2012 (8) TMI 201 - HC - Income Tax

Treatment to tax paid on the facility of rent free accommodation by the employer - taxable or exempt ? - Held that - The combined reading of Rule 3 of Income Tax Rules, 1962 with Section 17(2)it excludes the tax components borne in respect of the perquisite and rent free accommodation paid by the employer - benefit given by this Court in CIT v. Telsuo Mitera 2012 (6) TMI 88 - DELHI HIGH COURT to assessee - decided against revenue.

Summary

Issues:
Whether the tax paid on rent-free accommodation provided by the employer is taxable or exempt under section 10(10CC) of the Income Tax Act.

Analysis:
The High Court considered the appeal by the Revenue against the decision of the Income Tax Appellate Tribunal (ITAT) regarding the tax treatment of rent-free accommodation provided by the employer. The CIT (Appeals) had held that a specific sum claimed as exempt by the assessee related to non-monetary benefits and should be exempt under section 10(10CC) of the Income Tax Act. However, the Assessing Officer (AO) contended that the rent-free accommodation should be considered a monetary benefit, and therefore, the tax paid by the employer on this benefit is not eligible for exemption and should be grossed up. The Court referred to Rule 3 of the Income Tax Rules, 1962, which excludes tax components borne by the employer in respect of perquisites and rent-free accommodation. This position was reinforced by a previous judgment in CIT v. Telsuo Mitera and other connected cases. Consequently, the Court dismissed the Revenue's appeal, affirming that the tax paid on the rent-free accommodation is exempt and should not be grossed up.

This judgment clarifies the tax treatment of rent-free accommodation provided by an employer and the applicability of section 10(10CC) of the Income Tax Act. It emphasizes the distinction between monetary and non-monetary benefits and highlights the significance of Rule 3 of the Income Tax Rules, 1962 in determining the tax liability on such perquisites. The decision provides a clear interpretation of the law in this context and sets a precedent for similar cases involving the taxation of employer-provided accommodations.