2016 (6) TMI 386 - AT - Income Tax

Determination of perquisite value - Notional interest on deposit given by the employer with the landlord for securing the rented premises - whether is not to be treated as a perquisite? - Held that - Admittedly, the assessee s employer, i.e. M/s. Kotak Investment Advisors Ltd., had provided rent free accommodation to assessee for which it paid rent of ₹ 2,10,000/- and a deposit of ₹ 20,00,000/-. As per the records in Form No. 12BA, it was seen that the perquisite value of rent paid of ₹ 2,10,000/- was considered in the hands of the assessee. Respectfully following the decision of CIT vs. Shankar Krishnan (2011 (9) TMI 728 - Bombay High Court ), we hold that the contention of the authorities below that notional interest on the deposit paid by the employer to the landlord for securing accommodation while computing the perquisite value of the residential accommodation is to be included in the assessee s income is not sustainable in view of the express words used in Rule 3 of the I.T. Rules, 1962 as amended w.e.f. 01.04.2001 and accordingly direct the AO to delete the addition made in this regard. - Decided in favour of assessee.

Summary

Issues:
1. Whether notional interest on deposit given by the employer for securing rented premises should be treated as perquisite value.

Analysis:

Issue 1: Notional interest on deposit as perquisite value

The appeal was filed against the order of the CIT(A)-28, Mumbai, where the Assessing Officer (AO) had added an amount to the assessee's income, considering notional interest on a deposit given by the employer for securing rented premises as a perquisite. The CIT(A) upheld this addition, leading to the appeal. The key argument raised was based on a judgment of the Bombay High Court in the case of CIT vs. Shankar Krishnan, where it was held that notional interest on such deposits should not be included in the perquisite value. The assessee contended that since the issue was decided in their favor by the High Court, the addition of notional interest should be deleted.

The Tribunal carefully considered the facts and legal position. It noted that the employer had provided rent-free accommodation to the assessee, paying rent and a deposit. While the rent was considered a perquisite, the deposit was also sought to be included. Referring to the High Court judgment, the Tribunal held that as per Rule 3 of the Income Tax Rules, the perquisite value of residential accommodation should be based on actual lease rent paid, not on a notional basis. Therefore, the Tribunal concluded that notional interest on the deposit should not be treated as a perquisite value, in line with the High Court's decision.

In conclusion, the Tribunal allowed the assessee's appeal, directing the AO to delete the addition of notional interest as perquisite value. This decision was based on the express provisions of Rule 3 of the Income Tax Rules and the precedent set by the Bombay High Court judgment in a similar case. The appeal was allowed, and the addition was removed from the assessee's income for the relevant assessment year.

This comprehensive analysis highlights how the Tribunal interpreted the legal principles and applied the relevant case law to resolve the issue of whether notional interest on a deposit given by the employer for securing rented premises should be treated as a perquisite value. The decision was based on a sound understanding of the law and precedent, ensuring a fair outcome for the assessee.