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TMI Blog2012 (6) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 17(2) has to be excluded for the purpose of computing perquisite value of “rent free accommodation”. - Decided against the revenue. - ITA 323/2012, ITA 325/2012, ITA 326/2012 - - - Dated:- 17-5-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V.EASWAR, JJ. For Appellant: Ms. Rashmi Chopra, Advocate SANJIV KHANNA, J.: (ORAL) The revenue has preferred these appeals under Section 260A of the Income Tax Act, 1961 ( Act‟, for short) in the case of Telsuo Mitera, Isao Sakai Yoshimi Kamano and Yuji Horikawa. These appeals pertain to the assessment year 2006-07. As a similar issue arises for consideration, we are disposing of these appeals by this common order. 2. The question/issue raised in the present appeal is whether the tax paid by the employer (Japan Airlines International Company Limited) is a perquisite within the meaning of Section 17(2) and, therefore, in terms of Rule 3 of the Income Tax Rules, 1962 (for short, Rules) cannot be taken into consideration for computing value of the perquisite rent free accommodation . 3. Relevant portion of Rule 3 and the Explanation thereto applicable with effect from 01.04.2001: - 3. Valuation of perqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependants; (v) remote area, for purposes of proviso to this sub-rule means an area that is located at least 40 kilometres away from a town having a population not exceeding 20,000 based on latest published all-India census; (vi) salary includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called from one or more employers, as the case may be, but does not include the following, namely: (a) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned; (b) employer s contribution to the provident fund account of the employee; (c) allowances which are exempted from payment of tax; (d) the value of perquisites specified in clause (2) of section 17 of the Income-tax Act; (e) any payment or expenditure specifically excluded under proviso to sub-clause (iii) of clause (2) or proviso to clause (2) of section 17; (vii) maximum outstanding monthly balance means the aggregate outstanding balance for each loan as on the last day of each month. (emphasis supplied) 4. Clause (vi)(d) of Rule 3 states that the term salary‟ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund or a Deposit-linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, section 6C of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952)], to effect an assurance on the life of the assessee or to effect a contract for an annuity; [***] (vi) the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee. xxx xxx xxx (vii) the amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and (viii) the value of any other fringe benefit or amenity as may be prescribed:] Provided further that for the assessment year beginning on the 1st day of April, 2002, nothing contained in this clause shall apply to any employee whose income under the head Salaries (whether due from, or paid or allowed by, one or more employers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges . The former means a benefit and an advantage received in addition to or over and above what is paid as wages and salary. It is something extra, in addition to, and other than wages/pay. 11. In Black‟s Law Dictionary, the word perquisite has been defined as under:- ―Perquisites Emoluments, privileges, fringe benefits, or other incidental profits or benefits attaching to an office or employment position in addition to regular salary or wages. Shortened term ―Perks is used with reference to such extraordinary benefits afforded to business executives (e.g. free cars, club memberships, insurance, etc.) See also Fringe benefits. 12. The term wages or salary may acquire different interpretations and meanings depending upon the legislative intent and the definition clause in the enactment in question. In the present case, however, we are concerned with Rule 3, which specifically draws and makes a distinction between perquisites‟ covered by Section 17(2) in contradiction to the word wages etc. mentioned and treated as a part of salary in other clauses of Section 17(1)‟. What is covered by Section 17(2) has to be excluded from salary for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 232 ITR 475 (Del) reference was made to Section 15 and 17(1)(iv) and sub-clause (iv) of Clause (2) to Section 17 and it was observed as under: We may refer to the relevant statutory provisions. Section 15 sets out the income which shall be chargeable to income-tax under the head Salaries . Vide clause (b) thereof any salary paid or allowed to an employee in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him is an income chargeable to tax under the head Salaries . For the purpose of section 15 vide section 17(1)(iv), perquisites are included in salary. Vide sub-clause (iv) of clause (2) of section 17 any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee, is included in perquisites . The interpretation clause i.e., section 2 of the Act, vide sub- clause (iii) of clause (24) thereof, includes the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17, within the meaning of income . All these statutory provisions make it clear that an amount of tax which would have been payable by an employee-asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically concerned with Section 17(1) and 17(2) of the Act. Rule 3 in clear terms excludes perquisite stated/ mentioned/ covered by Section 17(2) for the purposes of calculating perquisite value of rent free accommodation . 18. Learned counsel for the appellant has relied upon decision dated 03.06.2011 in ITA No.486/2008 and connected matters in Mitsubishi Corporation v. Commissioner of Income Tax and Anr. The said decision pertains to assessment years 1996-97, 1997-98 and 1998-99. In the said decision it has been held that perquisites in the form of tax free salary are a part of the gross salary under Section 17(1) of the Act. The Bench held as under: 15. Next, it is to be examined as to whether in the instant case, the issue involved was debatable requiring interpretation of the relevant provisions? Law on this aspect has been settled by plethora of judgments. Such an issue came up before the Supreme Court in Emit Webber (supra) in the following terms: 6. The facts found by the Tribunal thus show that the assessee-appellant was paid certain salary free of tax but that the tax payable in that behalf was to be and was in fact-paid by Ballarpur. The assessment was mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Bombay High Court had occasion to deal with this issue in the case of Commissioner of Income Tax Vs. H.D. and Others [135 ITR 1]. Perusal of that judgment would show that two questions were referred to for the opinion of the High Court by the Tribunal and Question No.(1) was as under: 1. Whether, on the facts and in the circumstances of the case, the amount of tax borne by the employer, including tax on tax, on behalf of the employee, constitutes 'salary' as defined in explanation (2) to rule 3 of the I.T. Rules, 1962, for the purpose of determining the value of rent perquisite in terms of section 17 of the I.T. Act, 1961? 17. The High Court took note of Sections 15 to 17 of the Act as well as Rule 3 of the Income Tax Rules and from the reading of these provisions, it concluded that definition of salary in Rule 3 is an inclusive one and therefore, it is not restricted to what is included in the said definition. The device of inclusive definition is employed by the Legislature with a view to enlarge the meaning of the ordinary words and hence the rule of interpretation of such definition adopted by the Courts is to read the word defined so as to enlarge its meaning and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was paid by the British High Commission, which was not the employer of the assessees during the relevant accounting period and therefore the said payment made by the British High Commission could not be deemed to be a ―perquisite‖ in terms of Section 17(2)(iv) of the Act and therefore, could not be included in the gross salary of the assessees. The assessees also contended that the salaries were paid in sterling in the United Kingdom and, therefore, there was no obligation on the British Council to deduct tax at source in respect of the salary payment made to these employees during the relevant period. 19. This contention of the assessee did not find favour with this Court. Following the judgment of Bombay High Court in H.D. Dennis (supra) and that of the Madras High Court in the case of Commissioner of Income Tax Vs. Mackintosh [1975] 99 ITR 419, the Court held that the income tax paid by the employer on behalf of the employee as a part of salary of the assessee in a word ―salary‖ would be in its natural import comprehend within it taxes paid on behalf of the employees. 20. In view of the aforesaid clear dicta which cover the field, it is too na ve on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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