1977 (10) TMI 83 - AT - Income Tax

Summary

Issues:
1. Interpretation of provisions under section 17 of the Income Tax Act, 1961 regarding the taxation of perquisites received by an employee.
2. Application of Circular instructions issued by the CBDT in determining the value of perquisites provided by the employer to the employee.

Analysis:
1. The appeal pertains to the assessment year 1974-75 and involves the taxation of a reimbursement received by the assessee, a salaried employee, from the employer for the salaries of the sweeper, gardener, and watchman for the residential house. The Income Tax Officer (ITO) treated the reimbursement as profit in lieu of salary under section 17(3)(ii) of the IT Act, bringing the entire amount to tax. However, the assessee contended that the reimbursement should be valued as per the rules under section 17(2)(iii) of the Act. The Appellate Assistant Commissioner (AAC) considered Circular instructions from the CBDT, concluding that the amount should be treated as a perquisite under section 17(2)(iii) and included only a portion in the total income.

2. The Revenue challenged the AAC's decision, arguing that the entire reimbursement should be taxed. The Appellate Tribunal examined the Circular instructions which specified an ad hoc basis for calculating taxable perquisites related to services of servants provided by the employer. The Tribunal emphasized that the employer had provided services of the sweeper, gardener, and watchman for the residential house, making it a perquisite for the employee. The Tribunal upheld the AAC's decision to include a reduced amount of Rs. 2,160 in the assessee's total income based on the Circular instructions.

3. The Tribunal found that the Circular instructions were clear in determining the value of perquisites in cases where the employer provides services of servants to the employee. Since the employer had provided such services, the value of the perquisite was to be calculated as per the norms specified in the Circular. Therefore, the Tribunal affirmed the AAC's decision to consider only a portion of the reimbursement as taxable income, rejecting the Revenue's contention.

4. The Tribunal concluded that the AAC's decision was well-founded as the employer had provided services of servants for the residential house, constituting a perquisite for the employee. The value of this perquisite was correctly ascertained following the Circular instructions. Accordingly, the Tribunal dismissed the Revenue's appeal, upholding the inclusion of Rs. 2,160 in the assessee's total income as the proper decision based on the provisions of the IT Act and the Circular guidelines.