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2017 (6) TMI 292 - AT - Income TaxAddition on account of rent free accommodation provided to the assessee which was valued u/s. 28(iv) - Held that - The assessee is a part-time director in the company from 01.04.2005 and he was not given any salary by POL. Admittedly the assessee was given rent free accommodation by POL in the capacity of director. From the submission of Ld. AR, we find that assessee was acting as a part-time director as well as employee in the company as evident from the meeting of Board of Directors which is placed on pages 7 and 8 of the paper book filed along with CO No.3/Kol/2015. As the assessee was not drawing any salary from POL then in our considered view the perquisites cannot be determined in terms of the provision of Sec. 17(2) r.w.r. 3 of the Rules. The perquisites of rent free accommodation can be determined only in pursuance of the provisions of section 23(1)(a) of the Act which requires to determine the same as per the guidelines of Municipal Corporation in the above facts & circumstances. Thus, the value of rent free accommodation determined by the AO on the rent fetched by the property in the earlier years for ₹ 96 lacs cannot applied in the case before us. In view of above, we find no infirmity in the order of ld. CIT(A). Hence the ground of appeal of the Revenue is dismissed.
Issues Involved:
1. Taxability of rent-free accommodation provided to the assessee. 2. Determination of the value of rent-free accommodation. 3. Applicability of Section 28(iv) of the Income Tax Act, 1961. 4. Applicability of Section 2(24)(iv) of the Income Tax Act, 1961. 5. Applicability of Section 17(2) of the Income Tax Act, 1961 read with Rule 3 of the Income Tax Rules, 1962. 6. Determination of annual value under Section 23(1) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Taxability of Rent-Free Accommodation Provided to the Assessee: The primary issue was whether the rent-free accommodation provided by M/s Prabhukripa Overseas Ltd. (POL) to the assessee, who was a part-time director, should be taxed. The Assessing Officer (AO) had added ?96 lakh to the assessee's income under Section 28(iv) of the Income Tax Act, 1961, arguing that the value of the rent-free accommodation was a taxable benefit. 2. Determination of the Value of Rent-Free Accommodation: The AO determined the value of the rent-free accommodation based on the rent received by POL for the flat in the financial year 2002-03, which was ?96 lakh. However, the assessee argued that this value was not representative of the current market value and provided municipal valuations to support a lower valuation. 3. Applicability of Section 28(iv) of the Income Tax Act, 1961: The AO applied Section 28(iv), which taxes the value of any benefit or perquisite arising from business or the exercise of a profession. The CIT(A) and the Tribunal found that this section was not applicable as there was an employer-employee relationship between the assessee and POL, and the assessee was not engaged in any business or profession. 4. Applicability of Section 2(24)(iv) of the Income Tax Act, 1961: Section 2(24)(iv) includes in the definition of income the value of any benefit or perquisite obtained from a company by a director. The Tribunal acknowledged that the benefit derived by the assessee as a director was taxable under this section but needed proper valuation. 5. Applicability of Section 17(2) of the Income Tax Act, 1961 read with Rule 3 of the Income Tax Rules, 1962: The AO initially considered Section 17(2) and Rule 3, which deal with the valuation of perquisites provided by an employer. However, since the assessee did not draw any salary from POL, the Tribunal concluded that the valuation method under Rule 3 could not be applied. 6. Determination of Annual Value under Section 23(1) of the Income Tax Act, 1961: The Tribunal determined that the appropriate method to value the rent-free accommodation was under Section 23(1)(a), which considers the sum for which the property might reasonably be expected to let from year to year, typically guided by municipal valuations. The Tribunal relied on various judicial precedents to conclude that municipal valuation should be used to determine the annual value, rejecting the AO's use of the ?96 lakh rental value from previous years. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO, concluding that the correct valuation of the rent-free accommodation should be based on municipal guidelines rather than the historical rental value used by the AO. The Tribunal dismissed the Revenue's appeal and the assessee's cross objections as infructuous, affirming the CIT(A)'s order. The Tribunal's decision emphasized the proper application of Sections 2(24)(iv), 17(2), and 23(1) of the Income Tax Act, 1961, in determining the taxability and valuation of perquisites.
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