IN THE ITAT MUMBAI BENCH ‘B’
Assistant Commissioner of Income-tax, Mumbai
v.
Andrew Holland.
G.C. GUPTA, JUDICIAL MEMBER
AND V.K. GUPA, ACCOUNTANT MEMBER
IT APPEAL NOS. 6270 AND 6501 (MUM) OF 2003
[Assessment year 1998-99]
November 29, 2007
I Section 17(2) of the Income-tax Act,
1961 read with rule 3 (a)(iii)(A) of the Income-tax Rules, 1962 -
Salaries - Perquisites - Assessment year 1998-99 - During previous relevant to
assessment year 1998-99 assessee was employed as a senior official in
organization of employer-company in India - For first six months of his stay in
India (i.e., from April 1997 to September 1997) assessee was provided a luxury,
hotel accommodation by employer company - Thereafter, for remaining period he
was provided an accommodation taken on lease by employer - While calculating
value of perquisite of accommodation, assessee had claimed that since hotel
accommodation was a temporary one, no amount was to be included in total income
and that perquisite value was to be computed separately for each period when
hotel accommodation and flat, respectively, were provided to assessee - Whether
word ‘accommodation’ has a very wide amplitude and it include within its ambit
hotel accommodation also - Held, yes - Whether, therefore, there was no merit
in contention of assessee that no perquisite value should be included in total
income in respect of hotel accommodation - Held, yes - Whether, however, there
was merit in contention of assessee that as per rule 3(1)(iii)(A)
perquisite value of accommodation should be computed separately for each period
when accommodation and flat, respectively, were provided to assessee - Held,
yes - Whether, therefore, Assessing Officer was to be directed to compute value
of perquisite by taking salary for relevant period according to provisions of Explanation
1 to rule 3(a)(iii)(A) - Held, yes
II Section 17(2) of the Income-tax Act,
1961 - Salaries - Perquisites _ Assessment year 1998-99 - During previous
relevant to assessment year 1998-99 assessee was employed as senior official in
organization of employer-company in India - For staying in India assessee was
provided a luxury hotel accommodation - Assessing Officer made certain addition
to income of assessee on account of food, beverages and laundry expenses incurred
in hotel by assessee treating same as perquisite - Whether having regard to
status of assessee and duration of stay during year under consideration,
disallowance made by revenue was reasonable - Held, yes
During the previous year relevant to the assessment year 1998-99 the assessee was employed as a senior official in organization of employer-company in India. For first six months of his stay in India (i.e., from April, 1997 to September 97, the assessee stayed in luxury hotel accommodation provided by the employer-company. For the remaining period the assessee was provided an accommodation taken on lease by the employer. The assessee had worked out perquisites in respect of rent free accommodation period wise. The Assessing Officer held that computation of perquisite value of accommodation was to be done for the year as a whole and, accordingly, worked out the perquisite at certain sum comprising amount of rent paid in the second half of the year and two-third of total room rent of hotel. On appeal, the assessee contended that hotel accommodation was provided only as a temporary arrangement till regular accommodation could be arranged, hence, the same was not in the nature of perquisite and, consequently, no amount was to be included in the total income in respect of hotel accommodation and that as per rule 3(a)(iii)(A) perquisite value of accommodation was to be computed separately for each period when hotel accommodation and flat respectively were provided to the assessee. The Commissioner (Appeals), however, held that computation of perquisite value of accommodation was to be done for the year as a whole and not period-wise.
On second appeal:
It was an admitted position that the assessee had remained in India through out the previous year relevant to the assessment year 1998-99. It was also not in dispute that for the first 6 months, the assessee was put in a luxury hotel accommodation as a measure of transitional arrangement till such time regular accommodation could be arranged. Thus, it was not a case of compelling circumstances rather it was a case of provision of such accommodation based upon the assessee’s status in the organization and as per the terms and conditions of his employment. The word ‘accommodation’ is wide enough to include hotel accommodation also. Hence, there was no merit in the contention of the assessee that no perquisite value should be included in the total income of the assessee in respect of hotel accommodation. However, there was merit in the contention of the assessee that as per rule 3(a)(iii)(A), the accommodation perquisite value should be computed separately for each period when the accommodation and the flat, respectively, were provided to the assessee because the language of this rule is very clear in this respect and the interpretation made by the revenue authorities was not correct. This position can be explained by way of examples where the assessee may not have been given any accommodation in the 2nd half of the year or might have left the employment or might have been transferred to any other place, then, whether in those situations, the perquisite value should have been adopted for the whole year ignoring of those events, the answer is simply ‘no’. Now, this leads to further situation as how the value of perquisite should be computed for these two period independent of considering either rent paid for residential accommodation provided to the assessee in the 2nd half as a parameter for computing the value of perquisite for the whole year or taking the hire charges paid for hotel accommodation as a basis for computing the perquisite value for the whole year. It was also seen that both revenue authorities had taken two-third of the room rent paid to the hotel as the value of perquisite, however, no basis had been given therefor. Rule 2(a)(iii)(A) has got two provisos and there is an Explanation 2 below to item (B) of this rule which refers to the fair rental value and having regard to certain percentage of salary to determine the perquisite value. Explanation 2 refers to the determination of fair rental value on the basis of rent which similar accommodation would realize in the same locality or municipal valuation in respect of accommodation, whichever is higher. In such cases, the municipal valuation may not be there, but eventually, the rent for similar accommodation would always be higher from the municipal valuation in such cases, hence, the actual rent paid should be taken as the fair rental value and the perquisite value in respect of hotel accommodation should be worked out by applying proviso 1 and 2 accordingly. Explanation 1 provides for what should be included in the term ‘salary’ for the purpose of computing the value of perquisite. The Assessing Officer was directed to compute the perquisite value by taking salary for the relevant period according to the provisions of Explanation 1 to rule 3(a)(iii)(A). Thus, issue was restored for the computation of value of perquisite in respect of residential accommodation to the file of the Assessing Officer to be decided in the light of directions given hereinabove. [Para 14]
During the previous year relevant to the assessment year 1998-99 the assessee was employed as a senior official in organization of employer company in India. For staying in India the assessee was provided a luxury hotel accommodation.
The Assessing Officer made certain addition to income of the assessee on account of food, beverages and laundry expenses incurred in the hotel by the assessee treating same as perquisite. An addition being 50 per cent of telephone expenditure was also made treating the same as personal nature. The Commissioner (Appeals) upheld the addition.
On second appeal,
Admittedly, the assessee was a senior personal and, therefore, he had been accommodated in a luxury hotel. Having regard to the status of the employee and duration of stay in India during the year under consideration, the disallowance made by the revenue authorities was reasonable. Accordingly, all these grounds of the assessee stood dismissed. [Para 18]
EDITOR’S NOTE:
Following the decision of the Tribunal in the case of Jaydev H. Raja v. Dy. CIT [IT Appeal No. 2021 (Mum.) of 1998, dated 30-3-1999]. The Commissioner (Appeals) rightly held that the assessee was entitled to compute the value of tax perquisite after reducing the component of hypothetical tax from tax liability borne by the employer of the assessee.
CASE REVIEW:
Jaydev H Raja v. Dy. CIT [IT Appeal No. 2021 (Mum.) of 1998, dated 30-3-1999] followed [Para 6]