1988 (6) TMI 66 - AT - Income Tax

Summary

Issues:
1. Interpretation of perquisite value of rent-free furnished accommodation for taxation purposes.

Analysis:
In this case, the Revenue appealed against the order of the AAC regarding the perquisite value of rent-free furnished accommodation provided to an employee. The AAC directed the ITO to calculate the perquisite value at 12-1/2% of the salary, comprising 10% for rent-free accommodation and 2-1/2% for furnishing. The ITO, however, considered the rented premises at Chail Hotel, where the employee stayed for substantial periods, and added an amount to the perquisite value offered by the assessee. The ITO relied on the Delhi High Court judgment in J. Dalmia vs. CIT to support his decision, emphasizing that the actual rent paid should determine the perquisite value. The AAC accepted the assessee's argument that the Chail accommodation was not the basis for taxation as per the employment terms, which provided for a headquarter in Patiala with free furnished accommodation. The AAC reasoned that the stay at Chail was akin to a person on tour provided with hotel accommodation, and thus, the perquisite value should be based on the salary percentage. The AAC's decision was upheld by the Appellate Tribunal, dismissing the Revenue's appeal.

This case delves into the interpretation of the perquisite value of rent-free furnished accommodation for taxation purposes. The dispute arose from the ITO's inclusion of an additional amount to the perquisite value offered by the assessee, based on the rented premises at Chail Hotel where the employee stayed. The AAC, however, considered the terms of employment, which specified the employee's headquarter in Patiala with free furnished accommodation. The AAC reasoned that the Chail accommodation was provided for specific work-related purposes, akin to a person on tour provided with hotel accommodation, and should not be factored into the perquisite value for taxation. The AAC directed the computation of the perquisite value at 12-1/2% of the salary, as per the terms of employment, which was upheld by the Appellate Tribunal. The Tribunal found no fault with the AAC's decision, leading to the dismissal of the Revenue's appeal.

Overall, the judgment clarifies the determination of the perquisite value of rent-free furnished accommodation for taxation, emphasizing the importance of considering the specific terms of employment and the purpose of the accommodation provided to the employee. The decision highlights that the perquisite value should be calculated based on the salary percentage when the accommodation is provided for work-related purposes, akin to a person on tour receiving hotel accommodation.