2003 (9) TMI 44 - HC - Income Tax

Perquisite - different rates of taxation are prescribed in respect of different items - difference in valuation of rent-free accommodation between Government employee and other employee - A law of taxation cannot be termed as being discriminatory because different rates of taxation are prescribed in respect of different items, provided it is possible to hold that the said items belong to distinct and separate groups and that there is a reasonable nexus between the classification and the object to be achieved by the imposition of different rates of taxation - there is no any violation of article 14 of the Constitution there being difference in valuation of rent-free accommodation between Government employee and other employee

Issues Involved:
1. Interpretation of "concession in the matter of rent" under Section 17(2)(ii) of the Income-tax Act, 1961.
2. Validity of the rules for determining the value of rent-free accommodation and concessions.
3. Classification between pure Government employees and employees of Government-owned companies for tax purposes.

Detailed Analysis:

1. Interpretation of "Concession in the Matter of Rent":
The primary issue is the interpretation of "concession in the matter of rent" as per Section 17(2)(ii) of the Income-tax Act, 1961. The petitioners argued that unless there is a concession in the matter of rent, it would not be a perquisite. They contended that "rent" should be the amount payable, and any amount paid less than this would be considered a concession. The court noted that the previous rules and judgments had interpreted "rent" to mean the standard or normal rent fixed by the employer, particularly in cases involving Government-owned companies. The court referred to several judgments, including those from the Madhya Pradesh High Court and Andhra Pradesh High Court, which had held that if the rent paid by the employee is equivalent to the standard rent fixed by the employer, there is no concession.

2. Validity of the Rules for Determining the Value of Rent-Free Accommodation and Concessions:
The court examined the rule-making power under Section 295 of the Income-tax Act, which allows the Board to make rules for determining the value of any perquisite chargeable to tax. The previous rules categorized employees into three groups: pure Government employees, employees of Government-owned companies, and others. The new rules, effective from April 1, 2001, categorized employees into two groups: pure Government employees and non-Government employees. For Government employees, the value of rent-free accommodation is the licence fee determined by the Government. For non-Government employees, the value is a percentage of the salary (10% in certain cities and 7.5% in others). The court noted that the new rules explicitly address the method and basis of ascertaining the value of both rent-free accommodation and concessions, unlike the previous rules.

3. Classification Between Pure Government Employees and Employees of Government-Owned Companies:
The petitioners argued that there was no just reason for different standards for pure Government employees and employees of Government-owned companies. They contended that many employees of Government-owned companies occupy the same accommodations as pure Government employees and pay the same licence fees. The court, however, upheld the classification, noting that different rates of taxation are permissible if the items belong to distinct groups with a reasonable nexus to the object of the tax. The court observed that Government employees generally have lower incomes compared to employees of Government-owned companies, justifying the different standards. The court also emphasized that the nature of employment, job responsibilities, and entry into service are significantly different between the two groups, supporting the classification.

Conclusion:
The court dismissed the writ petitions, holding that the interpretation of "concession in the matter of rent" under the new rules is valid. The classification between pure Government employees and employees of Government-owned companies is reasonable and justified. The court stayed the operation of the judgment until the Supreme Court decides the transfer application filed by the petitioners.

← Previous Next →