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Judgment
K.M. Joseph, J.—In these writ petitions, what is under challenge is a clarification issued by the Central Board of Direct Taxes. The claim of the petitioners is that they are Central Government employees working on deemed deputation to BSNL. The question relates to the interpretation of Rule 3(1) of the Income Tax Rules, 1962. The provisions which are relevant are contained in Table I in relation of the value of residential accommodation provided in the Table. For the year effective up to 31-3-2005, the Table read as follows:
-------------------------------------------------------------------------------------------- Sl Circumstances Where the Where the No. accommodation is accommodation unfurnished is furnished -------------------------------------------------------------------------------------------- (1) (2) (3) (4) -------------------------------------------------------------------------------------------- (1) Where the accommodation License fee determined The value of perquisite as is provided by Union or State by Union or State Gov- determined under col.(3) Government to their emplo- ernment in respect of and increased by 10% per yees either holding office or accommodation in ac- annum of the cost of furni- post in connection with the cordance with the rules ture (including television affairs of Union or State or framed by that Govern- sets, radio sets, refrigerators, serving with anybody or un- ment as reduced by the other household appliances, dertaking under the control rent actually paid by air conditioning plant or of such Government on the employee. equipment) or if such furni- deputation. ture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year. -------------------------------------------------------------------------------------------- (2) Where the accommodation (i) 10% of salary in cities The value of perquisite as is provided by any other having population ex- determined under col. (3) employer and ceeding 4 lakhs as per and increased by 10% per (a) where the accommodation 1991 census; annum of the cost of furni- is owned by the employer, (ii) 7.5% of salary in ture (including television or other cities, in respect of sets, radio sets, refrigerators (b) where the accommodation the period during which other household appliance is taken on lease or rent by the said accommodation air-conditioning plant or the employer. was occupied by the em- equipment or other similar ployee during the pre- appliances or gadgets) or if vious year as reduced by such furniture is hired from the rent, if any, actually a third party, by the actual paid by the employee. hire charges payable for the Actual amount of lease same as reduced by any rental paid or payable by charges paid or payable for the employer or 10% of the same by the employee salary whichever is lower during the previous year. as reduced by the rent, if any, actually paid by the employee. -------------------------------------------------------------------------------------------- 2. The Rule as it stands now also essentially runs on similar lines in regard to the classification. According to the petitioners, they are Central Government employees working on deemed deputation to BSNL. BSNL is an undertaking under the control of the Government. Therefore, it must be treated as they are under the first category, namely, it must be treated as a case where the accommodation is provided by the Central Government. In the writ petitions, they have also stated in Ground C as follows:
C. Petitioners being the employees of Central Government on deemed deputation to the 2nd respondent, under the administrative control of DoT and being provided with housing accommodation owned by the 3rd respondent DoT, falls under serial No. 1 of the Table provided for valuation of perquisites in Rule 3 of the Rules. The clarification given by the 1st respondent in Ext. PI to the contrary is fallacious and illegal. Petitioners are/were paying rent as fixed by the Government on the housing accommodation.
A counter-affidavit is filed on behalf of respondents 2 and 3. In the counter-affidavit, it is stated as follows:
BSNL became a company with effect from 1-10-2000 which is fully owned by the Government of India. All the assets and liabilities of DOT has been transferred to BSNL vide OM. No. 2-30/2000 Restg., dated 30-9-2000. But the conveyance of deeds to BSNL are only under progress and yet to be completed. But BSNL is the custodian of all the assets of erstwhile DOT including the quarters and BSNL is allotting these quarters to all its staff irrespective of the fact whether they are BSNL absorbed staff or staff on deemed deputation.
As consequence of change of category of the employees after the BSNL became a company, the amendment made in relation to Section 17(2)(ii) of the Income Tax Act in Finance Act of 2007 has operated retrospectively. The concession in the matter of rent of accommodation provided by the employer to the employees is deemed to have been provided by the employer himself and the same is chargeable to tax in the hands of the employees. Therefore, the petitioners cannot take a contention that the accommodation given to them cannot be subjected to Income Tax. Income Tax is chargeable because the BSNL is giving them the accommodation.
I heard learned Counsel for the petitioners, learned Counsel appearing for BSNL besides learned Counsel appearing for the Income Tax department. Learned Counsel for the petitioners would point out that insofar as the petitioners are Central Government employees and they are on deemed deputation to BSNL, the accommodation which is provided to them must be treated as accommodation provided under Clause 1. It is also pointed out that the ownership is not transferred from the Central Government to the BSNL.
Learned Counsel for the petitioners also relies on the information downloaded from the website of the Income Tax department. Reliance is placed on Ext. P5 in WPC. No. 3894/08.
Under the old Rule 3 for purpose of valuation of the perquisite of unfurnished accommodation all employees are divided into three categories; Central and State Government Employees, employees of Public Sector Undertaking and Semi-Government organisation and others, ie., private sector employees. Under the new Rule 3, for purposes of valuation of perquisite of accommodation, employees are divided into just two categories instead (i) Government and State Government employees, (ii) Others.
Example-1. Mrs. Kumar is a Central Government employee on deputation with a Public Sector Undertaking. She is provided with rent-free furnished accommodation. Her salary as per Rule 3 - Rs. 10,000 per month, licence fee for accommodation is Rs. 300 per month, licence fee paid by her is Rs. 300 per month. Furniture provide costs Rs. 20,000. She is also provided with an Air-conditioner hired at the rate of Rs. 200 per month. What would be the value of perquisites of furnished accommodation.
Licence fee as per Govt. rules Rs. 300 X 12 = 3600 Less: Rent paid Rs. 300 X 12 = 3600 -------------- ----------- Value of perquisite Nil Nil Add: 10% of cost furniture of Rs. 20,000 = Rs. 2,000 Hire Charge of A/c Rs. 200 X 12 = Rs. 2,400 -------------- -------------- Total value of perquisite Rs. 4,400 per annum
for all other, i.e., those salaried taxpayers not in employment of the Central Government and the State Government, the valuation of perquisite in respect of accommodation would be at prescribed rates. Employees of public sector units who are not on deputation from Central or State Governments would also fall in this category. The rate is 10 per cent of ''salary'' in cities having population exceeding four lakhs as per the 1991 Census. For other places, i.e., those with population up to 4 lakhs the perquisite value 7.5 per cent of salary.
Example - 2. Mr. Sundaram is an employee in a multinational bank. He is provided with rent-free furnished accommodation. His basic pay is Rs. 15,000 per month.
Therefore, it is contended that the clarification found as in paragraphs 3 and 4 Ext.P1 which are extracted hereunder is bad in law.
As regards query in paragraph 4(4)(a) of your letter referred to above, it is to clarify that when a Government employee works with a PSU on deemed deputation or deputation, his employer would be the PSU.
Coming to the situation mentioned in paragraph 4(4)(b)(i) of your letter, it is to clarify that when such an employee resides in an accommodation provided by the PSU, the perquisite value in his case would be similar to what is applicable to all employees other than the Central Government and the State Government.
Having heard both parties, I am of the view that there is no merit in the contention of the petitioners. The petitioners are Central Government employees on deputation to BSNL. BSNL may be a public sector company coming under the Government of India. It is also pointed out that it is owned by the Government of India. But the issue that arises is the interpretation of the Rule as pointed out by the learned Counsel for the respondents and the question to be posed and answered is who provides the accommodation. Going by the pleadings, it would appear to be clear that the accommodation, as far as the petitioners are concerned, is provided not by the Central Government but by BSNL. In fact, going by the terms of the Rule, it may not even be strictly necessary to pose the question as to who owns the building. What is relevant is who provides the accommodation. For instance, even if a person is not the owner of the building, it may be open to him to take a building on lease or any other arrangement from the owner and to provide accommodation to his employees. In such a case also, it cannot be said that the employer has not provided the accommodation. Therefore, what is really relevant is who provides accommodation. In this case, going by the pleadings, in my view, it is clear that the accommodation is provided by the BSNL. The petitioners are at present working as employees of the BSNL. The clarification which is impugned in Ext. PI also proceeds on the same lines.
Having regard to the terms of paragraph 4 of Ext. P1, I would think that the view taken by the Central Board of Direct Taxes is in keeping with the correct position obtaining in law and I see no reason to take a different view. There is no merit in the writ petitions and hence they are dismissed.
Petition dismissed.