2012 (6) TMI 88 - HC - Income Tax

Income u/s 2(24) - Whether the tax paid by the employer is a perquisite within the meaning of Section 17(2) and, therefore, in terms of Rule 3 of the Income Tax Rules, 1962 cannot be taken into consideration for computing value of the perquisite rent free accommodation - held that - The definition of income in clause (24) of Section 2 of the Act is an inclusive definition. It adds several artificial categories to the concept of income but on that account the expression income does not loss its natural connotation. Indeed, it is repeatedly said that it is difficult to define the expression income in precise terms. Anything which can properly be described as income is taxable under the Act unless, of course, it is exempted under one or the other provision of the Act. Under the then applicable Rule 3 value of perquisite rent free accommodation has to be calculated. The underlined portions above support and affirm our findings. - Rule 3 has undergone change/ amendment with effect from 01.04.2001 and as per the amended Rule, perquisite under Section 17(2) has to be excluded for the purpose of computing perquisite value of rent free accommodation . - Decided against the revenue.

Issues Involved:
1. Whether the tax paid by the employer is a "perquisite" within the meaning of Section 17(2) of the Income Tax Act, 1961.
2. Whether the tax paid by the employer can be considered for computing the value of the perquisite "rent-free accommodation" under Rule 3 of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Tax Paid by the Employer as a "Perquisite":
The central issue is whether the tax paid by the employer on behalf of the employee qualifies as a "perquisite" under Section 17(2) of the Income Tax Act, 1961. Section 17(2) includes various benefits under the term "perquisite," such as rent-free accommodation and any sum paid by the employer in respect of any obligation payable by the employee. The court emphasized that the definition of "perquisite" is inclusive and expansive, covering benefits or advantages received by the employee in addition to their regular salary or wages.

The judgment referenced previous cases, including Frank Beaton v. Commissioner of Income Tax and T.P.S Scott v. Commissioner of Income Tax, which held that the payment of income tax by the employer is a perquisite under Section 17(2)(iv). This interpretation aligns with the definitions provided in legal dictionaries and previous judicial decisions, which describe "perquisite" as a benefit incidental to employment, beyond regular salary or wages.

2. Computing Value of Perquisite "Rent-Free Accommodation":
The second issue pertains to whether the tax paid by the employer should be considered when computing the value of the perquisite "rent-free accommodation" under Rule 3 of the Income Tax Rules, 1962. Rule 3 specifies the valuation of perquisites for computing income chargeable under the head "Salaries." Clause (vi)(d) of Rule 3 explicitly states that the term "salary" for the purpose of Rule 3 does not include the value of perquisites specified in Section 17(2) of the Act.

The court clarified that the payment of income tax by the employer is an obligation of the employee, which, when paid by the employer, falls within Section 17(2)(iv) and is thus considered a perquisite. Consequently, this perquisite should be excluded from the computation of the value of rent-free accommodation as per Rule 3. The judgment cited several precedents and legal interpretations to support this conclusion, affirming that the tax component paid by the employer is a perquisite and should not be included in the salary for calculating the value of rent-free accommodation.

The court also referenced the case of Mitsubishi Corporation v. Commissioner of Income Tax, which addressed similar issues and concluded that perquisites in the form of tax-free salary are part of the gross salary under Section 17(1) of the Act. However, the court noted that Rule 3 had undergone amendments effective from 01.04.2001, which necessitated the exclusion of perquisites under Section 17(2) for computing the value of rent-free accommodation.

Conclusion:
The court concluded that the tax paid by the employer on behalf of the employee is indeed a perquisite under Section 17(2)(iv) of the Income Tax Act, 1961. As such, it should be excluded when computing the value of the perquisite "rent-free accommodation" under Rule 3 of the Income Tax Rules, 1962. Consequently, the appeals were dismissed, and no substantial question of law was found to arise for consideration.

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