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Issues involved: Interpretation of provisions of the Income Tax Act regarding the treatment of rent paid by employees as a perquisite for income tax deduction.
The judgment of the High Court of Madhya Pradesh addressed a petition filed by an Officers' Association and an officer of Bhilai Steel Plant regarding the treatment of rent paid for quarters as a perquisite for income tax deduction. The petitioners argued that the difference between the rent paid and 10% of the salary should not be considered a perquisite for income tax purposes. The Income Tax authorities denied issuing any specific instructions but maintained that the correct legal position supported treating the difference as a perquisite. The court decided to address the issue under Article 226 of the Constitution due to its significance for a large number of employees and the interpretation of relevant provisions of the Income Tax Act and Rules. The court analyzed Section 17(1) and (2) of the Income Tax Act which define "salary" and "perquisite" respectively. It also considered Rule 3 of the Income Tax Rules which deals with the valuation of perquisites, specifically regarding rent-free accommodations and concessional rent. The court emphasized that the determination of whether an employee is receiving a concession in rent depends on factors such as the normal rent for the accommodation and the rent actually paid by the employee. The court clarified that the rule for valuing perquisites cannot be used to determine whether an employee is actually receiving a perquisite. It concluded that the management of the plant was incorrect in treating the difference between rent paid and 10% of salary as a perquisite for income tax deduction in all cases. In its decision, the High Court allowed the petition, directing the authorities not to treat the rent paid as a perquisite for income tax deduction in every case. The court also ordered the refund of the security amount to the petitioners, with no costs imposed on the petitioners.
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