TaxTMI 
TaxTMI 
2016 (5) TMI 935
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....titions, challenging either Section 17(2)(iii) or 17(2) (vi) or Rule 3(7)(i) of the Income Tax Rules or both. 2. We have heard M/s.Srinath Sridevan, Jayesh B.Dolia and N.G.R. Prasad, learned counsel appearing for the writ petitioners, Mr.T.Pramod Kumar Chopda and Mr.J.Narayanasamy, learned Standing Counsel for the Income Tax Department and the learned counsel appearing for the banks. 3. Chapter IV of the Income Tax Act, 1961 contains various provisions from Sections 14 to 59, indicating the method of computation, of total income under various heads such as salaries, income from house property, profits and gains of business or profession, capital gains and income from other sources. 4. Section 15 indicates the items that are chargeable to income tax under the head "salaries". The deductions that could be allowed from the income chargeable under the head "salaries" are indicated in Section 16. 5. Sub-Section (1) of Section 17 contains a list of items that would be included within the salary, the list of items that would be included as perquisite and the list of items that would be included as profits in lieu of salary. The items includible under the head salary are indicated in S....
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....owever, it should be pointed out that some writ petitions are filed in 2008 and some have been filed in 2010 and 2011. Therefore, at the request of the learned counsel appearing for the petitioners, we have treated the writ petitions challenging Section 17(2)(vi), as those challenging Section 17(2)(viii). 10. As we have stated earlier, some of the writ petitions challenge Rule 3(7)(i) of the Income Tax Rules, 1962, either independently or together with a challenge to Section 17(2)(viii). Therefore, we shall now see what this Rule is. 11. Section 17(2)(viii) does not quantify a fringe benefit or amenity. The Parliament has left it to the Government to prescribe what a fringe benefit or amenity would be. This is clear from the expression "as may be prescribed" used in Section 17(2)(viii). 12. Therefore, Rule 3 of the Income Tax Rules, 1962 prescribes the method of valuation of perquisites, for the purpose of Section 17(2)(viii). Incidentally, Rule 3 has undergone sweeping changes in a period of 10 years from 2001 to 2010. The changes undergone by Rule 3 can be summarized as follows:- (I) Prior to 1.4.2001, Rule 3 merely contained Clauses (a) to (g). While Clause (a) dealt with re....
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....dical treatment referred to above, the exemption so provided shall not apply to so much of the loan as has been reimbursed to the employee under any medical insurance scheme." 14. Clause (i) of Sub-Rule (7) of Rule 3 underwent an amendment with effect from 1.4.2004 under Income Tax (First Amendment) Rules, 2004. With effect from 1.4.2004, Rule 3(7)(i) reads as follows:- "(7) In terms of provisions contained in Sub-Clause (vi) of Sub-Section (2) of Section 17, the following other fringe benefits or amenities are hereby prescribed and the value thereof shall be determined in the manner provided hereunder: (i) The value of the benefit to the assessee resulting from the provision of interest-free or [concessional loan for any purpose made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf shall be determined as the sum equal to the simple interest computed at the rate charged per annum by the State Bank of India Act, 1955 (23 of 1955), as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by it] on the maximum outstanding monthly balance as reduced by the....
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....rate of interest offered by the State Bank of India, without realising that each bank fixes its own rate of interest depending upon the economies of their operation. (iii) The Rule works out a great hardship to the employees and hardship is a ground on which a subordinate legislation can be tested and (iv) Rule 3(7)(i) is vitiated in as much as it tends to overrule the judgment of the Supreme Court in Arunkumar Vs Union of India. FIRST GROUND OF CHALLENGE : 18. The first ground of challenge is that by taking the rate of interest charged by the State Bank of India as the base for determining whether the interest free or concessional loan offered by a bank to its own employee as a perquisite or not, the Rule has taken away the right of the employees to contest an important jurisdictional fact namely whether what is granted to them is a concession, amenity or benefit. This ground of attack actually emanates from some observations contained in the decision of the Supreme Court in Arunkumar Vs. Union of India [2007 (1) SCC 732]. Therefore, it is necessary to take note of the background facts, out of which, the decision in Arunkumar arose. 19. The Officers and Executives of a compan....
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.... of a residential accommodation to an employee. This can be appreciated from the observations contained in paragraphs 71 and 73. Paragraphs 71 and 73 read as follows : "71. But in our opinion, the fundamental question of applicability of Section 17(2) of the Act still remains. It cannot be gainsaid that Section 17(2) would apply only if there is 'perquisite'. Indisputably, the definition of 'perquisite' is inclusive in nature and takes within its sweep several matters enumerated in Clauses (i) to (vii). Section 17(2)(ii) declares that the value of any "concession" in the matter of rent respecting any accommodation provided to the employee by his employer would be "perquisite". Nevertheless it must be a "concession" in the matter of rent respecting any accommodation provided by the employer to his employee. ....... 73. It is, therefore, clear that before Section 17(2)(ii) can be invoked or pressed into service and before calculation of concession as per Rule 3 is made, the authority exercising power must come to a positive conclusion that it is a concession. 'Concession', in our judgment is, thus a foundational, fundamental or jurisdictional fact." 2....
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....onality, only because of the same being read down by the Supreme Court, with a leverage to the employees to establish before the Assessing Officers that what was received by them was not a concession. Since Rule 3(7)(i) does not give scope for any such adjudication upon a jurisdictional fact, the same, according to learned counsel, is ultra vires. 24. But, we are unable to accept the above submission. In Arunkumar, the Supreme Court was concerned with Rule 3 with particular reference to Section 17(2)(ii). As we have pointed out earlier, Section 17(2)(ii) did not make the mere allotment of a residential accommodation, as a perquisite. It was only the value of any concession in the matter of rent, that was made a perquisite under Section 17(2)(ii). Therefore, the Supreme Court rightly held that the grant of a concession in the matter of rent was a sine qua non, for the value of the same being treated as a perquisite. 25. But, we are considering Rule 3(7)(i), which is directly attributable to Section 17(2)(viii). Under Section 17(2)(viii), the Parliament has left it to the wisdom of the Rule Making Authority, to prescribe the value of any other fringe benefit or amenity, as a perqui....
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....own rate of interest depending upon the economies of their operation. 30. In order to drive home the above point, Mr.Srinath Sridevan, learned counsel for the petitioners brought to our attention the Notification dated 9.4.2010 issued by the Reserve Bank of India and the Master Circular dated 31.7.2015, which show that the rate of interest fixed by a bank need not be uniform and that each bank is free to choose a base rate. The formula for computation of base rate as provided in the Master Circular shows that the base rate would depend upon (i) Statutory Liquidity Ratio (ii) Cash Reserve Ratio (iii) Net Profit of the Bank and (iv) Net Worth of the Bank. The Master Circular excludes from the purview of application of the base rate, the loans granted to the employees of banks. Therefore, it is contended on the basis of the decisions of the Supreme Court in K.T.Moopil Nair Vs. State of Kerala [1961 (3) SCR 552] and Ashirwad Films Vs. Union of India [2007 (6) SCC 624] that the comparison sought to be made with the rate of interest charged by the State Bank of India, offends Article 14, by treating unequals as equals. 31. It is no doubt true that a taxing statute is not wholly immune ....
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.....T.Moopil Nair is not present in this case. 35. In so far as Ashirwad Films is concerned, what was challenged before the Supreme Court was a Notification issued by the Government of Andhra Pradesh levying different rates of entertainment tax upon the films made in different languages. The time honoured tests of (i) the existence of reasonable classification and (ii) the existence of a nexus between the classification and the object sought to be achieved, were applied by the Supreme Court in Ashirwad Films. 36. We do not know how the petitioners pitch their claim on the basis of Article 14. Rule 3(7)(i) does not seek to include an interest free or concessional loan taken by one set of employees to the exclusion of others. The Rule does not also stipulate different methods of valuation of the perquisite. It does not seek to apply a uniform rate for different categories of persons irrespective of the huge difference in their pay pockets. Therefore, we are surprised as to how a ground of attack on the basis of Article 14 is raised. 37. If the employees of different banks, who are before us, are in enjoyment of an interest free or concessional loan, paying different rates of interest....
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....ship. Therefore, the third ground of challenge is also liable to be rejected. FOURTH GROUND OF CHALLENGE : 41. The fourth ground of challenge is that Rule 3(7)(i) is vitiated in as much as it tends to overrule the judgment of the Supreme Court in Arunkumar. 42. It is the contention of Mr.Srinath Sridevan, learned counsel for the petitioners that the Legislature cannot annul the judgment of a court. In support of this contention, the learned counsel places reliance upon the decisions of the Supreme Court in State of Tamil Nadu Vs. State of Kerala [AIR 2014 SC 2407] and S.T.Sadiq Vs. State of Kerala [2015 (4) SCC 400]. 43. But, we completely fail to understand as to how Rule 3(7)(i) can be said to have been brought into force with a view to overreach the judgment of the Supreme Court in Arunkumar. The judgment of the Supreme Court in Arunkumar was delivered on 15.9.2006. The decision arose out of a challenge to the validity of Rule 3 of the Income Tax Rules, 1962 and Section 17(2)(ii) of the Income Tax Act, 1961. The original cases were actually filed by the employees of Tata Iron and Steel Company Limited before the High Court of Jharkhand, challenging a Notification bearing No.....