By TIOL News Service

MUMBAI, JUNE 12, 2018: THE issue is - Whether when there is a specific rule prescribing the method to determine the value of perquisites, the AO can be allowed to get away with ad hoc determination u/s 17(iii)(c). No is the answer.

Facts of the case

THE assessee, an individual, returned income from salary as well as income from other sources. On assessment, the AO noted that apart from her salary, the assessee had also obtained interest-free unsecured loan from her employer. Considering her monthly salary, the AO proposed to treat the value of benefit received by way of such interest-free loan as a perquisite and thus taxable under head income from salary. In her defence, the assessee claimed to have not been an employee of the firm and that the employer-employee relationship was missing, owing to which the unsecured loan received by her was not taxable. The AO further noted that the employer-firm had deducted TDS on the salary. The AO proceeded to determine value of the perquisites under Rule 3(7)(i) of the Income Tax Rules 1962. The AO further estimated interest @ 15% on such loan and added such amount to the assessee's income.

Later, the CIT(A) partly allowed the assessee's appeal. Regarding the value of perquisite towards interest-free loan, the CIT(A) held that the value of interest-free unsecured loan had to be assessed as perquisite and the allowability or otherwise of the interest in the hands of the employer was not relevant to the nature of benefit enjoyed by the assessee. The CIT(A) further held that the AO was correct in determining the value of perquisites in respect of interest-free loan but failed to follow Rule 3(7)(i) while determining the quantum of perquisite which is based on rate charged by SBI as on 1st day of the previous year in which year the assessee had received loan from the employer. Hence the CIT(A) re-determined the value of perquisite.

On appeal, the Tribunal held that,

++ the fact with regard to employment with M/s. Teej Impex Pvt. Ltd. is although disputed by the assessee, the AO has brought out clear facts to establish that the assessee is employed with M/s. Teej Impex Pvt. Ltd. and drawn salary of Rs 24 lakhs per annum. It is also an admitted fact that the assessee has taken interest free unsecured loan from her employer. Therefore, the AO was right in determining the value of perquisite in respect of interest free unsecured loan. Although the AO has determined value of perquisite as per the provisions of section 17(iii)(c), while calculating the value of perquisite he has adopted ad hoc 15% on outstanding loan amount instead of determining the value as per the prescribed rule provided under rule 3(7)(i) of IT Rules, 1962. The CIT(A) has determined the value of perquisites as per rule 3(7)(i) for Rs.20,64,938/- and allowed partial relief to the assessee. Facts remain unchanged. The assessee did not appear to controvert the findings of facts recorded by the CIT(A). Therefore, the CIT(A) was right in determining the value of perquisite as per rule 3(7)(i) and hence we are inclined to uphold the findings of CIT(A) and dismiss the appeal filed by the assessee.

(See 2018-TIOL-845-ITAT-MUM)