2007 (7) TMI 347 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of Rs. 1,000 per child per month while computing taxable perquisite.
2. Application of third proviso below sub-s. (5) of s. 88.
3. Determination of cost of education for free educational facilities.

Summary:

Issue 1: Deduction of Rs. 1,000 per child per month while computing taxable perquisite
The primary issue in these appeals was whether the deduction of Rs. 1,000 per child per month should be allowed while computing the taxable perquisite for free educational facilities provided to employees' children. The AO concluded that the entire value of the benefit should be taken as the value of the perquisite without any deduction, leading to a lesser deduction of tax at source from the salary. The learned CIT(A) allowed the deduction, interpreting the proviso to r. 3(5) of the IT Rules, 1962, liberally, and directed the ITO to allow the deduction.

Issue 2: Application of third proviso below sub-s. (5) of s. 88
For financial years 2003-04 and 2004-05, the learned counsel argued that the third proviso below sub-s. (5) of s. 88, which grants a deduction of up to Rs. 12,000 per child in respect of tuition fees, should be applicable. The Tribunal agreed, stating that if free educational facility is a perquisite, then the deduction in accordance with the third proviso should be granted, effectively canceling out the perquisite value up to Rs. 1,000 per month per child.

Issue 3: Determination of cost of education for free educational facilities
For financial years 2001-02 and 2002-03, the learned counsel argued that the cost per child was below Rs. 1,000 per month, and thus, the perquisite value should be nil. The Tribunal restored this matter to the file of the AO for verification of the cost to the employer and directed the AO to work out the perquisite value after deducting Rs. 1,000 per month per child.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to allow the deduction of Rs. 1,000 per child per month while computing the taxable perquisite. For financial years 2003-04 and 2004-05, the Tribunal agreed that the third proviso below sub-s. (5) of s. 88 should be applied, allowing the deduction to cancel out the perquisite value. For financial years 2001-02 and 2002-03, the Tribunal restored the matter to the AO for verification of the cost of education and directed the AO to allow the deduction accordingly.