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TMI Blog1998 (2) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... e same building of rent having agreed to provide him with rent-free quarters. During the previous year ended on March 31, 1980, relevant to the assessment year 1980-81, the assessee occupied the house at Alwarpet, Madras, is an employee of Addison Paints and Chemicals Ltd. The assessee in the assessment proceedings for the assessment year 1980-81, admitted the value of the perquisites from the rent-free quarters at Rs. 6,000 which was the rent actually paid by Addision Paints and Chemicals Ltd. to Amalgamations Ltd. The Income-tax Officer, however, invoked the provisions of rule 3 of the Income-tax Rules and determined the perquisite value of the rent-free accommodation as under : Perquisites in respect of rent-free accommodation : Perquisites in respect of rent-free accommodation : Rs. Basic salary 54,000 Annual value 60,000 10 per cent of salary 5,400 Annual value in excess of 20 per cent of salary 49,200 -------- Total 54,600 -------- The value of the perquisites, was, however, restricted to 100 per cent. of salary of Rs. 54,000. In other words, the Income-tax Officer determined the perquisite value in respect of the rent-free accommodation at Rs. 54,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residential quarter on lease and pays rent and allows its employee to occupy the rented house or allows its employee to occupy its own building free of rent and in both the cases, the provisions of rule 3 would apply. Mr. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the provisions of rule 3 are only directory in nature and the expression, "ordinarily" occurring in rule 3 of the Income-tax Rules clearly shows that the provisions are directory in nature. He further submitted that the provisions of section 17 of the Act do not suggest that the value of perquisite should be determined as per the Income-tax Rules and in the absence of such an indication in section 17 of the Act, the pro visions of the said rule must be held to be directory. He also submitted that the fair rental value in the case of Amalgamations Ltd. for the assessment year 1979-80 was determined by the Appellate Tribunal in I. T. A. No. 571(Mds.) of 1983, dated October 17, 1983, at Rs. 42,000 and the Tribunal had noticed the fact that the Madras Corporation, had fixed the net annual value of the property at Rs. 5,460. He, therefore, submitted that the Tribunal has come to a cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental value of the accommodation is in excess of 20 per cent. of the assessee's salary, the value of the perquisite shall be taken to be 10 per cent. of the salary increased by a sum equal to the amount by which the fair rental value exceeds 30 per cent. of the salary ; so, however, that the Income-tax Officer may, having regard to the nature of the accommodation, determine the sum by which 10 per cent. of the salary is to be increased, as a percentage (not exceeding 100 per cent.) of the amount by which the fair rental value exceeds 20 per cent. of the salary ; (2) where the assessee claims, and the Income-tax Officer is satisfied that the sum arrived at on the basis provided above exceeds the fair rental value of the accommodation, the value of the perquisite to the assessee shall be limited to such fair rental value ; (B) where the accommodation is furnished, the value of rent-free residential accommodation shall be the aggregate of the following sums, namely :--- (1) the fair rental value of the accommodation arrived at in accordance with the provisions of sub-clause (iii)(A) as if the accommodation were not furnished ; and (2) the fair rent for the furniture (including tel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 20,000 the sum of Rs. 40,000 is regarded as the value of perquisite. But the Income-tax Officer is given the power to restrict the value of the perquisite either to 100 per cent. of the salary or the fair rental value of the property. In this case, the Income-tax Officer had chosen to adopt the first course and deter mined 100 per cent. of the salary as the perquisite value by applying the proviso to rule 3(a)(iii) of the Income-tax Rules in computing the perquisite value. We are of the view that mere employment of the expression, "ordinarily" in the main part of rule 3(a)(iii) does not show that the rule is directory. When the statute provides for a uniform method of valuation of the perquisite,, the. statutory method of valuation of perquisite should be adopted and all the authorities functioning under the Act including tile Appellate Tribunal are bound by the rules and it is not permissible to ignore or refuse to apply rule 3, on the ground that it is only directory, in nature or it is applicable only in cases where the house is owned by the employer and given to the employee free of rent. The object of the rule is to determine the value of the perquisite in all situations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt to try an election petition. Tile said word indicates that normally it would be single judge of the High Court who can exercise the jurisdiction which is vested in the High Court, but in appropriate cases, such jurisdiction can also be exercised by two or more judges." The principle laid down by the apex court will equally apply to the facts of the case as well. The employment of the expression, 'ordinarily' in the main part of rule 3(a)(iii) indicates that ordinarily the value of the property will be taken as 10 per cent. of the salary and where the fair rental value of the property in occupation of the employee exceeds 20 per cent. of the salary, then, instead of normal rule of 10 per cent. of the salary, the value of the perquisite should be determined in the manner provided in the proviso. Therefore, the expression, "ordinarily" in that context connotes that the value of the perquisite cannot be less than 10 per cent. of the salary in any case, but in the situation contemplated by the proviso to rule 3 of the Income-tax Rules, the value of the perquisite should be further increased and in that contingency, 10 per cent. of the salary fixed in rule 3(a)(iii) of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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