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TaxTMI 
TaxTMI 
TaxTMI 
2004 (3) TMI 24
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.... earlier writ petition. The petitioners seek for a declaration that section 17(2)(vi) of the Income-tax Act as inserted by the Finance Act 2001, is illegal and violative of articles 19(1)(g) and 246 of the Constitution of India, and a declaration that rule 3 of the Income-tax Rules, 1962, as substituted by the Income-tax (22nd Amendment) Rules, 2001 by the second respondent under its Notification No. 940(E), dated September 25, 2001, as illegal and unconstitutional being hit by the vice of excessive delegation of power besides being ultra vires the rule making power of the second respondent and to stay the operation of the aforesaid provisions. There are no detailed factual averments in the writ petitions supporting the contentions that the provisions are in any way arbitrary or illegal. However, among the grounds urged, it is averred that the amendment to rule 3 is arbitrary since it seeks to discriminate between Central/State Government employees on the one hand and the public sector and private sector employees on the other and that the same is without any reasonable classification and having no nexus with the object sought to be achieved. It is also averred that accommodation ....
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....for the year ended March 31, 2001, which came down to 8.64 per cent, for the year ended March 31, 2002. The annual report of the bank is produced as exhibit P2 in support of the said contention. In O.P. No. 8425 of 2002 also the petitioners are employees of another scheduled bank. In O.P. No. 6779 of 2002 the first petitioner is the Cochin Refineries Officers Association which is a registered and recognised Union and the second petitioner is the projects manager of the Kochi Refineries. In O.P. No. 10629 of 2003 the petitioner is the Dhanalakshmi Bank Officers' Organisation represented by its Deputy General Secretary and in O.P. No. 10767 of 2003 the Federal Bank Officers' Association represented by its general secretary is the petitioner. In O.P. No. 10768 of 2003 the petitioners are the officer employees in the employment of the Lord Krishna Bank. As I have already stated earlier, similar contentions are raised challenging the provisions of section 17(2) of the Income-tax Act and rule 3 of the Income-tax Rules. A counter affidavit is filed in O.P. No. 8425 of 2002 by the Additional Commissioner of Income-tax, on behalf of the respondents. With regard to the submissions advanced....
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....17(2) by an inclusive definition has defined the term "perquisite" to include the value of any rent free accommodation and also the value of any concession in rent for any accommodation provided to the employee by his employer. It is also contended that section 295(1) gives powers to the Central Board of Direct Taxes to make rules and section 295(2)(c) empowers the Board to frame rules and that the Board has powers to determine the value of any perquisite, which is chargeable under the Act. Likewise accommodation provided by the employer is also a perquisite. It is also stated that the rules framed as per section 295 are to be laid under section 296 of the Act before each House of Parliament so as to have a check whether any modification is required to be made with legislative sanction. For Government employees the value of perquisite in respect of accommodation provided was equal to the rent payable in accordance with the rules framed by the Government. In the case of semi Government employees rent free accommodation for the purpose of perquisite is taken as 10 per cent, of the salary or fair market value whichever is less. In the case of others, namely, private sector employees t....
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....his submissions which were advanced before the Karnataka High Court in the decision reported in Bhel Employees Association v. Union of India [2003] 261 ITR 15. Firstly, it is submitted by him that sub-clause (vi) of clause (2) of section 17 of the Act is required to be struck down on the ground that essential legislative function has been delegated to the executive and hence the same suffers from the vice of excessive delegation. It is his submission that the Legislature cannot allow the Board to prescribe or say what is fringe benefit or amenity and it is for the Legislature itself to state what they are. Even assuming that such a delegation is permissible in the instant case, there are no guidelines laid down for the executive to determine what is meant by "fringe benefits" or "amenity". Secondly, it is submitted that the impugned rule 3 of the Rules providing for various types of "fringe benefits" or "amenities" is arbitrary and unreasonable and discriminatory and violative of article 14 of the Constitution of India, in so far as there is discrimination between the Central or State Government employees on the one hand and public sector and private sector employees on the other. ....
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....curred for official purposes only and hence the procedure is wholly unwarranted and cumbersome and requires to be struck down as being unreasonable and arbitrary. It is their contention that the imposition of tax on the emoluments paid to a servant made available to the employee by its employer on the ground that either it is a perquisite or an amenity provided to the employee is liable to be struck down on the ground that it amounts to double taxation. Finally, it is submitted that rule 3 of the Rules is liable to be nullified on the ground that on the date of issue of the said notification, sub-clause (vi) of clause (2) of section 17 of the Act was not in the statute book and as such the Board had no authority to make the impugned rule. Learned counsel Sri P.K. Raveendranatha Menon, on the other hand, repelled the contentions raised by learned counsel for the petitioners. According to him, the challenge to section 17(2)(vi) of the Act and rule 3 of the Rules having been tested by different High Courts the constitutional validity was upheld for valid reasons after referring to the various provisions of the statute and the case law on the subject. He also reiterated the submission....
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....the ground of excessive delegation? Sub-clauses (i) to (v) of clause (2) of section 17 specify what are to be treated as perquisites. The definition itself is an inclusive definition. The value of rent free accommodation provided to the assessee by his employer, the value of concession in the matter of rent respecting any accommodation, the value of a benefit or amenity granted or provided free of cost are specifically included in the definition clause itself. As per sub-clause (vi) of section 17(2) the value of any other "fringe benefit" or "amenity" to be prescribed is included in the definition of "perquisite". Therefore, any value of fringe benefit or amenity would also come under the purview of the term "perquisite". Going by Webster's Encyclopaedic Unabridged Dictionary, the term "fringe benefit" means a benefit such as free life or health insurance, received by an employee in addition to his regular pay and "amenity" means the quality of being pleasing or agreeable in situation, prospect, disposition, etc. The meaning of the expression in other dictionaries also would show that what it actually means is an advantage obtained by an employee. It cannot, therefore, be said that....
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....ncome during the year ended on March 31, 2002. Therefore, it cannot be said that it is violative of any well-settled principle of computing income of previous year 2001-02 as per substantive law prevailing on April 1, 2002, by applying existing machinery provision. Finally, it was concluded that insertion of sub-clause (vi) in section 17(2) by the Finance Act, 2001, is not violative of any provisions of the Constitution or the parent Act, since only the valuation of other fringe benefits has been left to be detailed by the subordinate legislation, there is no abdication of essential legislative function and neither sub-clause (vi) of section 17(2) nor the amended rule 3 suffers from any invalidity. A Division Bench of the Allahabad High Court in P.N. Tiwari v. Union of India [2004] 265 ITR 224 also upheld the validity of section 17(2)(vi) of the Income-tax Act, 1961, following the decision of the Karnataka High Court in Bhel Employees' Association v. Union of India [2003] 261 ITR 15. Reference was also made to the decision of the Supreme Court in Amalgamated Tea Estate Co. Ltd. v. State of Kerala [1974] 94 ITR 479 and various other decisions relevant for consideration. In view of ....
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....ort the case of arbitrariness in action complained of. The Supreme Court, in the case of Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 552, observed that if the taxation, generally speaking, imposes a similar burden on every one with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not be open to attack on the ground of inequality, even though the result of the taxation may be that the local burden on different persons may be unequal. Therefore, if the Legislature has classified persons or properties into different categories, which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal. No doubt, it is true that taxation laws must also pass the test of article 14. In deciding whether taxation law is discriminatory or not it cannot be forgotten that the State has a wide discretion in the matter of selecting the persons or objects to be taxed. In Jaipur Hosiery Mills (P.) Ltd. v. State of Rajasthan [1970] 26 STC 341, the Supreme Court....
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.... occurring in sub-clause (vi) of clause (2) of section 17 of the Act has necessarily to be understood as conferring power on the rule-making authority to prescribe what is "fringe benefit" or amenity and it is not shown what is actually prescribed is not fringe benefit at all. It is also not shown that no benefit is conferred by the employer on its employees. In such circumstances, there is no merit in the contention that under clause (c) of sub-section (2) of section 295 of the Act the Board has no power to determine what is meant by "fringe benefit" or "amenity". The next contention advanced is that when loans are given or arranged by the employer without interest or at a concessional rate of interest the same cannot be taken as a perquisite up to the prescribed rate of 10 per cent, in respect of HRA and conveyance allowance and 13 per cent, in respect of other loans. If interest free loan is provided or loan is provided at concessional rate of interest by the employer to the employee certainly that would result in the benefit of the employee since he derives the benefit by such concession and reduces his financial liability. Therefore, it is the income in his hands. It cannot b....
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....r rate of interest in valuing fringe benefits in tune with market rates of interest and according to learned counsel Sri P.K. Raveendranatha Menon, this is an aspect which can be taken note of by the Central Board of Direct Taxes or by the assessing authority at the time of assessment. When as per rules 10 per cent, is fixed and any loan granted at interest rate below 10 per cent, has to be taken as a perquisite liable to be taxed, no discretion is vested with the Income-tax Officer and to consider as to whether the rate of interest on the loan provided by the employer has conferred any benefit or concession on its employees having due regard to the prevailing interest rate of any other financial institutions and banks for such type of loans is beyond his powers. According to the petitioner, when interest rates are varying from time to time fixing a particular percentage below which it is seems to be a perquisite has no rational basis. Unless it is shown that the employee has received any concession or benefit or that the rate of interest payable by the employee as per the rules is a concessional rate, that cannot be termed as a perquisite or amenity received or conferred on the em....