a component of salary and therefore relevant for computation of the value of rent-free accommodation.

Conclusion: Income-tax paid by the employer is includible in the salary of the assessee and must be taken into account.

Issue (ii): Whether the use of a car by the assessee forms part of salary for that purpose.

Analysis: The use of a car was held not to be an allowance within the meaning of salary under the explanation and could not be brought into the computation of salary for valuing rent-free accommodation.

Conclusion: The use of a car is not includible in salary and must be excluded.

Issue (iii): Whether electricity charges and profession tax reimbursed by the employer form part of salary for that purpose.

Analysis: Electricity allowances and profession tax were treated as falling within the inclusive scope of salary under the explanation and were therefore relevant in determining the value of the rent-free accommodation.

Conclusion: Electricity charges and profession tax are includible in salary and must be taken into account.

Final Conclusion: The reference was answered partly against the assessee and partly against the department, with inclusion of employer-paid income-tax, electricity charges and profession tax, but exclusion of the car benefit from salary computation for rent-free accommodation.

Ratio Decidendi: For valuing rent-free accommodation under the relevant salary definition, employer-paid income-tax and specified monetary reimbursements forming part of salary are includible, while a non-monetary car benefit is not.

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