IN THE ITAT MUMBAI BENCH ‘E’
Sankar
Krishnan
v.
Assistant
Commissioner of Income-tax, Ward 28(2), Mumbai
SUNIL KUMAR YADAV,
JUDICIAL MEMBER
AND ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
IT APPEAL
NO. 1715 (MUM.) OF 2005
[ASSESSMENT YEAR
2001-02]
JANUARY 28, 2008
Section 17(2) of the Income-tax Act, 1961,
read with rule 3, of the Income-tax Rules, 1962 - Salaries - Perquisites - Assessment
year 2001-02 - Whether as per amended provisions of rule 3 effective from
1-4-2001 actual amount of lease rent paid or payable by employer or 10 per cent
of salary, whichever is lower, as reduced by rent, if any, actually paid by
employee, is value of perquisites for rent free residential accommodation
provided by employer and fair rental value has no role to play in ascertaining
value of perquisite for rent free accommodation - Held, yes
Facts
The assessee, a salaried
employee, had been provided with a rent free accommodation (a flat) by his
employer-company. The monthly rent of the said flat was Rs. 10,000. The
employer had also given an interest free refundable security deposit of Rs. 30
lakhs to the landlord for renting of the said flat. For the assessment year
2001-02, the assessee filed his return of income declaring total income at Rs.
1,46,45,373. During the course of scrutiny assessment
proceedings, the Assessing Officer observed that the accommodation perquisites
of Rs. 1,20,000 shown by the assessee on account of said rent free
accommodation provided by the employer, was not correctly computed. The
Assessing Officer observed that the said flat had been sold by the landlord on
20-4-2001 for a total consideration of Rs. 95 lakhs. He further inferred that
the said amount of Rs. 95 lakhs actually represented the cost of flat when it
was taken on rental basis and, hence, the market rent of the said flat should
be between Rs. 50,000 to Rs. 75,000 per month. Since the employer had given
interest free deposits of Rs. 30 lakhs to the landlord, the Assessing Officer
was of the view that the interest at the prevailing rate of 12 per cent on the
said deposit was required to be taken into consideration for estimating the
fair rental value of the said flat. The Assessing Officer, therefore, worked
out the monthly rent of the said flat at Rs. 35,000 as against Rs. 10,000 per
month shown by the assessee-employee. Taking into consideration these facts,
the Assessing Officer had estimated the total rent receivable for the said flat
for the full year at Rs. 4,20,000. At the same time
the Assessing Officer was also of the view that as per rule 3(a)(iii)(A), 10 per cent of the salary was
required to be taken as taxable value of the rent free accommodation perquisites.
He having noticed that the total salary received by the assessee in the
relevant year was Rs. 1,41,38,780 adopted 10 per cent
of the salary amounting to Rs. 14,01,878 as the taxable value of the
accommodation perquisites. On appeal, the Commissioner (Appeals) confirmed the
action of the Assessing Officer.
On second appeal :
Held
The lower authorities
had examined the issue in the light of old provisions of rule 3(a), whereas rule 3 has been amended by the
Income-tax (Amendment) Rules, 2001 with retrospective effect from 1-4-2001. As
per the amended rules, the value of perquisites for the rent free residential
accommodation provided by the employer, shall be the actual amount of lease
rent paid or payable by the employer or 10 per cent of the salary, whichever is
lower, as reduced by rent, if any, paid by the employee. As per the amended
rules, there is no concept of determination of the fair rental value for the
purpose of ascertaining the value of perquisites for rent free residential
accommodation provided to the employees. As per old rules, the perquisite value
of the rent free residential unfurnished accommodation shall ordinarily be a
sum equal to 10 per cent of the salary due to the assessee in respect of the
period during which the said accommodation was occupied by him during the
previous year, provided that where the fair value of accommodation is in excess
of 20 per cent of the assessee’s salary, the value of perquisites shall be
taken to be 10 per cent of the salary increased by sum equal to that amount by
which fair rental value exceeds 20 per cent of the salary. But, according to
the second proviso where the Assessing Officer is satisfied that sum arrived at
on the basis of first proviso exceeds the fair rental value of the
accommodation, the value of perquisites to the assessee shall be limited to
such fair rental value. As per old provisions, the fair rental value was
required to be determined as it has its own role to play in determination of
value of perquisites of rent free accommodation. But, after the amendment, the
rule has been simplified and Table 1 has been given under rule 3 and according
to its item (2)(b), the actual amount of lease
rent paid or payable by the employer or 10 per cent of the salary, whichever is
lower, as reduced by the rent, if any, actually paid by the employee, is the
value of perquisites of the rent free residential accommodation. As per amended
rules, the fair rental value has no role to play and only the actual amount of
lease rent paid or payable by the employee, shall be
the value of the perquisites if it is less than 10 per cent of the salary of
the assessee. [
In the instant case,
the employer had paid the yearly rent of Rs. 1,20,000 and 10 per cent of the
salary of the assessee amounted to Rs. 14,01,878. As such, the rent paid by the
employer was less than the 10 per cent of the salary of the employee. According
to the amended rule 3 this actual lease rent paid shall be the value of
perquisites of the rent free accommodation provided to the assessee. Since the
fair rental value is not required to be computed as per the amended rules, no
cognizance could be taken of the interest free security given to the landlord
by the employer. Moreover, it is well-settled that the interest on interest
free security deposits should not be considered, while determining the fair
rental value of the property. Thus, the Assessing Officer was not justified in
taking into consideration the fair rental value of accommodation for computing
perquisite value of rent free accommodation and he was to be directed to accept
the perquisite value of the rent free accommodation as declared by the
assessee. [
Cases
referred to
Inderjit
Kapur v. First ITO [1983] 17
TTJ (Bom.) 207 (para 7), Q. Ubertalli v. First
ITO [1987] 28 TTJ (Bom.) 527 (para 7), Wim Manintveld v. Addl.
First ITO [1986] 17 ITD 561
(Bom.) (para 7), Tilak Raj v.
CIT [1989] 178 ITR 327/45 Taxman 279 (Punj. & Har.) (para 7), CIT v. Satya Co. Ltd. [1994] 75
Taxman 193 (
Pradip
Kapasi for the Appellant. Niraj Bansal for
the Respondent.
nn