2012 (8) TMI 644 - AT - Income Tax

Non deduction of TDS on the value of perquisite of the rent free accommodation - accommodation provided to its employees for which it charges license fees - Held that - Section 17 defines salary to include perquisite to include the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer & Rule 3 provide for valuation of perquisites - The rules prior to 2001 were based on fair rental value of the accommodation and, therefore, AO was required to determine the fair market value of accommodation before arriving at a conclusion that the employer has given any perquisite to the employees. The submission of assessee is well founded and deserves to be accepted that concession under clause (ii) of subsection (2) of section 17 is a jurisdictional fact . It is only when there is a concession in the matter of rent respecting any accommodation provided by an employer to his employee that the mode, method or manner as to how such concession can be computed arises - If the assessee contends that there is no concession , the authority has to decide the said question and record a finding as to whether there is concession and the case is covered by section 17(2)(ii). Only thereafter the authority may proceed to calculate the liability of the assessee under the Rules, therefore, in spite of the legal position that Rule 3 is intra vires, valid and is not inconsistent with the provisions of the parent Act under section 17(2)(ii), it is still open to the assessee to contend that there is no concession in the matter of accommodation provided by the employer to the employee and hence the case did not fall within the mischief of section 17(2)(ii) of the Act As AO has nowhere held in the impugned order that any concession was given by the employer to its employees and they have provided the accommodation on a concessional rates and AO straightway applied Rule 3 without first establishing the case that the appellants have provided any concession in the shape of accommodation to its employees - no default under sec. 201(1) and 201(1A)- in favour of assessee.

Summary

Issues Involved:
1. Whether the university employees should be treated as State Government employees for the purpose of TDS on perquisites.
2. Whether the university provided accommodation to its employees at concessional rates, thereby attracting TDS on the value of perquisites under Section 17(2) of the Income-tax Act, 1961.

Detailed Analysis:

1. Treatment of University Employees as State Government Employees:
The appellants contended that university employees should be classified as State Government employees, arguing that the university is established under an Act of Parliament, receives 100% budgetary support from the State Government, and follows State Government rules for financial and service matters. They cited previous ITAT decisions where similar universities were treated under the category of State Government employees. However, the CIT(Appeals) rejected this contention, stating that the term "state" under Article 12 of the Constitution pertains to fundamental rights and does not influence tax matters under the Income-tax Act, 1961. The CIT(Appeals) concluded that the university is an autonomous body and its employees cannot be considered State Government employees.

2. Provision of Accommodation at Concessional Rates:
The Assessing Officer found that the university did not deduct TDS on the value of rent-free accommodation provided to its employees, as required under Section 17(2) of the Income-tax Act, 1961, read with Rule 3 of the Income-tax Rules, 1962. The Officer computed the perquisite value as 7.5% of the salary and raised demands for TDS and interest under Sections 201(1) and 201(1A) of the Act. The appellants argued that the accommodation was not provided at concessional rates and that the university's employees were not receiving any perquisite.

Tribunal's Findings:
The Tribunal reviewed the relevant provisions and previous ITAT decisions, including the case of Maharishi Dayanand University, where it was held that the university employees were not provided accommodation at concessional rates. The Tribunal noted that the Assessing Officer did not establish that the accommodation was provided at concessional rates before applying Rule 3. The Tribunal emphasized that the existence of a "concession" is a jurisdictional fact that must be established before computing the perquisite value.

The Tribunal referred to the Supreme Court's decision in Arun Kumar v. Union of India, which upheld the validity of Rule 3 but clarified that the rule applies only if there is a concession in the matter of rent. The Tribunal concluded that the Assessing Officer failed to establish that the university provided accommodation at concessional rates, thus rendering the demands under Sections 201(1) and 201(1A) invalid.

Conclusion:
The Tribunal allowed the appeals, holding that the university employees cannot be treated as State Government employees for TDS purposes and that the Assessing Officer did not establish that the accommodation was provided at concessional rates. Consequently, the appellants were not in default under Sections 201(1) and 201(1A) of the Income-tax Act, 1961.