2008 (1) TMI 573 - SC - Income Tax

Salary- Perquisites- Challenge the validity of Rule 3 of the Income tax Rule that it is inconsistent with the present act. Held that- in the judgment of Arun Kumar v. Union of India, the Legislature has added an Explanation 1 to section 17(2) of the Act by the Finance Act, 2007, with effect from April 1, 2002, taking away the effect of the judgment on or after April 1, 2002. According to them, the year 2001-02 which was also covered under rule 3 has not been affected by the amendment. Since, there is no challenge to the amended provision.

Summary

Issues:
Challenging the validity of rule 3 of the Income-tax Rules, 1962; Dismissal of writ petitions by the High Court; Interpretation of rule 3 in line with section 17(2)(ii) of the Income-tax Act, 1961; Effect of subsequent amendment adding Explanation 1 to section 17(2) by the Finance Act, 2007.

Analysis:

1. The appellants contested the validity of rule 3 of the Income-tax Rules, 1962, as amended by the Income-tax (Twenty-second Amendment) Rules, 2001, regarding the computation of perquisites under section 17(2) of the Income-tax Act, 1961. They argued that the amended rule was inconsistent with the parent Act and violated article 14 of the Constitution.

2. The High Court dismissed the writ petitions filed by the appellants, leading them to appeal the decision to the Supreme Court.

3. A previous case, Arun Kumar v. Union of India, addressed the amended notification, and a three-judge Bench of the Supreme Court did not strike down rule 3 but interpreted it to align with section 17(2)(ii) of the Act.

4. The Supreme Court noted that the issue raised in the present appeals had already been settled by the previous judgment and decided to dispose of the appeals accordingly.

5. The appellants' counsel informed the court about the addition of Explanation 1 to section 17(2) of the Act by the Finance Act, 2007, which nullified the effect of the previous judgment from April 1, 2002 onwards. As there was no challenge to the amended provision before the court, they declined to express any opinion on it and concluded the appeals, acknowledging the subsequent legislative amendment.

6. The appeals were disposed of in light of the above considerations.

T. P. (C) No. 482 of 2004:

7. The judgment in Civil Appeal No. 8340 of 2004 was deemed applicable to the proceedings pending in Writ Petition No. 1425 of 2002 in the High Court of Delhi, which was requested to be transferred to the Supreme Court.

8. Consequently, the transfer petition was considered moot and was disposed of accordingly.