2011 (9) TMI 728 - HC - Income Tax

Determination of perquisite value - Rule 3 - Where an employer takes residential premises on rent by giving security deposit for the benefit of employees, whether the notional interest on such security deposit is liable to be included in the perquisite value of the accommodation given to the assessee employee is the question raised in this appeal - on a plain reading of Rule 3, it is seen that the perquisite value of the residential accommodation provided by the employer is to be computed on actual amount of lease rental paid or payable by the employer and not on notional basis - the actual amount of lease rent paid by the employer is less than 10% of the salary of the Assessee and therefore, the decision of the ITAT in holding that the actual amount of lease rent paid by the employer should be taken into consideration while computing the perquisite value of the residential accommodation cannot be faulted - Appeal is dismissed

Summary

Issues:
1. Whether notional interest on a security deposit for residential premises provided by an employer should be included in the perquisite value of accommodation for an employee.

Analysis:
The case involved a salaried employee provided with rent-free accommodation in Mumbai by their employer, who had given an interest-free refundable security deposit to the landlord. The Assessing Officer enhanced the perquisite value of the accommodation by considering notional interest on the security deposit. However, the ITAT interpreted Rule 3 of the IT Rules, stating that the perquisite value should be the actual lease rent paid or 10% of the salary, whichever is lower, without factoring in notional interest. The ITAT held that determining the fair rental value was not necessary under the amended rules.

The Revenue argued that notional interest on the security deposit should be considered in computing the perquisite value. However, the Court referred to Rule 3 of the Income Tax Rules, which specifies that the value of residential accommodation should be based on the actual lease rent paid by the employer, not on a notional basis. The Court upheld the ITAT's decision, emphasizing that the perquisite value should be calculated based on the actual lease rent paid, especially when it is less than 10% of the employee's salary.

Ultimately, the Court dismissed the appeal, concluding that the ITAT's decision aligns with the amended Rule 3, and there was no merit in challenging the calculation of the perquisite value based on actual lease rent paid.