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TMI Blog2003 (2) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... ns were taken up for hearing together. The petitioner in Writ Petition No. 7405 of 2002 and Writ Petitions Nos. 8891 to 9021 of 2002 is the BHEL Employees' Association which is a registered trade union under the Indian Trade Unions Act, 1926 (hereinafter referred to as "the Trade Unions Act"). It is claimed by the petitioner in the said petitions that the petitioner-association represents the interest of the workmen numbering around 1,100 employed in the Electronics Division of the Bharat Heavy Electricals Ltd. (hereinafter referred to as "the BHEL"); and these petitions have been filed by the association on behalf of the members who are residing in the BHEL quarters and also in the colony belonging to the BHEL. The first petitioner in Writ Petition No. 7205 of 2002 is Bharat Earth Movers Officers' Guild and the second petitioner is the assistant manager employed in the Bharat Earth Movers Ltd. (hereinafter referred to as "the BEML"). The first petitioner in Writ Petition No. 7206 of 2002 is the ITI Officers' Association and the second petitioner in the said petition is the assistant executive engineer in the employment of the Indian Telephone Industries (hereinafter referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act, 2001, with effect from April 1, 2002, by inserting sub-clause (vi) to section 17(2) of the Act. Sub-clause (vi) of section 17(2) of the Act, as amended, reads as follows: "(vi) the value of any other fringe benefit or amenity as may be prescribed." The Central Board of Direct Taxes, Government of India (hereinafter referred to as "the Board"), by means of its notification dated September 25, 2001, amended the Income-tax Rules, 1962 (hereinafter referred to as "the Rules"), with effect from April 1, 2001, for the purpose of computing the income chargeable under the head "Salaries", the value of perquisites provided by the employer directly or indirectly to the employee or any member of his household by means of his employment. As a result of the said amendment 10 per cent. of the salaries and the standard rent fixed by the employer and the interest on housing loans/conveyance loans and also benefit of the services rendered by the servant made available by the employer, subject to certain conditions, are treated as income, for the purpose of computation of income-tax, in the hands of the employee. In the light of the amendment of the Rules as stated above, the manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to state what are "fringe benefits" or "amenities" to enter the computation of income; and the Board could only prescribe the manner of qualifying or determining the value of such "fringe benefits" or "amenities". In other words, according to learned counsel, the power to determine "fringe benefit" or "amenity" cannot be delegated to the Board. Alternatively, they submitted, even assuming that such a delegation is permissible, in the instant case, since there is no guidelines laid down for the executive to determine what is meant by "fringe benefit" or "amenity", the impugned provision is liable to be struck down on the ground that the impugned provision is highly arbitrary, unreasonable and confers uncontrolled and unguided power on the executive and as such is violative of the rights guaranteed to the petitioners under article 14 of the Constitution of India. Secondly, they submitted that the impugned rule 3 of the Rules which provides for various types of "fringe benefits" or "amenities" is' also liable to be struck down on the ground that the said rule is highly arbitrary, unreasonable, discriminatory in nature and violative of the rights guaranteed to the petitioners under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roup; and the classification made must have the rational nexus with the object sought to be achieved by law. According to them, a situation where fair rental or standard rent available is sought to be ignored altogether in favour of a higher quantification of 7.5 per cent./10 per cent., the said quantification allowed to be made is liable to be struck down as arbitrary and unreasonable. Illustrating this submission, they pointed out that if three residential quarters, similar in accommodation and quality in all respects, are occupied by three officers "A", "B" and "C" of different ranks, the value of perquisite in each case will be different depending upon the salary of the employee. When the salary of an employee goes up, while he remains in the same accommodation, the value of the perquisite will go up correspondingly resulting in serious hardship to the employee and under these circumstances, a fair and reason able rule for computation of perquisites which stood the test of the time, should not have been replaced by unreasonable and arbitrary rules. In support of this submission, learned counsel relied upon the decisions of the Supreme Court reported in the case of State of Maha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Life Insurance Corporation of India is able to grant loans to banks at 7 per cent. per annum for meeting its voluntary retirement liability, the rate of interest to be calculated at 10 per cent. in respect of house building and conveyance loans and 13 per cent. on other loans is also unreasonably high and arbitrary. In support of this submission, learned counsel relied upon the decision of this court in the case of P. Krishna Murthy v. CIT [1997] 224 ITR 183, and in the case of CIT v. M.K. Vaidya [1997] 224 ITR 186 (Kam) (Appex.), both affirmed by the Supreme Court in the case of V.M. Salgaocar and Bros. (P.) Ltd. v. CIT [2000] 243 ITR 383. Fifthly, they submitted that the impugned rule, which provides that the entire cost of travel incurred by the employer to the spouse of the employee should be treated as a perquisite, is also highly unreasonable and arbitrary. According to learned counsel, the travel is undertaken by the employee at the behest of the employer and no benefit whatsoever is derived by the employee, and the spouse accompanies the employee on many occasions in discharge of social obligations of the employer in other countries. It is their sixth submission that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of learned counsel for the petitioners that sub-clause (vi) of clause (2) of section 17 of the Act is liable to be struck down on the ground that it suffers from the vice of excessive delegation is concerned, Sri Sheshachala pointed out that the intention of Parliament was to bring all types of perquisites to tax unless specifically exempted by it; and once this basic policy is enunciated, it cannot be said that the delegation made is an excessive delegation. He also pointed out that the Rules framed were also placed before Parliament and under those circumstances Parliament had the occasion to look into the Rules. Further, the power to prescribe "fringe benefit" or "amenity" by means of a rule, is conferred on a very high body like the Board, which is familiar in the matter of collection of State revenue. It is his further submission that while sub-clauses (i), (ii), (iii), (iv) and (v) of clause (2) of section 17 of the Act prescribe specific items of perquisites, sub-clause (vi) of clause (2) of section 17 of the Act provides a residuary clause bringing into operation so as to apply to all types of perquisites. In support of this submission, he relied upon the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other is a reasonable classification which has a direct nexus with the object sought to be achieved. Elaborating this submission, he pointed out that rule 3(1) of the Rules has prescribed the rate of rent-free accommodation of Central and State Government employees in terms of the provisions contained in article 309 of the Constitution of India; and the service conditions of the employees of the Central and the State Government are governed by the regulations framed by the President of Union of India and the Governor of the respective States; and in so far as the Central Government employees, regulations are framed as per HRA and CCA rules and in so far as the State Government employees are concerned, KCSR rules are made applicable; and whereas, in so far as other employees of public sector and private sector undertakings are concerned, fixed rate of 7.5 per cent. and 10 per cent. has been fixed and this rate is approximately commensurate with the HRA granted to those employees who are not provided with the house. Therefore, he submits that the classification of employees of public sector and private sector undertakings with that of the Government employees is in consonance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of no assistance to the facts of the present case, as all perquisites have now been brought to tax under section 17(2)(vi) of the Act. Learned counsel for the respondents next submitted that merely because the employee and the employer are required to maintain the details regarding the usage of the vehicle provided by the employer to the employee; and the procedure prescribed is a cumbersome one, is not a ground to declare the said provision as either arbitrary or illegal. Repelling the seventh submission of learned counsel for the petitioners that adding the salary of a servant deputed to the residence of the employee would amount to double taxation in the hands of the employee is concerned, he pointed out that since the petitioners have not raised any pleading in this regard in any of the petitions, the petitioners should not be permitted to raise this contention. He further pointed out that under section 4(1) of the Act, income shall be charged on every person and, therefore, the income arising in the hands of the servant will be charged as tax or exempted as per the status of that person; the employee is taxed in so far as the perquisite which is equivalent to the monetary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and "profits". Sub-clauses (i) to (v) of clause (2) of section 17 of the Act make the items mentioned thereunder as perquisites. Sub-clause (vi) of clause (2) of section 17 of the Act further provides that the value of any other "fringe benefit" or "amenity" as may be prescribed also should be treated as "perquisite". Clause (12) of section 2 of the Act defines the "Board", and the Board means the "Central Board of Direct Taxes" constituted under the Central Boards of Revenue Act, 1963 (hereinafter referred to as "the CBR Act"). Clause (33) of section 2 of the Act provides that the word "prescribed" means prescribed by rules made under the Act. Sub-section (1) of section 295 of the Act confers power on the Board, subject to the control of the Central Government by issue of a notification in the Gazette of India, to make rules for carrying out the purposes of the Act. Sub-section (2) of section 295 of the Act further pro vides that without prejudice to the generality of the power conferred on the Board under sub-section (1) of section 295 of the Act, the Board could make rules in respect of various matters provided under clauses (a) to (p) of sub section (2) of section 295 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legates of their choice for carrying out the policy laid down by the Acts as part of the administrative law. The Legislature has to lay down the legislative policy and principle to afford guidance for carrying out the said policy before it delegates its subsidiary powers in that behalf. This court in another case, namely, the Municipal Corporation of Delhi v. Birla Cotton Spinning and Weaving Mills, AIR 1968 SC 1232, as also in an earlier decision In re: The Delhi Laws Act, 1912, the Ajmer-Merwara (Extension of Laws) Act, 1947 and The Part C States (Laws) Act, 1950 [1951] SCR 747; AIR 1951 SC 332, has laid down the principle that the Legislature must retain in its own hands the essential legislative functions and what can be delegated is the task of subordinate legislation necessary for implementing the purposes and objects of the Act concerned." "26. The principle which, therefore, emerges out is the essential legislative function consists of the determination of the legislative policy and the Legislature cannot abdicate essential legislative function in favour of another. Power to make subsidiary legislation may be entrusted by the Legislature to another body of its choice but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be enacted into a rule of law, and what can be delegated is the task of subordinate legislation which by it very nature is ancillary to the statute which delegates the power to make it effective provided the legislative policy is enunciated with sufficient clearness or a standard laid down. The courts cannot and do not interfere on the direction that undoubtedly rests with the Legislature itself in determining the extent of the delegated power in a particular case. It is true that in this case under section 16(1)(g), rationalisation or revision of pay scales and other terms and conditions of service of officers and other employees wherever necessary is one of the purpose for which a scheme can be framed under section 16(1) of the Act. It is also true that incidental, consequential and supplementary matters as are necessary to give full effect to the scheme are also authorized under clause (j) of sub-section (1) of section 16. It has also to be borne in mind that scheme and every amendment to a scheme framed under section 16 shall be laid as soon as may be after its is made before each House of Parliament. The last provision is indicative of the power of superintendence that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income for the purpose of charge of income-tax, among other things, "salaries" has been classified as one of the heads. Section 16 of the Act, as noticed by me earlier, provides that various items of income set out under section 15 could be charged under the head "Salaries". Section 17 of the Act, by virtue of a deeming provision, makes various types of income an assessee gets, as "salary", "perquisite" and "profits". The reading of sections 14, 15, 16 and 17 of the Act and the scheme of the Act in addition to the normal or dictionary meaning that could be given to the words, to my mind appears, that sufficient guidelines are given to the executive to determine what could be treated as "fringe benefit" or "amenity". "Fringe benefit" or "amenity" has its natural and commercial meaning. The law dictionaries also have explained what is "fringe benefit" and "amenity". According to Webster's Encyclopedic Unabridged Dictionary, "fringe benefit" means--a benefit, as free life of health insurance, received by an employee in addition to his regular pay, "amenity" means--the quality of being pleasing or agreeable in situation, prospect, disposition, etc.; according to Thorndike Barnhart Worl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n whether the power conferred by section 150 of the Delhi Municipal Corporation Act on the corporation to levy any of the optional taxes by prescribing maximum rates of tax to be levied; to fix class or classes of persons or the description or descriptions of articles and properties to be taxed and to lay down the system of assessment and exemptions, if any, to be granted, held, is not unguided and cannot be said to amount to excessive delegation. The court observed that where the legislative policy is enunciated with sufficient clearness or a standard is laid down, the courts should not interfere and what guidance and to what extent, and whether guidance has been given in a particular case or not, depends upon on a consideration of the provisions of the particular Act with which the court has to deal including its preamble. It is further held in the said decision that the nature of the body to which delegation is made is also a factor to be taken into consideration in determining whether there is sufficient guidance in the matter of delegation and what form the guidance should take is again a matter which cannot be stated in general terms and it will depend upon the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India, I find no merit in the said submission. When the validity of a statute or a rule is challenged on the ground that it is violative of the right to equality guaranteed under article 14 of the Constitution of India, it is necessary to ascertain, in the first place, the policy underlying the statute and the object intended to be achieved by it. Having ascertained the policy and the object of the legislation, while examining its validity, the court has to apply dual test as to whether (1) the classification is rational and based upon an intelligible differentia, which it distinguishes from other persons or things that are grouped together from others that are left out of the group? (2) the basis of differentiation has any rational nexus or relation with the object sought to be achieved? It is well settled that differentiation is not always discriminatory, and if there is a rational nexus on the basis on which differentiation is made with the object sought to be achieved by a particular provision, then such differentiation is not discriminatory and does not violate the principles enshrined under article 14 of the Constitution of India. Whether the same result or better results ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to refer to the observation made by the Supreme Court in the case of Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 552, in the case of East India Tobacco Co. v. State of Andhra Pradesh [1962] 13 STC 529; AIR 1962 SC 1733; [1963] 1 SCR 404 and in the case of Federation of Hotel and Restaurant Association of India v. Union of India [1989] 178 ITR 97 (SC). In the case of Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 552 at page 557, at paragraph 7, the Supreme Court has observed as follows: "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 in equality, even though the result of the taxation may be that the total burden on different persons may be unequal. Hence, if the Legislature has classified persons or properties into different categories, which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that go into the formulation of a fiscal policy, the Legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile discriminatory treatment, what is looked into is not its phraseology, but the real effect of its provisions. A Legislature does not, as an old saying goes, have to tax everything in order to be able to tax something. If there is equality and uniformity within each group, the law would not be discriminatory. Decisions of this court on the matter have permitted the Legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes. But, with all this latitude, certain irreducible desiderata of equality shall govern classifications for differential treatment in taxation laws as well. The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overruled by events-self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability." In G.K. Krishnan v. State of Tamil Nadu, AIR 1975 SC 583, at page 592 of the judgment, Mathew J., speaking for the Bench, referred to the following observations of the Supreme Court of U.S.A. (San Antonio School District v. Rodrigues [1973] 411 US 1) "Thus we stand on familiar ground when we continue to acknowledge that the justices of this court lack both the expertise and the familiarity with local problems so necessary to the making of the wise decisions with respect to the raising and disposition of public revenues. Yet, we are urged to direct the States either to alter drastically the present system or to throw out the property tax altogether in favour of some other form of taxation. No scheme of taxation, whether the tax is imposed on property, income, or purchases of goods and services, has yet been devised which is free of all discriminatory impact. In such a complex arena in which no perfect alternatives exist, the court does well not to impose too rigorous a standard of scrutiny lest all local fiscal schemes become subjects of criticism under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.5 per cent. of the salary in other cities by way of perquisite received by them in respect of the accommodation provided to them. For the same reason, the grouping of employees of the public sector and private sector undertakings for the purpose of assessing the fringe benefits and other amenities cannot be treated as grouping persons who are dissimilarly situated in one group. The employees of the Government of India and the State Government and the employees of the public sector and private sector undertakings belong to two distinct and different class of employees. The nature of work, responsibility, service conditions of these employees which includes, leave, salary and other allowances are different and varied. The classification of these two groups of employees cannot be dubbed as one unreasonable, arbitrary and discriminatory in nature or lacks rationality. The petitioners have failed to show by placing necessary materials that all of them are similar, identically situated without there being any difference whatsoever. Further, I find considerable force in the submission of Sri Sheshachala that rule 3(1) of the Rules has prescribed rate of rent-free accommodation of Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt colleges with faculties, i.e., arts, science, commerce, engineering and medicine, there was no justification for not extending the grant-in-aid to the benefit of non-Governmental law colleges and it amounts to discrimination. Further, there cannot be any quarrel with the proposition laid down by the Supreme Court in the case of E.P. Royappa, AIR 1974 SC 555; Maneka Gandhi, AIR 1978 SC 597 and R.K. Garg [1982] 133 ITR 239 (SC) that every action of the State, if it is unreasonable or arbitrary is liable to be struck down on the ground that it is violative of the right to equality guaranteed under article 14 of the Constitution of India. However, the question is whether the impugned rule is violative of the right to equality guaranteed to the petitioners under article 14 of the Constitution of India? As noticed by me earlier, it is not. The next question is as to whether there is any merit in the third contention of learned counsel for the petitioners that under clause (c) of sub-section (2) of section 295 of the Act, the Board is authorised to determine only the value of any fringe benefit chargeable under the Act; and there is no power conferred on the Board to determine what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required to be rejected. I am also unable to find any merit in the fourth submission advanced by learned counsel for the petitioners that when the loans are given or arranged by the employer without interest or at concessional rate of interest, the same cannot be taken as perquisite up to the prescribed rate of 10 per cent. in respect of HRA and conveyance allowance and 13 per cent. in respect of other loans. It is necessary to point out that the advance of either interest-free loan or loan at concessional rate of interest, by the employer to its employees would result in benefit to the employee. It relieves the employee of his liability to pay interest on such loans if the employee is required to raise the loan from an outside agency. While it reduces his financial liability, it will have to be considered as an income saved. In that event it could undoubtedly be treated as "fringe benefit" or "amenity" given to the employee. I am of the view that the principle enunciated by the Supreme Court in the case of V.M. Salgaocar and Bros Pvt. Ltd. [2000] 243 ITR 383 that the interest-free loans advanced or the loans advanced at the concessional rate of interest by the employer to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as highly irrational, has no bearing with the interest that is levied on commercial transactions in the open market. Even otherwise, taking of loan from the employer is an optional one. If the rate of interest chargeable for the loan obtained from sources other than the employer is less than the one prescribed for the purpose of assessing the value of perquisite, the option is available to the employee to avail of the loans from sources other than his employer. Therefore, I am also unable to find any merit in the submission of learned counsel for the petitioners that merely because, Life Insurance Corporation of India is able to grant loans to banks at 7 per cent. interest per annum for meeting its voluntary retirement liability, the rate of interest to be calculated at 10 per cent. as prescribed in the impugned rule, is liable to be struck down as being highly unreasonable and arbitrary. There is also no merit in the fifth submission made by learned counsel for the petitioners that the entire cost of travel incurred by the employer to the spouse of the employee cannot be treated as "fringe benefit" or "amenity" on the ground that the employee undertakes the travel at the behes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hands of the employee as contended by learned counsel for the petitioners? In my view it will not amount to double taxation. As rightly pointed out by Sri Sheshachala, under section 4(1) of the Act, the income shall be charged on every person, and, therefore, the income earned by the servant will be charged as tax or exempted as per the status of that servant. The employee is taxed in so far as the perquisite which is equivalent to the monetary benefit the employee receives. Therefore, the servant is required to pay tax in respect of income he/she derives; and the employee is required to pay tax in respect of the perquisite, which is equivalent to the monetary benefit, he receives. If the services of a servant are not made available to the employee by his employer, the employee will have to spend from his/her pocket for the salary of a servant, if he/she intends to have one. Further, if the employee does not intend to have one, it is open to him/her not to have the services of a servant from his employer. It is optional. Therefore, I am unable to find any merit in the submission of learned counsel for the petitioners that adding of salary of the servant provided by the employer d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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