2015 (7) TMI 170 - AT - Income Tax

Perquisite value for provision of accommodation at concessional rent - income from salary - difference between the market rent and the rent actually paid by the assessee is a perquisite within the meaning of section 17(2)(ii) or a benefit within the meaning of section 2(24)(iv) - CIT(A) appreciating the fact that the assessee has been residing in the bungalow by paying a meager rent in his capacity as a Chairman because of the existence of employer-employee relation and not as a protected tenant, th8s deleted addition - Held that - After considering the assessee s reply with respect to each and every aspect, the ld. CIT(A) recorded his findings that the assessee was occupying house as per the independent rent agreement for which the assessee was paying standard rent and no benefit accrued to the assessee in his capacity of employee, when the assessee was independently receiving the HRA from his employer for not providing the accommodation. The findings recorded by the ld. CIT(A) are as per the material available on record which has not been controverted by the Department. The conclusion drawn in the impugned order of the ld. CIT(A), discussion made in the assessment order, contentions of the ld. Counsel for the assessee & Revenue, and material available on record are kept in justaposition and analyses, we find that no benefit accrued to in the hands of the assessee in the form of perquisite. Accordingly, we do not find any reason to interfere with the findings recorded by the ld. CIT(A) which resulted into the deletion of addition made on account of perquisite in the hands of the assessee. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition by CIT(A) regarding the difference between market rent and rent paid by the assessee.
2. Determination of whether the assessee was residing in the property as a Chairman due to employer-employee relationship or as a protected tenant.
3. Examination of the reality of the situation after lifting the corporate veil.

Detailed Analysis:

1. Deletion of Addition by CIT(A):
The Revenue contested the deletion of an addition of Rs. 1,33,26,143 by CIT(A), arguing that the difference between the market rent and the rent actually paid by the assessee should be considered a perquisite under section 17(2)(ii) or a benefit under section 2(24)(iv). The AO observed that the assessee resided in a property owned by M/s. Cipla Ltd. by paying a meager rent of Rs. 1,670, which was significantly lower than the market rent. The AO added the difference as a perquisite. However, the CIT(A) deleted this addition, noting that the assessee was a tenant under a valid agreement dated 23.8.1978, and the rent should be determined based on the standard rent as per the Bombay Rent Act, 1947, and Maharashtra Rent Control Act, 1999. The CIT(A) concluded that no additional benefit or perquisite was derived by the assessee.

2. Employer-Employee Relationship vs. Protected Tenant:
The Revenue argued that the assessee resided in the bungalow due to his position as Chairman and not as a protected tenant. However, the CIT(A) found that the employer-employee relationship and landlord-tenant relationship could coexist independently. The agreement allowed the assessee to occupy the premises as a tenant with an option to purchase the property later. The CIT(A) noted that any benefit from the right to purchase would accrue either when the right was granted or exercised, neither of which occurred in the relevant assessment year. Therefore, no additional benefit accrued to the assessee in the year under appeal.

3. Lifting the Corporate Veil:
The Revenue contended that lifting the corporate veil would reveal the true nature of the assessee's occupancy. However, the CIT(A) observed that the tenancy agreement was valid and independent of the employment contract. The assessee paid standard rent, and there were no legal grounds to evict him. The CIT(A) emphasized that the standard rent is not nominal but a fair measure for calculating income from house property. The deemed perquisite value under section 17(2)(ii) could only be invoked if the accommodation was provided by the employer, which was not the case here, as the assessee occupied the property as a tenant.

Conclusion:
The CIT(A) thoroughly examined the objections raised by the AO and found that the assessee occupied the property under a valid tenancy agreement, paying standard rent. The assessee also received HRA from Cipla, which was fully taxed. The CIT(A) concluded that no benefit accrued to the assessee in the form of a perquisite. The appellate tribunal upheld the CIT(A)'s findings, noting that the Department did not provide sufficient evidence to controvert the material on record. Consequently, the appeal of the Revenue was dismissed.

Order:
The appeal of the Revenue is dismissed, and the order was pronounced in the open court on 21st January 2015.