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TMI Blog2003 (11) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... Direct Taxes has purported to supplement section 17(2) of the Income-tax Act by incorporating amendments in the existing Income-tax Rules. Secondly, the impugned notification is challenged on the ground of violation of the petitioner's fundamental rights under article 14 of the Constitution. In this connection, it is contended that the impugned notification is vague and arbitrary having no nexus with the object sought to be achieved. That it gives excessive powers to the Income-tax Officer to tax every item under a sum as a benefit without any guidelines. The third ground of attack to the impugned notification is that by the impugned notification, rule 3 of the existing Income-tax Rules has been substituted. That a new rule has been inserted. That the impugned rule was required to be placed before Parliament as mentioned in section 295 read with section 296 of the Income-tax Act and since the impugned rule has not been placed before Parliament for approval, the impugned rule violates section 295 read with section 296 of the Income-tax Act, and, therefore, the impugned rule is bad in law. The last ground of attack is that the impugned rule is brought into force with effect from Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xes exceeds the power vested in the Central Board of Direct Taxes under section 295 read with section 17(2) and section 192(2C) of the Income-tax Act. In this connection, it is argued that the Development Officers of the Life Insurance Corporation gain business for the Life Insurance Corporation. They have an important role to perform. They are required to possess cars in order to go to places to canvass business for the Life Insurance Corporation. For this purpose, they are given, as and by way of conveyance facilities, certain benefits. They are given interest free loan/concessional loan so that they can buy cars by which they can travel quickly and gain business for the corporation. That essentially, the Life Insurance Corporation gives such loans to the Development Officers to facilitate their working. That earlier the cars stood in the name of the Corporation. But with the increase in the road tax liability, it was decided by the Corporation to permit the development officers to buy the cars in their own names by giving interest free loans to the development officers. That this was a business decision taken by the Life Insurance Corporation. That the cars were hypothecated to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the Central Board of Direct Taxes was not empowered to identify interest free loan/concessional loan as a fringe benefit. That under the circumstances, the Central Board of Direct Taxes had issued the notification, which was not only contrary to section 17(2)(vi) of the Income-tax Act, but it was also contrary to the judgment of the apex court in Salgaocar's case [2000] 243 ITR 383. Hence, it was submitted that the impugned notification exceeds the authority vested in the Central Board of Direct Taxes under section 295 of the Income-tax Act. It was argued that the Central Board of Direct Taxes was empowered to make rules for carrying out the purposes of the Income-tax Act subject to the control of the Central Government. That under section 295(2)(c) the Central Board of Direct Taxes was entitled to make rules for determination of the value of any perquisite. However, the Central Board of Direct Taxes was not entitled to identify any item as a fringe benefit. He argued that identification of any item as a fringe benefit was for Parliament. Hence, the impugned notification issued by the Central Board of Direct Taxes enacting rule 3 was issued in excess of the authority vested i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from interest free loan/concessional loan, the Central Board of Direct Taxes has purported to tax "other items" like free education, leave travel concession, free meals, etc. In this connection, it was submitted that clause (8) of the impugned notification is all pervasive. That under that clause, every conceivable benefit under the sun could be taxed by the Income-tax Officer as a perquisite. It is argued that clause (8) confers excessive powers on the Income-tax Officer to treat any and every item as perquisite. That clause (8) is vague, unjust and unfair. It is further argued that the rules are required to be framed by the Central Board of Direct Taxes under section 295(1) of the Income-tax Act. In this connection, it was submitted that under section 291(2)(c), the Central Board of Direct Taxes was required to make rules, which were proper and reasonable. It was argued that by giving excessive powers to the Income-tax Officer under clause (8) of the impugned notification, the Central Board of Direct Taxes has violated section 295(2)(c). It is further argued that while computing the value to be given to interest free loan/concessional loan, the Central Board of Direct Taxes has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Central Board of Direct Taxes to issue the impugned notification dated September 25, 2001, with effect from April 1, 2001. It was further argued that clause (vi) was inserted in section 17(2) by Parliament by the Finance Act, 2001, with effect from April 1, 2002, and yet the impugned rules, 2001, have been brought into force with effect from April 1, 2001, and, therefore, it is bad in law and contrary to section 17(2)(vi); In this connection, it was argued that the liability cannot be imposed on the assessee retrospectively. That the impugned rules have been brought into force from April 1, 2001, when clause (vi) of section 17(2) of the Income-tax Act came into force by the Finance Act, 2001, with effect from April 1, 2002. Therefore, the rule was bad in law and liable to be struck down. Per contra, Mr. Posti, learned counsel for the Department, contended that the word "salary" has been defined under section 17(1) of the Income-tax Act. That it includes pension, gratuity, fees, etc. That the word "salary" is defined under section 17(1). That it has an inclusive definition. That similarly section 17(2) defines the word 'perquisite" to include value of rent-free accommodation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing/inserting clause (vi) in section 17(2) of the Income-tax Act and that the Central Board of Direct Taxes has framed rules in excess of its authority. In this connection, he relied upon the judgment of the Karnataka High Court in the case of BHEL Employees' Association v. Union of India [2003] 261 ITR 15. He also relied upon the judgment of the Supreme Court in the case of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308. He, therefore, contended that there is no merit in the first ground of attack advanced on behalf of the petitioners to the validity of the rules/notification. Mr. Posti, further contended that the Central Board of Direct Taxes was empowered to prescribe rules not only for interest free loan/concessional loan, but it was also empowered to enact rules for all other fringe benefits and therefore, the Central Board of Direct Taxes has valued each of the other benefits given to the employees like free meals, free education for children, free club membership, leave travel concession, etc. He contended that no factual basis is alleged by the petitioners to show that the interest on loans given by the H.D.F.C. was 7.75 per cent. (for housing loans to salaried p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Whether clause (8) of the impugned notification is arbitrary, unreasonable, vague and violative of article 14 and whether by the said notification excessive powers have been given to the Income-tax Officer to tax any and every benefit/amenity as fringe benefit under section 17(2)(vi)? Whether it is in breach of section 295(2)(c) of the Income-tax Act? (iv) Whether the impugned notification/rule is bad in law for non-compliance with the provisions of section 296? (v) Whether the impugned notification/rule which came into force with effect from April 1, 2001, when the Finance (No.2) Act of 2001 has come into force with effect from April 1, 2002, was retrospective and therefore bad in law? Findings: Issue No. 1: At the outset, we may point out that the validity of section 17(2)(vi) has not been challenged. Hence, we do not wish to go into the arguments advanced on behalf of the petitioners that no policy is stipulated by Parliament while enacting section 17(2)(vi). Taxable salary, under the scheme of sections 15 and 16, includes the value of any benefit or amenity granted or provided free of charge or at concessional rate by the employer. The word "salary" is defined unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olicy of Parliament is to cover all types of benefits/ amenities, including substantial and fringe benefits within the word "perquisite". This policy is discernible from the scheme of sections 14, 15, 16 and 17 of the Income-tax Act. Further, the Legislature has left it to the Central Board of Direct Taxes as the Central Board of Direct Taxes is an expert rule-making authority. The concept of perquisite, so as to include benefit, can be understood, but not defined. Hence, the Legislature has left it to the Central Board of Direct Taxes to define the benefit or amenity and to assign it a value so that the latter could form part of the total income. Hence, we do not find any merit in the argument advanced on behalf of the assessee that interest free loan/concessional loan has no co-relation with the word "salary" and that the Legislature has not indicated any policy while enacting section 17(2)(vi) and that the Central Board of Direct Taxes had usurped the legislative function of Parliament in enacting the impugned rules. Issue No. 2: It has been argued before us that interest free loan/concessionalloan has no co-relationship with "salary" as defined under section 17(1) read with s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 3 and 4: We do not find any merit in the argument of the petitioners that' the impugned notification/rule is vague and arbitrary and that it gives excessive powers to Income-tax Officers. Firstly, a concept like fringe benefits is difficult to define. Secondly, they can never be exhaustively defined and therefore the Legislature has left it to the Central Board of Direct Taxes. Thirdly, clause (8) of the impugned notification shows that the Central Board of Direct Taxes has not defined fringe benefits exhaustively. It has felt that even after covering various items of benefit some may be left out and therefore clause (8) is a residuary clause, which empowers the Income-tax Officer to treat a benefit or amenity as a perquisite if not enlisted in earlier clauses. Hence, the impugned notification is not vague, unreasonable and arbitrary as alleged. Here it may be further mentioned that according to the petitioners, rule 3(7) values the interest free loan/concessional loan borrowed for housing at 10 per cent. and for other purposes at 13 per cent., which is excessive in the falling interest market. It was argued that personal loans are given by the H.D.F.C. at rates lower than 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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