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TMI Blog2004 (3) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... the third respondent scheduled bank. The respondents are (1) Union of India, (2) the Central Board of Direct Taxes and (3) the Federal Bank. The Federal Bank Officers Association itself filed an original petition before the Karnataka High Court, seeking for a declaration that rule 3(1)(ii) and rule 3(7)(i) notified by exhibit P1 as unconstitutional and uneforceable. The said writ petition was dismissed by a common judgment dated February 17, 2003. It is thereafter that the present writ petitions were filed challenging the validity of section 17(2)(vi) of the Act which, according to the petitioners, was not a subject matter of challenge in the earlier writ petition. The petitioners seek for a declaration that section 17(2)(vi) of the Income-tax Act as inserted by the Finance Act 2001, is illegal and violative of articles 19(1)(g) and 246 of the Constitution of India, and a declaration that rule 3 of the Income-tax Rules, 1962, as substituted by the Income-tax (22nd Amendment) Rules, 2001 by the second respondent under its Notification No. 940(E), dated September 25, 2001, as illegal and unconstitutional being hit by the vice of excessive delegation of power besides being ultra vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose taxable salary, excluding perquisites, is up to Rs. 1,00,000 and for the subsequent years, to give an option to the employer to pay the tax on perquisites on behalf of the employees. In the previous year, according to the Minister's speech, it had rationalized the rules for valuation of perquisites on the basis of their cost to the employer, except in respect of houses and cars where different criteria are adopted for simplicity. According to the petitioner, the intention of the Legislature is to determine the value of perquisites on the basis of their cost to the employer. The cost of funds of the F third respondent bank was 8.98 per cent, for the year ended March 31, 2001, which came down to 8.64 per cent, for the year ended March 31, 2002. The annual report of the bank is produced as exhibit P2 in support of the said contention. In O.P. No. 8425 of 2002 also the petitioners are employees of another scheduled bank. In O.P. No. 6779 of 2002 the first petitioner is the Cochin Refineries Officers Association which is a registered and recognised Union and the second petitioner is the projects manager of the Kochi Refineries. In O.P. No. 10629 of 2003 the petitioner is the Dhan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord "income" is a word of broadest connotation and it has been held that for the purpose of the Act, it should be interpreted in its widest amplitude. It does not merely include what is received but also what one gains by exploiting or using a relationship, property or benefit. Reference is also made to sections 15 and 17 of the Income-tax Act and it is contended that the word "salary" includes "any payment" received by an employee from an employer which includes various benefits, perquisites, fees, commission, profits, in lieu of or in addition to salary. Perquisites received by the assessee are taxable under section 17(1)(iv) of the Act. Section 17(2) by an inclusive definition has defined the term "perquisite" to include the value of any rent free accommodation and also the value of any concession in rent for any accommodation provided to the employee by his employer. It is also contended that section 295(1) gives powers to the Central Board of Direct Taxes to make rules and section 295(2)(c) empowers the Board to frame rules and that the Board has powers to determine the value of any perquisite, which is chargeable under the Act. Likewise accommodation provided by the employer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the petitioners and learned senior standing counsel Sri P.K. Raveendranatha Menon appearing for respondents Nos. 1 and 2. Even according to the petitioner in O.P. No. 10569 of 2003 earlier challenge made to the rules was unsuccessful but they sought to include a challenge to section 17(2) of the Act in this writ petition. As a matter of fact, the validity of section 17(2) of the Income-tax Act and rule 3 of the Income-tax Rules, 1962, as notified by the notification dated September 25, 2001, arose for consideration before different High Courts and the constitutional validity of the provisions were upheld. Learned counsel Sri Sarangan reiterated his submissions which were advanced before the Karnataka High Court in the decision reported in Bhel Employees Association v. Union of India [2003] 261 ITR 15. Firstly, it is submitted by him that sub-clause (vi) of clause (2) of section 17 of the Act is required to be struck down on the ground that essential legislative function has been delegated to the executive and hence the same suffers from the vice of excessive delegation. It is his submission that the Legislature cannot allow the Board to prescribe or say what is fringe benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the spouse of the employee should be treated as a perquisite, is also unreasonable and arbitrary. According to him, the travel is undertaken by the employee at the behest of the employer and no benefit is derived by the employee. It is also contended that the impugned rule provides for extremely impractical, cumbersome procedure with regard to the use of motor cars provided by the employer to his/its employees inasmuch as the employee has to maintain complete details of journeys undertaken for official purposes such as the date of travel, destination, mileage and the amount of expenditure incurred and to give a certificate that the expenditure was incurred for official purposes only and hence the procedure is wholly unwarranted and cumbersome and requires to be struck down as being unreasonable and arbitrary. It is their contention that the imposition of tax on the emoluments paid to a servant made available to the employee by its employer on the ground that either it is a perquisite or an amenity provided to the employee is liable to be struck down on the ground that it amounts to double taxation. Finally, it is submitted that rule 3 of the Rules is liable to be nullified on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he essential legislative function; (iii) even if there be delegation, Parliamentary control over delegated legislation should be a living continuity as a constitutional necessity. It admits of no doubt that essential features cannot be delineated in detail but at the same time delegation is a constituent element of legislative power under article 245 of the Constitution of India. Therefore, the only question is whether the delegation is excessive or whether the Legislature has abdicated its essential functions? In this connection, it has to be examined the scope of section 17(2)(vi) of the Income-tax Act as to whether it is liable to be struck down on the ground of excessive delegation? Sub-clauses (i) to (v) of clause (2) of section 17 specify what are to be treated as perquisites. The definition itself is an inclusive definition. The value of rent free accommodation provided to the assessee by his employer, the value of concession in the matter of rent respecting any accommodation, the value of a benefit or amenity granted or provided free of cost are specifically included in the definition clause itself. As per sub-clause (vi) of section 17(2) the value of any other "fringe be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been bestowed on the rule-making authority to make a substantive provision to bring something to tax, which is not envisaged under the parent Act under the head "Income from salaries" by inserting the impugned b provision. It is in the nature of clarification and making it more obvious to remove doubts, if any, about the fact that fringe benefits which an employee receives from his employer by way of a personal advantage because of status as an employee and have nexus with the employer-employee relationship to be included in the wholesome expression "perquisite". Section 17(2)(vi) was inserted with effect from April 1, 2002, and hence applicable to income during the year ended on March 31, 2002. Therefore, it cannot be said that it is violative of any well-settled principle of computing income of previous year 2001-02 as per substantive law prevailing on April 1, 2002, by applying existing machinery provision. Finally, it was concluded that insertion of sub-clause (vi) in section 17(2) by the Finance Act, 2001, is not violative of any provisions of the Constitution or the parent Act, since only the valuation of other fringe benefits has been left to be detailed by the subordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised by the State while making laws to operate differently with different groups or classes of persons. Therefore, there cannot be any strict formulae or doctrine to be applied for testing as to whether such exercise is violative of article 14 of the Constitution. But article 14 only forbids unreasonable classification. Therefore, it is for the petitioners to show that what has been done is irrational and unreasonable. There is always a presumption in favour of the constitutionality of the statute. I do not find anything in the writ petition providing sufficient and relevant factual background to discharge the burden as cast on the petitioners to support the case of arbitrariness in action complained of. The Supreme Court, in the case of Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 552, observed that if the taxation, generally speaking, imposes a similar burden on every one with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not be open to attack on the ground of inequality, even though the result of the taxation may be that the local burden on different persons may be unequal. Therefore, if the Legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onable or violative of article 14 of the Constitution of India. As per clause (c) of sub-section (2) of section 295 of the Income-tax Act, the Board is authorised to determine not only the fringe benefit chargeable under the Act but also can determine what is meant by fringe benefit or amenities. As a matter of fact, sub-clause (vi) of clause (2) of section 17 provides for determination of fringe benefit or amenity by means of prescription in the rules. The provisions contained in section 295(2)(c) are wide enough to empower the Board to frame rules for the purpose of identifying the types of fringe benefits or amenities. The expression "as may be prescribed" occurring in sub-clause (vi) of clause (2) of section 17 of the Act has necessarily to be understood as conferring power on the rule-making authority to prescribe what is "fringe benefit" or amenity and it is not shown what is actually prescribed is not fringe benefit at all. It is also not shown that no benefit is conferred by the employer on its employees. In such circumstances, there is no merit in the contention that under clause (c) of sub-section (2) of section 295 of the Act the Board has no power to determine what is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest market rate since various other financial institutions are giving loan charging interest at lower than 10 per cent. While this question was considered by the Uttaranchal High Court in National Federation of Insurance Field Workers of India v. Union of India [2004] 265 ITR 84, on behalf of the Central Board of Direct Taxes it was submitted that they are considering this aspect and it was held that the Central Board of Direct Taxes can be moved by filing appropriate representations in this regard as they are empowered to issue circulars under section 295 of the Income-tax Act and finally the Central Board of Direct Taxes was directed to consider a lower rate of interest in valuing fringe benefits in tune with market rates of interest and according to learned counsel Sri P.K. Raveendranatha Menon, this is an aspect which can be taken note of by the Central Board of Direct Taxes or by the assessing authority at the time of assessment. When as per rules 10 per cent, is fixed and any loan granted at interest rate below 10 per cent, has to be taken as a perquisite liable to be taxed, no discretion is vested with the Income-tax Officer and to consider as to whether the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof charged by the employer does not amount to any concession or benefit having due regard to the rate of interest charged for such type of loan by public financial institutions. The next contention as to whether the travel benefit given to the spouse is a fringe benefit does not arise in any of these original petition in the absence of any factual pleadings to that effect. Regarding the contention that the employee has to maintain details regarding the journey to be undertaken by him and the procedure to be followed as impracticable, I do not find there is any merit in this contention. Merely because a particular mode of proof is required it may be inconvenient or causing difficulty to employee is not a ground to nullify the validity of the rule. There is no question of any double taxation in the present case. As per section 4(1) of the Act income-tax shall be charged on every person and income earned by an employee has to be exempted as per the status of that service and the employee is required to pay tax only in respect of the income he or she receives. I am unable to find any merit in the contention. Further how it actually works out to be double taxation is also not ple ..... X X X X Extracts X X X X X X X X Extracts X X X X
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