High Court of Delhi

Birla Vidya Niketan

v.

Income-tax Officer

Madan B. Lokur and Dr. S. Murlidhar,JJ.

IT Appeal No. 868 of 2007

September 13, 2007

Section 17(2) of the Income-tax Act, 1961, read with rule 3(5) of the Income-tax Rules, 1962 - Salary - Perquisites - Assessment years 2001-02 to 2005-06 - Whether proviso to rule 3(5) is attracted only where educational institution is itself maintained and owned by employer and free educational facilities are provided to children of employees - Held, yes - Assessee, a public school, had been charging concessional fees from children of its employees studying in school - Assessing Officer treated difference between concessional fee and normal fee as taxable perquisite in hands of employees - Assessee’s case was that as value of concession was less than Rs. 1,000 per month per child, in terms of proviso to rule 3(5), a concession of a total value of less than Rs. 1,000 per month would not be treated as perquisite - Whether since fee was being charged from children of employees, although at a concessional rate, there was no question of proviso to rule 3(5) being getting attracted in instant case - Held, yes

FACTS

The assessee, a public school, had been charging concessional fees from the children of the employees studying in the school at the rate of 50 per cent in respect of the standard/normal tuition fees, ancillary fees and computer fees and at the rate of 60 per cent in respect of the standard/normal sports fees and annual fees. The Assessing Officer treated difference between concessional fee and normal fee as taxable perquisite in hands of employees and computed short deduction of tax at source by the assessee in terms of section 201(1). The Assessing Officer also rejected the assessee’s contention that as the value of the concession was below Rs. 1,000 per month per child, in terms of the proviso to rule 3(5) a concession of a total value of less than Rs. 1,000 per month would not be treated as such. The Commissioner (Appeals) held that an exemption to the extent of Rs.1,000 per month should be allowed while computing taxable perquisite in respect of free educational facilities granted to the children of the employees in terms of rule 3(5). On revenue’s appeal, the Tribunal came to the conclusion that the proviso to rule 3(5) would not apply at all because the employer (assessee) did not provide free educational facilities to children of its employees and reversed the order of the Commissioner (Appeals). It held that if the proviso did not apply then it mattered little that value of the concession was less than Rs. 12,000 per annum.

On appeal

HELD

Proviso to rule 3(5) stands attracted only where the educational institution is itself maintained and owned by the employer and free educational facilities are provided to the children of the employee. In the instant case, the requirement of second part of the proviso was not fulfilled. Although the educational facilities were in fact being provided in the institution owned and maintained by the assessee itself, the educational facilities, were not provided free of cost. Admittedly, a fee was being charged even from the children of the employees although at a concessional rate. Therefore, there was no question of the proviso to rule 3(5) getting attracted in the instant case. The Tribunal’s order in that regard was unexceptionable. [Para 9]