The Staff Unions and Officers' Associations of various banks have challenged either Section 17(2)(iii) or 17(2) (vi) or Rule 3(7)(i) of the Income Tax Rules or both. It has been contended that by taking the interest charged by the State Bank of India for the loans advanced for the same purpose, as the basis for determining whether the grant of interest free or concessional loan to an employee is a perquisite or not, the Rule Making Authority has deprived the individual employees of their rights to contest a jurisdictional fact namely that what was granted to them was not a concession or benefit or amenity. Therefore, the Rule is ultra vires Section 17(2)(viii), which survived the test of constitutionality only on the ground that it still provided a room for the Assessing Officers to test a jurisdictional fact. It was contended that the Rule is violative of Article 14, since it seeks to treat unequals as equals, by pegging the rate of interest charged by the individual banks on the loans advanced to their employees, with the rate of interest offered by the State Bank of India, without realising that each bank fixes its own rate of interest depending upon the economies of their operation. It was further contended that the Rule works out a great hardship to the employees and hardship is a ground on which a subordinate legislation can be tested and (iv) Rule 3(7)(i) is vitiated in as much as it tends to overrule the judgment of the Supreme Court in Arunkumar Vs Union of India.
Having heard the parties, the Court held that,
++ Section 17(2)(viii) does not quantify a fringe benefit or amenity. The Parliament has left it to the Government to prescribe what a fringe benefit or amenity would be. This is clear from the expression "as may be prescribed" used in Section 17(2)(viii);
++ under Section 17(2)(viii), the Parliament has left it to the wisdom of the Rule Making Authority, to prescribe the value of any other fringe benefit or amenity, as a perquisite. Section 17(2)(viii) does not use any expression similar to the expression 'concession' as used in Section 17(2)(ii). The only sine qua non for the invocation of Section 17(2)(viii) is the existence of a fringe benefit or amenity. Even if the existence of a fringe benefit or amenity is taken to be a jurisdictional fact, the Rule Making Authority, by prescribing the exact method of valuation of the fringe benefit, did not leave any fact in issue requiring adjudication by the Assessing Officer;
++ instead of leaving it to the individual wisdom (or the lack of it) of the Assessing Officers to find out whether something is a concession or not under Section 17(2)(ii), the Rule Making Authority prescribed under Rule 3(7)(i) a definite indicia for finding out the value of the fringe benefit.
++ the Parliament made any fringe benefit or amenity as prescribed by the Rule Making Authority, as a perquisite, leaving no scope for any adjudication. The method of valuation is prescribed by Rule 3(7)(i).
++ neither Section 17(2)(viii) nor Rule 3(7)(i) seek to treat unequals as equals.
++ the impact of Rule 3(7)(i) will not be the same on all categories of employees, but would differ from person to person depending upon the income bracket, to which, he belongs and the rate of interest, at which, he is granted a loan by his employer.
++ Rule 3(7)(i) does not seek to include an interest free or concessional loan taken by one set of employees to the exclusion of others. The Rule does not also stipulate different methods of valuation of the perquisite. It does not seek to apply a uniform rate for different categories of persons irrespective of the huge difference in their pay pockets.
++ if the employees of different banks, who are before the Court are in enjoyment of an interest free or concessional loan, paying different rates of interest such as 6%, 7% or 8%, what is sought to be included in their salaries under Rule 3(7)(i), is only the difference between the rate of interest charged by the State Bank of India in respect of loans for the same purpose and the interest actually charged by their employer. Therefore, Rule 3(7)(i) does not even make a classification between different categories of employees or between employees of different banks.
++ the petitioners cannot compare themselves with the employees of the State Bank of India, to contend that there. Therefore, the attack on the basis of Article 14 is completely meaningless.
++ by virtue of being an employee of the bank, if such employee receives an interest free or a concessional loan, then he is in enjoyment of a privilege. It is that privilege, which is sought to be taxed under Rule 3(7)(i). If converted into monetary terms, what is taxed at the hands of the employee, at the maximum, is about 30% of that privilege, which he enjoys as an extra benefit on account of being an employee of the bank. In other words, Rule 3(7)(i) causes a dent in the value of the privilege given to an employee by an employer, perhaps to the maximum extent of about 30%. This can never be considered as a hardship. Therefore, the third ground of challenge is also liable to be rejected. (para 40);
++ if salary is taxable and some perquisite or benefit forms part of a package, the same should also be taxed. The challenge to Section 17(2)(viii) as well as Rule 3(7)(i) has to fail.
(See 2016-TIOL-1028-HC-MAD-IT)
