2021 (7) TMI 1052 - HC - Income Tax

Computing value of perquisites under Section 17(2) - assessee is a Trust constituted under Charitable Endowment Act, 1890 - value of residential accommodation provided by the Central Government or any State Government to the employees either holding office or post in connection with affairs of the Union or of such State or serving with any body or Undertaking under the control of such Government on such deputation - whether the assessee, which is a Trust registered under the Charitable Endowment Act, 1890 can be treated as Central Government as provided in Sl.No.1 of Table 1 appended to Rule 3(1) of the Rules? - HELD THAT - The assessee, which is a Trust under the 1890 Act, is controlled and financed by the Central Government. The assessee is a Body or an undertaking controlled by the Central Government. governed by the Rules governing the service conditions of the employees of the Central Government. The assessee may be an instrumentality of the State of for the purpose of Article 12 of the Constitution of India. For the purposes of Rule 3, the requirement is that the accommodation should be provided by the Central Government or State Government to the employees either holding office or post in connection with affairs of Union or of State or serving with any body or undertaking under the control of such government from deputation. The aforesaid expression is unambiguous and unclear and therefore, its meaning cannot be expanded to include any body, undertaking under the control of Central Government. Merely because assessee is a body or undertaking owned or controlled by the Central Government, it cannot be elevated to the status of Central Government. Thus, the assessee cannot claim that valuation of perquisites in respect of residential accommodation should be computed as in case of an accommodation provided by the Central Government. Therefore, Sl.No.1 of Table 1 of Rule 3 of the Rules does not apply to the assessee. The substantial questions of law No.1 and No.2 are answered against the assessee and in favour of the revenue. Obligation to establish that the Appellant has provided any concession to the Employees in respect of the accommodation before applying Rule 3 of the Income Tax Rules 1962 - Explanation 1 has been incorporated in Section 17(2) of the Act by Finance Act, 2007 with effect from 01.04.2002. Thus, in view of Explanation 1 to Section 17(2) of the Act, which provides that concession in the matter of rent shall be deemed to have been provided, the substantial question of law No.3 does not arise for consideration in this appeal. The liability is created under Section 17(2)(ii) of the Act by a deeming provision. Therefore, the provisions of Rule 3 of the Rules shall apply to the case of the assessee.

Issues Involved:
1. Whether the appellant is an instrumentality or agency of the Government and can be treated at par with Government employees under Table 1 of Rule 3 of the Income Tax Rules, 1962.
2. Applicability of rules for computing value of perquisites under Section 17(2) of the Income Tax Act, 1961 to the appellant.
3. Obligation of the Assessing Officer to establish that the appellant provided any concession to the employees in respect of accommodation before applying Rule 3 of the Income Tax Rules, 1962.
4. Whether the appellant can be treated as an assessee in default without establishing that any concession in the form of accommodation was extended to its employees.
5. Applicability of Rule 3 of the Income Tax Rules, 1962 only after a liability is created under Section 17(2)(ii) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Instrumentality or Agency of the Government
The Tribunal held that the appellant, a premier research institution recognized as a 'Deemed University', cannot be construed as an instrumentality or agency of the Government for the purposes of computing perquisite value under Rule 3 of the Income Tax Rules, 1962. The appellant argued that it functions under the financial, administrative, and functional control of the Central Government and that its service conditions are governed by rules applicable to Central Government employees. However, the court concluded that merely being controlled and financed by the Central Government does not elevate the appellant to the status of the Central Government. Therefore, the valuation of perquisites in respect of residential accommodation should not be computed as if provided by the Central Government. The substantial questions of law No.1 and No.2 were answered against the appellant.

Issue 2: Applicability of Rules for Computing Perquisites
The court examined whether the rules applicable to Government employees for computing perquisite value under Section 17(2) of the Act apply to the appellant. It was determined that the appellant, despite being controlled by the Central Government, does not qualify for the same treatment as Central Government employees under Table 1 of Rule 3. The relevant provisions of Section 17(2) and Rule 3 were cited, emphasizing that the appellant cannot claim the valuation method applicable to Central Government-provided accommodation. Thus, the rules for Government employees do not apply to the appellant.

Issue 3: Establishing Concession by Assessing Officer
The appellant contended that the Assessing Officer should have established that the appellant provided any concession to its employees before applying Rule 3. The court referenced Explanation 1 to Section 17(2) of the Act, which deems a concession in the matter of rent if certain conditions are met. Since this Explanation was incorporated with retrospective effect from 01.04.2002, the court concluded that the question of establishing a concession does not arise, and the substantial question of law No.3 was answered accordingly.

Issue 4: Assessee in Default
The appellant argued that it should not be treated as an assessee in default without a finding of extended concession in the form of accommodation. The court noted that the Tribunal had already granted relief to the appellant regarding proceedings under Sections 201 and 201(1A) of the Act, and this part of the order had attained finality. Therefore, the court did not need to address this issue further.

Issue 5: Applicability of Rule 3
The appellant asserted that Rule 3 of the Income Tax Rules applies only once a liability is created under Section 17(2)(ii) of the Act. The court clarified that the liability is created by a deeming provision under Section 17(2)(ii), and therefore, Rule 3 applies to the appellant's case. The substantial question of law No.3 was answered in this context.

Conclusion:
The appeal was dismissed, with the court affirming that the appellant cannot be treated at par with Government employees for the purposes of computing perquisite value under Rule 3 of the Income Tax Rules, 1962. The court also clarified the applicability of relevant provisions and the obligations of the Assessing Officer, ultimately upholding the Tribunal's findings.

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