TaxTMI 
TaxTMI 
2003 (9) TMI 44
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.... a judgment delivered by a Division Bench of the Jharkhand High Court and where his clients have filed an application for transfer of the case of his clients, which is also now been considered by me along with other matters. Despite knowledge of the fact that the Supreme Court is considering similar questions, I have decided to deal with the matter for it appeared to me, upon perusing the judgment of the Division Bench of the Jharkhand High Court, that the issues raised by the petitioners before me were not dealt with by the Jharkhand High Court. The purpose of delivering this judgment was to get what the petitioners and the respondents wanted to submit and to analyse the same in order to help reaching a right conclusion and, accordingly, I have assured Dr. Pal that even if I am not with him, I would stay the operation of the present judgment until such time the Supreme Court decides the transfer application made by Dr. Pal's clients. In simple terms, the issue before me is what is the meaning of "concession in the matter of rent" as provided for in clause (2) of sub-clause (ii) of section 17 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). Section 17(2), sub-cl....
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....ub-clause is payable at a particular amount and if anything less than that is paid, then the difference would be concession. But if the rent payable is the rent, which is being paid in fact, then there will be no concession and, accordingly, there would be no scope of ascertaining the value of perquisite. Learned counsel, therefore, submitted that the rent payable may vary from employer to employer. They submitted that when the landlord is, in fact, the Government, the rent payable in respect of the property is the rent which is fixed by the Government, for that cannot have any comparable price in the market. They submitted that when the tenancy is granted by any other person, he would grant such tenancy at a rent which is most beneficial to him and, accordingly, such rent would have a nexus with the market rent. Learned counsel, therefore, submitted that this is part of sub-clause (ii) of clause (2) of section 17 of the Act and should be read as such to give it a proper meaning. Learned counsel further submitted that this submission is the very foundation of the judgments referred to above, although those judgments were rendered when the rules for valuing such concession were dif....
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....ue of any perquisite chargeable to tax under this Act in such manner and on such basis as appears to the Board to be proper and reasonable;". The above provision makes it clear that while granting power to make rules without any restriction by sub-section (1) of section 295, the Legislature furnished, amongst others, an example as to in which direction such rule making power can be exercised and held out that such rule making power can be exercised for determination of value of any perquisite chargeable to tax under the Act and while doing so made it explicit that though the manner and basis of such valuation is left with the rule making authority, but the same should be proper and reasonable. In terms of such power, the previous rule, which was dealt with in the aforementioned judgment, had been made. Instead of setting out the same in the manner, it has been set out in the rules, I would set out the same categorywise. The first category would be the extent of the rule applicable to the Government employees and that is as follows: "Rule 3. For the purpose of computing the income chargeable under the head 'Salaries', the value of the perquisites (not provided for by way of monet....
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....e assessee shall be limited to such fair rental value;" The applicable rule in relation to other employees, as the same stood then, was as follows: "Rule 3, For the purpose of computing the income chargeable under the head 'Salaries', the value of the perquisites (not provided for by way of monetary payment to the assessee) mentioned below shall be determined in accordance with the following clauses, namely:-.... (a) The value of rent-free residential accommodation shall be determined on the basis provided hereunder, namely: (iii) in any other case,- (A) the value of rent-free residential accommodation, which is not furnished, shall ordinarily be a sum equal to ten per cent., of the salary due to the assessee in respect of the period during which the said accommodation was occupied by him during the previous year: Provided that--... (2) where the assessee claims, and the Assessing Officer is satisfied that the sum arrived at on the basis provided above exceeds the fair rental value of the accommodation, the value of the perquisites to the assessee shall be limited to such fair rental value;... Explanation 2.--For the purposes of sub-clause (iii), the fair rental value of ac....
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....pplicable to the employees of companies owned by the Government and of companies owned by such companies had not been defined and, on the other hand, what would be the fair rental value, in the case of others, had been defined, to my mind the question cropped up in the aforementioned judgments as to what should be the meaning of fair rental value used in the previous rule applicable to employees of companies owned by the Government and of companies owned by such companies. At this juncture I think it would be proper to refer to certain observations of the courts in the aforementioned judgments. The Madhya Pradesh High Court, after having noted the provisions of sub-clauses (i) and (ii) of clause (2) of section 17 of the Act and after having had noted the then rule 3, observed, inter alia, as follows: "Sub-clause (ii) of the definition of 'perquisite' in section 17(2) extends the meaning of that term by including therein 'the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer'. It is 'any concession in the matter of rent' which falls within this clause. If the employer gives no concession to the employee in the matte....
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....should be kept in mind that despite such pronouncement, the Madhya Pradesh High Court did not say that in every case the difference between ten per cent. of the salary and the rent actually paid should not be treated as perquisite. That made it explicit that in relation to every case, there may not be a fixation of the normal rent on the basis of the fundamental rules. The adoption of the concept of normal rent equivalent to fair rent by the Madhya Pradesh High Court in the facts and circumstances of that case on the basis of the rule then in force was quite justifiable. This judgment of the Madhya Pradesh High Court was then followed by the learned single judge of this court in the aforementioned judgment. The learned single judge as a fact recorded that the petitioners before his Lordship had been paying rent in accordance with the standard rent as fixed by the regulation of the bank in respect of the accommodation given by the bank. His Lordship then observed as follows: "In my view, the question of concession must be determined with reference to the nature of the accommodation provided, the normal rent payable in respect of such accommodation by other employees similarly situ....
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....rned. It is not disputed before us that the rent paid by all the employees is of uniform rate and there is no departure of any kind in favour of any of the employees." In the Division Bench judgment of this court it was also held that the concept of normal rent equivalent to fair rent was introduced for the purpose of ascertaining the value of the perquisite if any. It was thus held that if the normal rent is to be treated as fair rent for the purpose of ascertaining the value of the rent-free accommodation and if the employee concerned is paying the self-same rent, there is no question of concession. Similar view was expressed by the Andhra Pradesh High Court and a part of the judgment rendered by the Andhra Pradesh High Court, I think, clinches the issue. The same is as follows: "A reading of these two sub-rules will at once indicate the difference in treatment between the Government servant and others. In the case of Government servants, the rent-free accommodation is valued at the standard rent. Consequently, if accommodation is provided at standard rent, there will be no perquisite because the actual rent paid will not be less than the value of the rent-free accommodation, ....
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....p; Where the accommodation is No. unfurnished -------------------------------------------------------------------------------------------- (1) (2) (3) -------------------------------------------------------------------------------------------- (1) Where the accommodation is pro- Licence fee determined by Union or vided by Union or State Govern- &....
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....bsp; actually paid by the employee. -------------------------------------------------------------------------------------------- The present rule, thus, does not address exclusively to devise the method and basis of ascertaining the value of rent-free accommodation; it also addresses to devise explicitly the method and basis of ascertaining the value of concession in the matter of rent. While, however, doing so it made the value of concession explicit, which was implied in the previous rule. While devising the same it has categorised two types of employees. The first of them are pure Government employees and the second of them are all other employees. In addition to that, it categorised two types of accommodations-one provided by the Government and the other provided by all others. In so far as the Government employees, who have been provided Government accommodations, are concerned, the rule says that the value of rent-free a....
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....ure could have used the same in the section itself. That having not been done, the question that arises is whether the same can be read into it. In the ordinary parlance "rent" means periodical payment made for use of another's property, specially houses and lands. In other words, "rent" means charges for use of another's houses and lands. "Rent", in the present context, would, therefore, mean charges for using unfurnished accommodation provided by the employer to its employees. That such charges should be normal or fair or standardised, is not a sine qua non. If while construing "rent", as used in sub-clause (ii) of clause (2) of section 17 of the Act, it is assumed that the same means normal rent, fair rent as well as standardised rent, three possible situations will crop up, namely, rent comparable with market; rent, which has been adjudged to be fair; and rent, which has been standardised, which of these rents would then be taken note of ? The rent comparable with the market would always be higher than rent adjudged to be fair or standardised, then which one should be taken note of ? The question of ascertaining fair rent or standardising rent will arise when the quantum of ren....
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....his clients are exactly the same in relation to the same accommodations as are being charged from the pure Government employees and that has been fixed by the Government on the basis of the Fourth Pay Commission Report and the same has been asked to be adopted by the employers of his clients. He added that although the companies of which the petitioners are employees carry on commercial activities but each movement of their employer is controlled and directed by the Government. It was stated that when the Government decided to do away with for some time the leave travel concession available to its own employees, the Government asked the employers of the clients of Mr. Poddar to also do away with the same in the similar manner and the same was done. Mr. Poddar, therefore, submitted that there was, in fact, no difference between pure Government employees and employees of the Government companies. and of companies owned by such companies and, accordingly, it is unjust, if not discriminatory, for treating the licence fee of accommodations provided to Government employees by the Government as the value of rent-free accommodation and prescribing 10 per cent. or 7.5 per cent. as the value....
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.... away from the tax-net those who have less income and by charging more tax to those who have more income. Therefore, treating people having different income appears to be a settled principle. There cannot be any dispute that at least in one sphere, i.e., in the sphere of income Government employees are far below employees of the companies owned by the Government and of companies owned by such companies. In such circumstances, if a classification is made, I do not think that can be interfered with, for the courts do not act more readily in the matters pertaining to, economics in view of the complexity involved in the social and economic life of the community as has been observed by the Supreme Court in the judgment, referred to above. Furthermore, the entry into the service, the purpose of such entry, the job responsibility and the performance of such employees are so different that there cannot be any comparison with a pure Government employee and an employee of a Government company or of a company owned by such company. The apparent distinction, therefore, made between the Government employees and others in the rules cannot, therefore, be termed as discriminatory or unjust. The ....