TaxTMI 
TaxTMI 
2003 (2) TMI 48
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....the colony belonging to the BHEL. The first petitioner in Writ Petition No. 7205 of 2002 is Bharat Earth Movers Officers' Guild and the second petitioner is the assistant manager employed in the Bharat Earth Movers Ltd. (hereinafter referred to as "the BEML"). The first petitioner in Writ Petition No. 7206 of 2002 is the ITI Officers' Association and the second petitioner in the said petition is the assistant executive engineer in the employment of the Indian Telephone Industries (hereinafter referred to as "the ITI"). It is claimed by the BEML Officers' Guild and also by the ITI Officers' Association in these petitions that the associations have been constituted to secure and safeguard the legitimate, legal rights and privileges of its members. The petitioner in Writ Petition No. 8253 of 2002 is the All India State Bank Officers Federation, a trade union registered under the Trade Unions Act; and the petitioner in Writ Petition No. 8254 of 2002 is a deputy manager of the State Bank of India. It is the case of the petitioners that the respondents in these petitions are either Government of India companies, or banks or public sector enterprises and they are functioning unde....
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....to the employee or any member of his household by means of his employment. As a result of the said amendment 10 per cent. of the salaries and the standard rent fixed by the employer and the interest on housing loans/conveyance loans and also benefit of the services rendered by the servant made available by the employer, subject to certain conditions, are treated as income, for the purpose of computation of income-tax, in the hands of the employee. In the light of the amendment of the Rules as stated above, the management of the companies, banks or public sector undertakings have issued circulars/instructions notifying its employees that the value of perquisites for the purpose of income chargeable under the head "Salaries" will be calculated and deducted from the salary payable during January/February, 2002. It is the case of the petitioners that as a result of the amendment made to section 17(2) of the Act and rule 3 of the Rules for the purpose of computing the income chargeable under the head "Salaries", the value of the perquisites by way of: (a) Accommodation; (b) Free or concessional educational facilities (c) Interest-free or concessional loan (d) Value of free m....
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....is highly arbitrary, unreasonable and confers uncontrolled and unguided power on the executive and as such is violative of the rights guaranteed to the petitioners under article 14 of the Constitution of India. Secondly, they submitted that the impugned rule 3 of the Rules which provides for various types of "fringe benefits" or "amenities" is' also liable to be struck down on the ground that the said rule is highly arbitrary, unreasonable, discriminatory in nature and violative of the rights guaranteed to the petitioners under article 14 of the Constitution of India. Elaborating this submission, learned counsel pointed out that there cannot be any discrimination between the Central or State Government employees on the one hand, and the public sector and private sector employees on the other. They also submitted that prior to issue of the impugned notification, the Central Government employees as well as the State Government employees and the employees of public sector undertakings were treated alike and there being no substantial change in their status, it was not permissible to have made distinction between the Central Government and the State Government employees on the one hand....
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....he salary of the employee. When the salary of an employee goes up, while he remains in the same accommodation, the value of the perquisite will go up correspondingly resulting in serious hardship to the employee and under these circumstances, a fair and reason able rule for computation of perquisites which stood the test of the time, should not have been replaced by unreasonable and arbitrary rules. In support of this submission, learned counsel relied upon the decisions of the Supreme Court reported in the case of State of Maharashtra v. Manubhai Pragaji Vashi, AIR 1996 SC 1, in the case of E.P. Royappa v. State of Tamil Nadu, AIR 1974 SC 555, in the case of Maneka Gandhi v. Union of India, AIR 1978 SC 597, in the case of R.K. Garg v. Union of India [1982] 133 ITR 239 (SC) and in the case of Federation of Hotel and Restaurant Association of India v. Union of India [1989] 178 ITR 97 (SC). Thirdly, they submitted that under clause (c) of sub-section (2) of section 295 of the Act, the Board is authorised to determine the value of any fringe benefit chargeable under the Act in such manner and on such basis as appears to the Board to be appropriate and reasonable and in the absence of ....
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....bmitted that the impugned rule, which provides that the entire cost of travel incurred by the employer to the spouse of the employee should be treated as a perquisite, is also highly unreasonable and arbitrary. According to learned counsel, the travel is undertaken by the employee at the behest of the employer and no benefit whatsoever is derived by the employee, and the spouse accompanies the employee on many occasions in discharge of social obligations of the employer in other countries. It is their sixth submission that the impugned rule provides for extremely impractical, cumbersome procedure with regard to the use of motor cars provided by the employer to his/its employees inasmuch as the employee having to maintain complete details of journey undertaken for official purpose including the date of travel, destination, mileage and the amount of expenditure incurred thereon; and the employee has to give a certificate that the expenditure was incurred for official purposes and the supervising authority of the employee is also required to give a certificate to that effect that the expenditure was incurred for official purposes. This procedure, learned counsel pointed out, is wholly....
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....be "fringe benefit" or "amenity" by means of a rule, is conferred on a very high body like the Board, which is familiar in the matter of collection of State revenue. It is his further submission that while sub-clauses (i), (ii), (iii), (iv) and (v) of clause (2) of section 17 of the Act prescribe specific items of perquisites, sub-clause (vi) of clause (2) of section 17 of the Act provides a residuary clause bringing into operation so as to apply to all types of perquisites. In support of this submission, he relied upon the decision of the Supreme Court in the case of Municipal Corporation of Delhi v. Birla Cotton Spinning and Weaving Mills, AIR 1968 SC 1232, in the case of Supreme Court Advocates-on-Record Association v. Union of India, AIR 1994 SC 268 and also in the case of Agricultural Market Committee v. Shalimar Chemical Works Ltd., AIR 1997 SC 2502 and drew my attention to paragraphs 26 and 27 of the said judgment. Sri Sheshachala further submitted that there is no merit in the submission of learned counsel appearing for the petitioners that the Board being the delegated body of the Legislature, has no power to act to name the items of perquisites; and power conferred is onl....
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....as the State Government employees are concerned, KCSR rules are made applicable; and whereas, in so far as other employees of public sector and private sector undertakings are concerned, fixed rate of 7.5 per cent. and 10 per cent. has been fixed and this rate is approximately commensurate with the HRA granted to those employees who are not provided with the house. Therefore, he submits that the classification of employees of public sector and private sector undertakings with that of the Government employees is in consonance with the object and policy of the Central Government. In support of this submission, he relied upon the decision of the Supreme Court in the case of Ram Krishna Dalmia v. Justice S.R. Tendolkar, AIR 1958 SC 538 and AIR 1958 SC 44 (sic). It is his submission that in the impugned rule 3 of the Rules, the discretion of the Assessing Officer is removed and uniformity is brought about and procedure of valuing property both by valuing of similar accommodation located in the vicinity and determination of municipal value, whichever is less is dispensed with providing a simple procedure; and, therefore, the petitioners cannot have any grievance on that account. Sri Shes....
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.... the hands of the employee is concerned, he pointed out that since the petitioners have not raised any pleading in this regard in any of the petitions, the petitioners should not be permitted to raise this contention. He further pointed out that under section 4(1) of the Act, income shall be charged on every person and, therefore, the income arising in the hands of the servant will be charged as tax or exempted as per the status of that person; the employee is taxed in so far as the perquisite which is equivalent to the monetary benefit the employee receives, and, therefore, there is no question of double taxation. With regard to the last contention of learned counsel appearing for the petitioners that rule 3 substituted with effect from April 1, 2001, is beyond the rule-making authority, as section 17(2)(vi) of the Act came into effect only from April 1, 2002, is concerned, Sri Sheshachala pointed out that section 17(2)(vi) came into effect by virtue of the Finance Act, 2001, which has received the assent of the President on May 11, 2001, and the same gave effect to the proposal of the Central Government for the financial year 2001-02. He further pointed out that sections 2 to 101....
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....ection (1) of section 295 of the Act confers power on the Board, subject to the control of the Central Government by issue of a notification in the Gazette of India, to make rules for carrying out the purposes of the Act. Sub-section (2) of section 295 of the Act further pro vides that without prejudice to the generality of the power conferred on the Board under sub-section (1) of section 295 of the Act, the Board could make rules in respect of various matters provided under clauses (a) to (p) of sub section (2) of section 295 of the Act. Clauses (a), (c) and (p), on which reliance is placed by learned counsel, appearing for the respondent in support of his plea that the power is conferred on the Board to frame rule 3 of the Rules, read as follows: "295. (2)(a) the ascertainment and determination of any class of income; (c) the determination of the value 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;... and (p) any other matter which by this Act is to be, or may be, prescribed." Now, let me examine each of the contentions advanced by learned counsel appearing for the petitioners. ....
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....lature must retain in its own hands the essential legislative functions and what can be delegated is the task of subordinate legislation necessary for implementing the purposes and objects of the Act concerned." "26. The principle which, therefore, emerges out is the essential legislative function consists of the determination of the legislative policy and the Legislature cannot abdicate essential legislative function in favour of another. Power to make subsidiary legislation may be entrusted by the Legislature to another body of its choice but the Legislature should, before delegating, enunciate either expressly or by implication, the policy and the principles for the guidance of the delegates. These principles also apply to taxing statutes. The effect of these principles is that the delegate which has been authorised to make subsidiary rules and regulations has to work within the scope of its authority and cannot widen or constrict the scope of the Act or the policy laid down thereunder. It cannot, in the garb of making rules, legislate on the field covered by the Act and has to restrict itself to the mode of implementation of the policy and purpose of the Act." In the case....
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....s wherever necessary is one of the purpose for which a scheme can be framed under section 16(1) of the Act. It is also true that incidental, consequential and supplementary matters as are necessary to give full effect to the scheme are also authorized under clause (j) of sub-section (1) of section 16. It has also to be borne in mind that scheme and every amendment to a scheme framed under section 16 shall be laid as soon as may be after its is made before each House of Parliament. The last provision is indicative of the power of superintendence that the Legislature maintains over the subordinate legislation or scheme framed by the delegate under the authority given under the Act.... But we must bear in mind the observations of Mukherjee J. in The Delhi Laws' case [1951] SCR 747; AIR 1951 SC 332 to the following effect: 'The essential legislative function consists in the determination or choosing of the legislative policy and of enacting that policy into a binding rule of conduct. It is open to the Legislature to formulate the policy as broadly and with as little or as much details as it thinks proper and it may delegate the rest of the legislative work to a subordinate authority....
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....to the executive to determine what could be treated as "fringe benefit" or "amenity". "Fringe benefit" or "amenity" has its natural and commercial meaning. The law dictionaries also have explained what is "fringe benefit" and "amenity". According to Webster's Encyclopedic Unabridged Dictionary, "fringe benefit" means--a benefit, as free life of health insurance, received by an employee in addition to his regular pay, "amenity" means--the quality of being pleasing or agreeable in situation, prospect, disposition, etc.; according to Thorndike Barnhart World Book Dictionary, "fringe benefit" means--any benefit given to employees in addition to wages and compensations required by law like paid holidays and vacations, and recreational facilities, "amenity" means--...a pleasant feature, a thing which makes life easier; according to Chambers 20th Century Dictionary, "fringe benefit" means something in addition to wages or salary that forms part of the regular remuneration from one's employment. According to Stroud's judicial Dictionary "amenity" means--pleasant circumstances or features, advantages. Therefore, the words "fringe benefit" or "amenity" are well understood, both in daily and ....
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....t, and whether guidance has been given in a particular case or not, depends upon on a consideration of the provisions of the particular Act with which the court has to deal including its preamble. It is further held in the said decision that the nature of the body to which delegation is made is also a factor to be taken into consideration in determining whether there is sufficient guidance in the matter of delegation and what form the guidance should take is again a matter which cannot be stated in general terms and it will depend upon the circumstances of each statute under consideration. Whenever a challenge is made on the ground that a provision of the statute suffers from vice of excessive delegation, the question that is required to be considered by the court is whether the "legislative will" has been exercised or not; and once it is established that the Legislature itself has willed that a particular thing be done and that it has merely left the execution of it to a chosen instrumentality, there can be no question of excessive delegation. In my view, in the present case, there is sufficient guidance both for the meaning that is required to be attached to the words "fringe ben....
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....d together from others that are left out of the group? (2) the basis of differentiation has any rational nexus or relation with the object sought to be achieved? It is well settled that differentiation is not always discriminatory, and if there is a rational nexus on the basis on which differentiation is made with the object sought to be achieved by a particular provision, then such differentiation is not discriminatory and does not violate the principles enshrined under article 14 of the Constitution of India. Whether the same result or better results could have been achieved? and whether basis of differentiation could have been evolved? are all matters which are in the domain of the Legislature and it must be left to its wisdom. The court cannot proceed to examine it with mathematical exactitude. While now it is well accepted that the taxing laws are not outside the purview of article 14 of the Constitution of India, however, the Legislature enjoys a wide latitude in the matter of selection of persons, subject matter, events, etc., for taxation in view of the fact that wide variety of diverse economic criteria goes into the formation of fiscal policy; and, therefore, tests of ....
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....ticular kind and extent of property, on the same basis of taxation, the law shall not be open to attack on the ground of in equality, even though the result of the taxation may be that the total burden on different persons may be unequal. Hence, 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. Similarly, different kinds of property may be subject to different rates of taxation, but so long as there is a rational basis for the classification, article 14 will not be in the way of such a classification resulting in unequal burdens on different classes of properties. But if the same class of property similarly situated is subjected to an incidence of taxation, which results in inequality, the law may be struck down as creating an inequality amongst holders of the same kind of property. It must, therefore, be held that a taxing statute is not wholly immune from attack on the ground that it infringes the equality cla....
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....ourt on the matter have permitted the Legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes. But, with all this latitude, certain irreducible desiderata of equality shall govern classifications for differential treatment in taxation laws as well. The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class. But this alone is not sufficient. Differentia must have a rational nexus with the object sought to be achieved by the law. The State, in the exercise of its Governmental power, has, of necessity, to make laws operating differently in relation to different groups or class of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. It is also recognised that no precise or set formulae or doctrinaire tests or precise scientific principles of exclusion or inclusion are to be applied. The test could only be one of palpable arbitrariness applied in the context o....
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.... disposition of public revenues. Yet, we are urged to direct the States either to alter drastically the present system or to throw out the property tax altogether in favour of some other form of taxation. No scheme of taxation, whether the tax is imposed on property, income, or purchases of goods and services, has yet been devised which is free of all discriminatory impact. In such a complex arena in which no perfect alternatives exist, the court does well not to impose too rigorous a standard of scrutiny lest all local fiscal schemes become subjects of criticism under the Equal Protection Clause." In the case of ITO v. N. Takin Roy Rymbai [1976] 103 ITR 82; [1976] 3 SCR 413, the Supreme Court has observed as follows: "In the present case, the bases of classification cannot be said to be arbitrary or unintelligible nor as being without a rational nexus with the object of the law. A hotel where a unit of residential accommodation is priced at over Rs. 400 per day per individual is, in the legislative wisdom, considered a class apart by virtue of the economic superiority of those who might enjoy its custom, comforts and services. This legislative assumption cannot be condemned ....
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....ice conditions of these employees which includes, leave, salary and other allowances are different and varied. The classification of these two groups of employees cannot be dubbed as one unreasonable, arbitrary and discriminatory in nature or lacks rationality. The petitioners have failed to show by placing necessary materials that all of them are similar, identically situated without there being any difference whatsoever. Further, I find considerable force in the submission of Sri Sheshachala that rule 3(1) of the Rules has prescribed rate of rent-free accommodation of Central and State Government employees in terms of the provisions contained in article 309 of the Constitution of India and the service conditions of Central and State Government employees are governed by the regulations framed by the President of the Union of India and the Governors of the States, respectively; and, therefore, in so far as the Central Government employees, regulations are framed as per HRA and CCA Rules and so far as State Government employees are concerned, they are governed by the KCSR Rules; and in this background, if so far as employees of public sector undertakings as well private sector emplo....
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....14 of the Constitution of India. However, the question is whether the impugned rule is violative of the right to equality guaranteed to the petitioners under article 14 of the Constitution of India? As noticed by me earlier, it is not. The next question is as to whether there is any merit in the third contention of learned counsel for the petitioners that under clause (c) of sub-section (2) of section 295 of the Act, the Board is authorised to determine only the value of any fringe benefit chargeable under the Act; and there is no power conferred on the Board to determine what is meant by "fringe benefit" or "amenity"? I am unable to find any merit in this submission. As noticed by me earlier while dealing with the first contention, I have taken the view that sub-clause (vi) of clause (2) of section 17 of the Act provides for determination of what is meant by "fringe benefit" or "amenity", by means of prescription in the Rules. The provisions contained in section 295(2)(c), in my view, are wide enough to empower the Board to frame Rules for the purpose of identifying the types of "fringe benefits" or "amenities". Sub-clause (vi) of clause (2) of section 17 of the Act confers res....
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....t relieves the employee of his liability to pay interest on such loans if the employee is required to raise the loan from an outside agency. While it reduces his financial liability, it will have to be considered as an income saved. In that event it could undoubtedly be treated as "fringe benefit" or "amenity" given to the employee. I am of the view that the principle enunciated by the Supreme Court in the case of V.M. Salgaocar and Bros Pvt. Ltd. [2000] 243 ITR 383 that the interest-free loans advanced or the loans advanced at the concessional rate of interest by the employer to its employees cannot be treated as a perquisite, has no application to the facts of the present case. The Supreme Court in the said decision, after approving the observation made by the Calcutta High Court in the case of CIT v. P.R.S. Oberoi [1990] 183 ITR 103, had taken the said view in the background of the fact situation where the provisions similar to sub-clause (vi) of clause (2) of section 17 of the Act which was initially introduced in the Act, subsequently came to be repealed and as such the interest-free loans or the loans at the concessional rate of interest cannot be treated as perquisite. Intro....
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....poration of India is able to grant loans to banks at 7 per cent. interest per annum for meeting its voluntary retirement liability, the rate of interest to be calculated at 10 per cent. as prescribed in the impugned rule, is liable to be struck down as being highly unreasonable and arbitrary. There is also no merit in the fifth submission made by learned counsel for the petitioners that the entire cost of travel incurred by the employer to the spouse of the employee cannot be treated as "fringe benefit" or "amenity" on the ground that the employee undertakes the travel at the behest of the employer and as such no benefit whatsoever is derived to the employee; and the spouse accompanies the employee on many occasions in discharge of the social obligations of the employer in other countries. The employee is given the option to take his spouse when he travels and if the cost of the travel of the spouse of the employee is met by the employer, in my view, the said cost has to be treated as either "fringe benefit' or "amenity" extended to the employee. There is no relationship of master and servant between the spouse of the employee and the employer of the employee, and the employer c....
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.... respect of the perquisite, which is equivalent to the monetary benefit, he receives. If the services of a servant are not made available to the employee by his employer, the employee will have to spend from his/her pocket for the salary of a servant, if he/she intends to have one. Further, if the employee does not intend to have one, it is open to him/her not to have the services of a servant from his employer. It is optional. Therefore, I am unable to find any merit in the submission of learned counsel for the petitioners that adding of salary of the servant provided by the employer deputed to the residence of the employee would amount to double taxation. The one other contention that remains to be considered is whether rule 3 of the Rules which was substituted with effect from April 1, 2001, is required to be declared as illegal on the ground that it was beyond the power of rule-making authority, as sub-clause (vi) of clause (2) of section 17 of the Act came into effect only from April 1, 2002, as contended by learned counsel for the petitioners. I do not find any merit in this submission also. The incorporation of sub-clause (vi) of clause (2) of section 17 of the Act was wi....