JUDGMENT
Balia, J.
1. These two writ petitions are by the respective Staff Associations of M/s Aditya Cement and M/s Birla White Cement Plants which are two separate and independent Units of Grasim Industries Limited. The issue raised and the reliefs claimed in both these writ petitions are identical and hence, they were heard together and are being decided by a common order.
2. The reliefs claimed in both the writ petitions are identical and as under:-
(i) The Notification No. SO 940(E) dated 25.9.2001 reported in 251 ITR (ST.) 81 (Annexure/1) be quashed as violative of Articles 14, 300A, 301 and 304 of the Constitution of India;
(ii) Section 17(2)(vi)* as Parliament has deleged without authority of law and without any guideline, to select the items of perquisites and the valuation thereof to the Executive and the Rule-framing Authority be quashed and declared ultra vires the Constitution.
(iii) The assessing authorities constituted under the Income Tax Act to permanently refrain from enforcement of the Notification No. SO 940 (E) dated 25.9.2001.
(iv) Any other appropriate order or direction which this Hon’ble Court deems just and proper may kindly be issued.
3. From the perusal of the above reliefs claimed by the petitioners in the context of impugned Notification dated 25.9.2001, it is apparent that these reliefs relate to computation of taxable income of the members of the respective petitioners Associations who are in employment with M/s Aditya Cement and M/s Birla White Cement respectively under the Head ‘Income From Salaries’, which is to be computed in accordance with the provisions of the Income Tax act, 1961 (for short ‘the Act’). More particularly, the contentions relate to valuation of the perquisites, which from part of salaries, according to the Rules framed for that purpose.
CONTENTIONS:
4. The grievance of the petitioners is with reference to the insertion of Clause (vi) in Section 17(2) with effect from 1.4.2002 by the Finance Act, 2001 and amendment in Rule 3 of the Income Tax Rules, 1962 vide Notification dated 25.9.2001, which has been brought into force with effect from 1.4.2001.
5. The insertion of Clause (vi) in Section 17(2) of the Act has been challenged on the ground of excessive delegation of the legislative authority of the Parliament. It is contended by the learned counsel for the petitioners that by allowing the rule Making Authority to prescribe ‘any other fringe benefit or amenity’ to be included in the perquisites and to provide for its value to be included in Total Taxable Income of the assessee is without any guidelines. It has been left to the Rule making Authority to select the items of ‘fringe benefits’ and ‘amenities’ and prescribe method and mode of valuation thereof, which amounts to abdication of essential legislative function of parliament to subordinate legislation.
6. The amendment in the Rules of 1962 vide Notification dated 25.9.2001 has been assailed on two fold grounds. Firstly that such an amendment has been brought to give effect to insertion of Clause (vi) in Section 17(2) of the Act. Clause (vi) itself has been inserted in Section 17(2)* of the Act vide Finance Act, 2001 with effect from 1.4.2002 only. Framing of the impugned Rules to be operative with effect from 1.4.2001 results in giving effect to the substantive provisions with effect from 1.4.2001 when the substantive provision itself is to come into force with effect from 1.4.2002. It shows total lack of application of mind by the Rules Framing Authority to the task which has been entrusted to it. Secondly, the basis of computation of income to be taxed for the assessment year 2001-2002 which is earned in previous year relevant assessment year 2001-2002 i.e. financial year ending on 31.3.2002, cannot be altered retrospectively as ex-hypothesis, the tax on such income stands determined on close of the previous year in which the income of the assessee is earned as per the law prevalent at the time when taxing event took place. Learned counsel contends that law as it stands on 1st of April, 2001, at the commencement of the assessment year 200I-2002m, which reference to which income is to be assessed, is applicable, for computing taxable income of any assessee for the assessment year 2001-2002. The basis of computing the value of perquisites, while computing the total taxable income for the assessment year 2001- 02 has been altered by giving effect to the amended Rules retrospectively, according to the learned counsel, is not only contrary to law relating to assessment of income for any particular assessment year, but results in violation of Article 14 of the Constitution as it is unreasonable and also discriminatory.
7. In this connection, it has been urged that in the application of rules, the two persons who are not similarly situated are treated at par and two persons who are similarly situated may not be treated at par which results in violation of Article 14 substantively. For example Rule (3) provides strait-jacket formula of valuing perquisite relating to rent free house accommodation provided by an employer at fixed percentage of salary without reference to geographical situation of accommodation results in two wholly differently valued house accommodation to be valued at par, so conversely when two employee drawing different pay are allotted free accommodation of same size quality and at same site, lends themselves paying different tax, because value of same perquisite being determined at different level depending upon level of salary. It is urged value of like perquisite for two persons cannot be different but this difference takes place due to Rule (3) as substituted vide amendment in question,
8. On the other hand, the learned counsel appearing for the Revenue has urged that amendments brought into the Act as well as the Rules are valid. By insertion of Clause (vi) in Section 17(2) of the Act, no new liability has been imposed. It has only been clarified that fringe benefits or amenities which from part of perquisites, their value as may be prescribed by Rules for being included in the computation of total income of the assessee under the Head of ‘Salaries.’ He contended that the Rules can be framed retrospectively as the rules Making Authority has been conferred with specific powers to frame the rules retrospectively by parent legislation.
9. The contention of the learned counsel for the Revenue is that in fact the question of retrospectivity about applicability of Rules, which has been brought into force with effect from 1.4.2001 really does not arise and does no affect the members of the petitioners Associations in any manner. It has been left at the option of the tax-payers to be governed by the unamended Rules for the period upto the date of Notification for the assessment year 2001-2002 or by the amended Rules. Therefore, it is for the assessee to choose such method of valuation of perquisites for the assessment year 2001-2002, which appears to him more beneficial. It was also urged by the learned counsel for the Revenue that in taxing statute, more latitute has been given to the persons entrusted with the implementation of the fiscal statute to fill in the details once the subject of levy has been specified clearly by the parent statute.
IMPUGNED AMENDMENT
10. Vide Finance Act. 2001 following Clause (vi) has been inserted in Sub-section (2) of Section 17 after existing Clause (v):
“The value of any other fringe benefit or amenity as may be prescribed.”
11. Here it may be noticed to clarify that in the Finance Bill 2001 aforesaid Clause was numbered as Clause (vii). Clause (vi) was originally inserted vide Act No. 47/84 w.e.f. 1.4.85 in different from to state that where an employer advance interest free loan or Loan at concessional rate to any employee for the purpose of building a house or purchasing a site or a house and site or for purchase of a motor car, value of such benefit be included in the income of such employee by valuing the advantage so received with reference to rate of interest notified by Central Government in that regard. However, employees of Central Government and State Government were exempted from the rigour of this provision so also person drawing cash emolument less than Rs. 18000/- p.a. were kept out of its operation. This new Clause (vi) however, did not come in operation at all as it was omitted by Act No. 32/85 retrospectively w.e.f. 1.4.85.
12. Vide impugned Notification Rule 3 prescribing method and mode of determining monetary value of specified perquisites not received in cash has been substituted with new mode an method of determining monetary value of specified perquisites.
SCHEME UNDER THE PARENT ACT TO TAX ‘INCOME FROM SALARIES’
13. in order to appreciate the contentions and the effect of amendments, it would be apposite to notice the scheme of income Tax Act particularly in the context of computing Income under the head Salaries.
14. Once the scheme of computing the Income under the Head ‘Salaries’ and meaning of term ‘perquisites’ is properly understood, there is not room for argument to contend that insertion of Clause (vi) in Section 17(2) of the Act with effect from 1.4.2001 suffers from excessive delegation of essential legislative functions.
15. Section 4 of the Act is a charging section, which authorises levy of Income tax on any income of any person. It clearly provides that where any Central Act enacts that Income Tax shall be charged for any assessment year at any rate or rates, income tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions (including provisions for the levy of additional income tax) of this Act in respect of the total income of the previous year of every person.
16. The term ‘total income’ has been defined in Section 2(45) of the Act to mean the total amount of income referred to in Section 5 computed in the manner laid down in this Act.
17. Section 2(24) of the Act defines ‘Income.’ The Act does not define the terms ‘Income’ exhaustively but it provides inclusive definition. However, for the present purpose, attention is drawn to Clause (iii) of Section 2(24) of the At, which provides that Income includes the value of any perquisite or profit in lieu of salary taxable under Clause (2) and (3) of Section 17, This brings us to consider the scheme of computation of total income, which is contained in Chapter IV of the Act.
18. Section 14 deals with Heads of Income. It provides that save as otherwise provided by this Act, all income shall, for the purposes of charged of income-tax and computation of total income, be classified under the following heads of income:
A. Salaries
B. Interest on securities (Omitted by Finance Act, 1988 w.e.f. 1.4.1989)
C. Income from House Property
D. Profits and Gains of business or Profession
E. Capital Gains
F. Income from other sources.
19. The computation of income under the head of ‘Salaries’ has been dealt with in Part A of Chapter IV of the Act, which consists of Section 15 to 17 of the Act, Section 15 deals with various factors which constitute the income chargeable to income tax under the head ‘Salaries.’ Section 16 deals with education from salaries. Details of these provisions need not detain us for the present purpose.
20. Section 17 which is relevant for the present purposes define ‘Salary,’ ‘perquisite’ and ‘profits’ in lieu of salary.’ Section 17 of the Act read as under:
“Section 17. For the purposes of Sections 15 and 16 and of this section:-[1] “Salary includes-
[i] wages;
[ii] any annuity or pension;
[iii] any gratuity;
[iv] any fees, commissions, perquisites or profits in lieu of or in addition to any salary of wages.
[v] any advance of salary;
[va] any payment received by an employee in respect of any period of leave not availed of by him;
[vi] the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under Rule 6 of Part A of the Fourth Schedule; and
[vii] the aggregate of all sums that are comprised in the transferred balance as referred to in Sub-rule (2) of Rule 11 of part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which is chargeable to tax under Sub-rule (4) thereof;
[2] ‘Perquisite’ includes-
(i) the value of rent free accommodation provided to the assessee by his employer;
(ii) the value of any concession in the matter in the matter of rent respecting any accommodation provided to the assessee by the employer;
(iii) the value of any benefit or amenity granted or provided free or cost or at concessional rate in any of the following cases:-
(a) by a company to an employee being a person who is a director thereof;
(b) by a company to an employee being a person who has a substantial interest in the company;
(c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income under the head ‘salaries’ (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds fifty thousand rupees;
Provided that nothing contained in this sub-clause shall apply to the value of any benefit provided by a company free of cost or at a concessional rate to its employees by way of allotment of shares, debentures or warrants directly or indirectly under any Employees’ stock option plan or Scheme of the Company offered to such employees in accordance with the guidelines issued in this behalf by the Central Government.
Explanation-For the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or any employer for journey by the assessee form his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of costs or at concessional rate for the purposes of this sub-clause.
(iii) Omitted by the Finance Act, 2000 w.e.f. 1.4.2001.
(iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee; and
(v) any sum payable by the employer, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund or a deposit linked insurance fund established under Section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or as the case may be, Section 6C of the Employee’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) to effect an assurance on the life of the assessee or to effect a contract for any authority.
The value of any other fringe benefit or amenity as may be prescribed. (inserted by Finance Act, 2001 w.e.f. 1.4.2002).
21. From the aforesaid, two things are very obvious. Firstly, that total income chargeable to tax had to be assessed for any assessment year. The income is one which is earned accrued or received by the assessee during the previous year relevant to the assessment year for which income is to be assessed to tax. Concept is of the total income earned during the year is determined at the end of the period, it is required to be computed in accordance with the provisions of the Act. The scheme of computing income under the various provisions of the Act has to be viewed wholesomely and not with isolated vision. Another thing which is obvious from the provisions referred to above is that computation of income under the head ‘Income from Salaries’ is not confined to payment of periodical cash payment but is to be understood in its wider sense to include the valuation of any perquisite or profit in lieu of salary which he enjoys by dint of his employment under Section 2(24) (3) read with Section 17 (2) and (3) of the Act.
22. In the world of employment, employment is the wholesome expression what one gets from the employer for services rendered in whatever term. It is wider than ‘salaries’ in the literal sense. Salary in narrower sense denotes only fixed periodical payment in cash, but does not include reimbursement fee, cash, kind or other advantages from the employer.
23. In ordinary dictionary meaning, the word salary means “fixed periodical payment for doing other than manual or mechanical work.”
24. As per the Random House Dictionary of the English language “salary” has been defined as:-
“A fixed compensation periodically Paid to a person by regular work or services specially work other than of manual, mechanical of mention Kinds. It has been described as synonymous to pay.”
25. Salary in its narrower sense conveys fixed periodical payment in cash payable to a person by way of compensation for services rendered by him to other person whereas salary in its broad wholesome sense refers to all employments of the office of employment which not only include a fixed periodical payment but also includes all other benefits, profits and amenities attached to such employment whether in cash or in kind of in the form of personal advantage. The provision of computation of income from salary, goes to show that such income from salary refers to salary is its broad sense to include perquisites and profits in lieu of salary after these terms have been defined under Section 17 of the Act.
26. The expression “perquisite” with reference to the employments of an employment has a well-defined connotation and is not a term of art.
‘PREQUISITES’ AND FRINGE BENEFITS’ AS UNDERSTOOD GENERALLY AND AS DEALT WITH UNDER TAXING STATUTE:
27. If we look at the ordinary dictionary meaning of “perquisite”, it reflects anything-benefit, amenity or profit, attached to office of entitlement under employment in addition to regular fixed payment of salary in its narrower sense. In Webster English International Dictionary its meaning is:-
“A gain or profit incidentally made from employment in addition to regular salary or wages especially one of a kind expected or promised”.
28. The Oxford Dictionary gives perquisite its meaning as:-
“A casual employment, fee or profit attached to an office or position in addition to salary or wages.
29. The Random House Dictionary of English Language says ‘perquisite’ to be
“An incidental emolument fee or profit over and above fixed income, salary or wages. Also called perk, (perq).”
30. By way of illustration it has enumerated, use of a servant, a servant’s customary right to claim used or discarded items, any bonus or fringe benefits granted to an employee as free use of company car. This is by no means exhaustive to encompass all that comes within the purview of term perquisite in its ordinary sense, as an incidental or additional emolument, benefit, amenity or advantage attached to office. By envisaging an inclusive definition of term perquisite in the context of income from salary this generic meaning of perquisite is adopted by legislature.
31. The word “perquisite” in Juridicial expression has also received the connotation which gives expression “salary a broad spectrum coverage.
32. Meriam — Webster’s Dictionary of Law describes Fringe Benefits as ‘an employment benefit (as a pension, a paid holiday, or health insurance) granted by an employee that has a monetary value but that does not affect basic wage rates.”
33. According to Blacks Law Dictionary, “perquisites” have been defined to mean:
“Emoluments fringe benefits or other incidental profits or benefits attaching to an office or position. Shortened terms “perks” used with reference to such extraordinary benefits conferred to business executives, e.g. free Car, Club Membership, insurance etc. etc.
34. Strouds Judicial Dictionary has explained “perquisites” in the context of the expression used in Income Tax Act and fiscal statues to mean:-
“Perquisites” as used in Income Tax Act, 1842……. might have included a gratis residence by an employee in this employer’s house, although employee could not sublet it – but for the fact that construction was prevented by Rule 4 of the same schedule which defined perquisite for all purposes which defined perquisites.
“Such profits of offices and employments as arise from fee and other emoluments and payable either by the crown or by the State in the course of executing such office or employment.
Perquisite means personal advantage and as used in Schedule-II of paragraph 1 of the Finance Act, 1956 was held to include use of a car given to an employee and return of wage reduction.”
35. House of Lords in Owen v. Pook (1), said perquisite has a known normal meaning namely a personal advantage. The word could not apply to a mere reimbursement of a necessary disbursement.
36. Section 17(1) of the Act, which defines ‘salary for the purpose of computing income from ‘salary for the purpose of computing income from ‘salaries’ reveals that it has been used in wider sense of the terms which includes not only periodical payment but emolument of service in all its forms. In this context keeping in view the definition of income under Section 2(24), term perquisite has been defined comprehensively in Section 17(2) of the Act by way of any inclusive definition which has been reproduced hereinabove.
37. It may be noticed that Section 17(2) which defines the terms perquisite does not define it exhaustively but provides an inclusive definition. It is well settled that when there is an inclusive definition, ordinarily the ordinary meaning of word prevails over and above he words of inclusive definition for the purposes of that statute. The scope of an inclusive definition cannot be restricted to those categories only which occur in the definition, but an inclusive definition will extend to so many other things ordinary falling within the parent expression, which are not talked of in the section.
38. The definition has tried to split the various types of perquisite attached with employment in three broad categories that may be within the sphere of expression ‘perquisites’ and form part of the taxable income under the head salary. However, one thing which as a common characteristics appear from the provision is that in order that such benefit, amenity of payment may be termed perquisite, it must be in pursuance of a right conferred on or option given to the employee to receive such benefit or advantage from his employer. Unless such advantage from his employer. Unless such advantage or benefit flows from the status of the person working as a employee as a matter of right or at his option to be exercised as an employee it cannot be termed as perquisite. The employee must have a vested right to claim advantage or benefit whether in cash or in kind, in order to fall within the purview of perquisite as part of salaries taxable under the Income Tax Act.
39. Reference in this regard may be made to CIT v. Rassel (2), which explains the distinction between personal expenditure in insurance policy taken by the employee and reimbursement by the employer on the one hand and such insurance policy taken by the employer in order to meet the contingency of paying compensation for injuries or death. Which in the former case, the reimbursement of payment made by the employee of the personal insurance policy taken voluntarily by him may amount to a perquisite, in the latter case it was held that the premium paid by the employer towards such policy was not assessable in the assessee employee as perquisite because it could not be said that assessee had any vested right in the premium amount which the employer was so paying in respect of the policy. It was primarily for the employer’s own advantage to indemnify himself against possible liability.
40. Construing Section 7(1) read with Sec, Explanation 1(iv), of the Indian Income Tax Act, 1922, which defined perquisite, in Commissioner of Income Tax, Kerala & Comibatore v. L.W. Russel Russel (3), the Supreme Court said:-
“This section imposes a tax on the remuneration of an employee. It presupposes the existence of the relationship of employer and employee. The present case is sought to be brought under the head “perquisites in lieu of, or in addition to, any salary or wages, which are allowed to him by or are due to him, whether paid or not, from, or are paid by or on behalf of a company.” The expression “perquisites” is defined in the Oxford Dictionary as “casual emoluments, fee or profit attached to an office or position in addition to salary or wages.” Explanation 1 to Sub-section (1) of the Act gives an includes definition. Clause (v) thereof includes within the meaning of “perquisites” any sum payable by the employer, whether directly or through a fund to which the provisions of Chs. IX-A and IX-B do not apply, to effect an assurance on the life of the assessee or in respect of a contract for an annuity on the life of the assessee. A combined reading of the substantive part of Section 7(1) and Clause (v) of Expl. 1 thereto makes it clear that if a sum of money is allowed by the employee by or is due to him from or is paid tenable the latter to effect an insurance on his life, the said sum would be a perquisite within the meaning of Section 7(1) of the Act and, therefore, would be eligible to tax. But before such sum becomes so eligible, it shall either be paid to the employee or allowed to him by or due to him from the employer. So far as the expression “paid” is concerned, there is no difficulty, for it takes in every receipt by the employee from the employer whether it was due to him or not. The expression “due” followed by the qualifying clause “whether paid or not” shows that there shall be an obligation on the part of the employer to pay that amount and a right on the employer to claim the same. The expression “allowed”, it is said is of a wider connotation and any credit made in the employer’s account is covered thereby. The word “allowed” was introduced in the secretion by the Finance Act for 1955. The said expression in the legal terminology is equivalent to “fixed, taken into account, set part, granted” It takes in perquisites given in cash or in kind or in money or money’s worth and also amenities which are not convertible in money. It implies that a right is conferred on the employee in respect of those perquisites. On cannot be said to allow a perquisite to an employee if the employee has no right to the same.”
41. We may notice that what was compositely expressed in Section 7 of 1922 Act, has been compendiously made part of Scheme of Section 15 and 17 of the Income Tax Act, 1961. Section 15 of the Act of 1961 makes salaries due from an employer whether paid or not, or salary paid or allowed to him by the employer though not due to him or arrears of salary paid or allowed to him by the employer during previous year. Section 17(1) defines salary to include amongst other things wages, perquisites and profits in lieu of salary.
42. Section 17(2) defines ‘perquisites’ as it was defined in Explanation 1 to Section 7(1) of the 1922 Act. Combined effect remains the same that before any benefit, amenity or payment can be included in salary as perquisite it must be under a vested right.
43. Conversely any benefit of amenity unauthorisedly used by an employee is not a perquisite. It may though made him liable to restore to the employer such benefit or advantage unauthorisedly availed.
44. The inclusive definition of perquisite under Section 17(2) thus justifies the conclusion that meaning which should be assigned to the term “perquisite” be its ordinary meaning and it must include all such benefits, amenities advantages or payments which the assessee gets from his employer as entitlement. Any such benefit or amenity or advantage through not specifically stated in inclusive definition falls within the purview of term perquisite unless excluded by statute or exempted by Competent Authority having power to do so.
45. Sub-clause (i) and (ii) deal with the particular advantage availed by a person as an employee in the form of getting a rent- free accommodation or any accommodation at concessional rent. There is no dispute about inclusion of the value of rent free accommodation or the concession in rent in respect of any accommodation provided to the assessee by the employer, which as perquisite is to be included in computation of income from salaries. In fact, there is no dispute about the inclusion of value of any advantage, benefit or amenity falling under Items No. (I) to (V) of Sub-section (2) of Section 17.
46. Closely looked Clause (iii) and Clause (iv) read together provided a wholesome scheme of including all benefits, the amenities extended to the assessee, or the expresses of the assessee borne by the employer which otherwise were to be borne by the employee are to be included in the taxable income of the person receiving the same as salary. Section 17(2)(iii) refers to value of any benefit or amenity provided free of cost or at a concessional rate to a person as a Director of a Company or to a person who is a Joint Director but he was substantial interest in the company within the meaning of Sub-section (32) of Section 2 and in respect of other employees who are in receipt of cash emoluments includible in salary, excluding the value of all benefits or amenities, exceeding Rs. 50,000/-. This limit has been increased from time to time. Clause (iv) of Sub-section (2) includes in its term all sums paid by the employer in respect of any obligation which but for such payment would have been payable by the assessee-employee.
47. By way of illustration we may notice that within the purview of this provision, the advantage to an assessee flowing from overdrawing of sums in addition to the salary on which no interest is charged or interest is charged at concessional rate, was held to be perquisite within the meaning of Section 17(2)(iii) in CIT v. Kulandaivelu Konar (4). This was so held even without any provision like Clause (vi) as was inserted for the first time vide Taxation Amendment Act of 1984 (Act No. 67 of 1984) w.e.f. 1.4.5, which was never brought into operation as the same was omitted vide Act No. 32/85 w.e.f. 1.4.85. Likewise, where employer sold its motor-car at book value to an employee when the value of the case was at much higher price, the difference between the price at which car was sold to the employee and the value of the car which employee got on sale in the open market was held to be perquisite by Gujarat High Court in B.V. Bhatt v. CIT (5), decided on 19.2.75.
48. On me other hand, Clause (iv) of Sub-section (2) of Section 17 includes within expression perquisite any sum paid by the employer in respect of any expenditure which otherwise would have been payable by the employee. This provision has accounted in most general terms and includes all payments made by the employer for amenities which otherwise would have been obligation of the employee to incur are included e.g. providing household servants including e.g. providing household servants including Sweepers, Gardeners and Watchman, reimbursement of tuition fee or providing for children education allowance, payment by the employer on life insurance policy taken by the employee or any charges and other outgoing in respect of employees residence, like water and electricity bills. The allowance paid to him to meet extra cost of living at metropolitan cities, the travelling concession made from personal holding of employee or his family, the amenities provided by way of supply of gas free of cost or at concessional rate or the person carrying transport vehicles as the case may be providing transport free of cost or at concessional rates to its employees all fall within the purview of perquisite and are liable to be taxed under the head income from Salaries, of course, subject to other provisions of the Act. That is to say where certain expenses though properly falling with perquisites have been exempted under Section 10 or the Central Board of Taxes in its wisdom has though it fit to exclude its inclusion in the computation of total income or under the same, or under other provision of the Act the same is not included.
49. But the list of benefit or amenities which could from part of the perquisite cannot be laid down exhaustively and any item to be part of the perquisite, entitlement of an employee to it has to be adjudged on its own in the light of statutory provisions about the same.
50. In fact, the salary namely the periodical wages payment, the benefits attached to the employment as perquisites and other advantages flowing because of such employment with the employer constitute part of remuneration or employment in constituting the wage structure in general. Which part of it and the extent to which such emoluments are taxed or are kept out of tax ken is part of the fiscal policy projected in fiscal statutes.
51. As per Davis-Bacon Wage Survey life insurance premium, health insurance premium, pension, vacation, holidays, sick leave and all other bonafide fringe benefits, constitute part of wage. However, payments required by federal, State or local law are not fringe benefit. Such payments required to fund Social Security, unemployment compensation and workers’ compensation programs, as required by law, do not count as fringe benefits. Common fringe benefits which are named therein are category either company provided Car, the Educational Assistance Programs. Employee Discounts, Employee Stork-Purchase Plans, Employer provided Travel, Free Parking, Group Term Life Insurance, interest-free of Bargain-Rate Loans, Meals and lodging, Medical & Dental Care, no – additional – cost services, out placement service, retirement plans, retirement planning services, stock bonuses & bargain purchases, transit passes, working condition etc.
52. Fringe benefits in the Australian Statues: Fringe benefits tax is leviable wherein the employer provided car parking near his place of employment, Such benefit is subject to fringe benefit tax where the employer provides free clothing or otherwise directly taxed clothing as a benefit to the worker. Such benefit is subject to fringe benefit tax. Company Car provided for private use to a worker, is also subject to liability. A house or other accommodation provided by the employer is assessable to fringe benefit taxable according to current market rental. This amount paid by the employer for any occupancy so also where the employer waives or forgives a workers debt. The said benefit is subject to Fringe Benefits Tax unless there is a written note of a genuine bad debt.
53. As per the Fringe Benefits Tax Assessment Act, 1986 of the Australian Statutes, the value of fringe benefits provided to a worker as component of salary package are generally assessable. In the case of fringe benefits, the assessable amount is taxable value of the benefits according to Assessment act, 1986.
54. The aforesaid discussion and reference to various definitions has been made to highlight that in the context of levying tax on income from salaries, inclusion of perquisites and fringe benefits is nothing new but is an ordinarily accepted concept while laying down the policy for taxing the incomes from salaries which includes perquisites and fringe benefits. In fact, in some of the definitions, fringe benefits have been used as a synonym of perquisite and in some cases, the distinction is made while the perquisite is a part of the salary package offered as per terms of employment and fringe benefits are advantages that flow to an employee or member of his family because of his status as an employee of a particular establishment but it is directly annexed with the employment of the assessee. No benefits, which flow de hors the status of an employee of an establishment can be treated as fringe benefit. Therefore, any amenity benefit or personal advantage capable of expressed in terms of money value becomes part of salary in view of very comprehensive definition of salary given under Section 17(1) which includes value of any perquisite and profit in lieu received by the employee from his employer. To what extent, such perquisites and other benefits are to be included in taxable income, how they are to be valued, and to what extent they are to be excluded from the perview of taxation is a matter of legislative policy and details.
55. Viewed in that light, the definition of perquisites being an inclusive definition and not exhaustive, the insertion of Clause (vi) by the Finance Act, 2001 to include ‘the value of any other fringe benefits or amenity as may be prescribed’ is not deviation from the basic concept of perquisite as part of salary. The insertion of Clause (vi) is by was of abandon caution and not by way of any expansion of the definition. No legal fiction has been created to bring within purview of perquisite something which otherwise does not come within the purview of expression perquisites. Where a particular advantage or benefit received by any person as an employee or as a member of the employee’s family/household to be assessed under the Income tax Act will have to be determined, firstly, on the basis of general principle and then it is to be valued and to be determined in accordance with rules, if any, prescribing for its valuation else it is to be valued as per current market value of the benefit in the hands of the assessee from his employer. We see no violation of Constitutional limits of legislative powers in leaving it to the Rule Making authority to provide for the machinery provision for valuing the perquisites and fringe benefits which may form part of salary as ‘perquisites’ as per the term defined under Section 17(1) which is to be introduced. Clause (vi) of Section 17 (2) does not occurred in deliction to treat to anything as a fringe benefit as perquisite which may otherwise not come within its perview. In fact, none of the provisions under Section 17(2) or under the impugned rules deviate from the basic concept of perquisites and fringe benefits as part of salary in its wider sense.
IMPUGNED NOTIFICATION
56. A birds eye-view of the Notification dealing with the valuation of perquisite goes to show that it provides for the following benefits or advantage received by an employee from his employer directly or indirectly.
57. Sub-rules (i) provides the value of residential accommodation provided by the employer during the previous year is to be determined on the basis of the table provided under Sub-rule (i);
58. Sub-rule (ii) provides the mode of valuing perquisite provided by way of use of motor car;
59. Sub-rule (iii) provides for value of benefit to the employer or any member of his household resulting from the provision by the employer of services of a sweeper, a gardener, a watchman or a personal attendant at the cost of the employer;
60. Sub-rule (iv) speaks about the value of the benefit to the employee resulting from the supply of gas, electric energy or water for his household consumption; whether free of cost or at concessional rate;
61. Sub-rule (v) deals with the value of benefit to the employee resulting from the provision of a free or concessional educational facilities for any member of his household;
62. Sub-rule (vi) provides for value of any benefit or amenity resulting from the provisions by any undertaking engaged in the carriage of passengers or goods to any employee or to any member of his household for personal or private journey free of cost or at concessional rate, in any conveyance owned, leased or made available by any other arrangement by the undertaking;
63. Sub-rule (vii) deals with some specific items dealt with reference to Clause (vi) of Sub-section (2) of Section 17 which inter alia includes the following:-
(i) Interest loan-free of loan at concessional rate of interest.
(ii) The value of travelling, touring, accommodation and any other expenses paid for or borne or reimbursed by the employer for any holiday availed by the employee or any member of his household, other than concession or assistance referred to in Rule 2B, is to be determined under this rule;
(iii) The value of free meals provided to the employee by the employer. Proviso (i) exempts from inclusion the value of free loans to the extent provided thereunder.
(iv) The value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise. However, value of such gifts, voucher or token, if in aggregate, is below Rs. 5,000/-, the value of such perquisites is to be taken nil.
(v) Deals with the amount of expenses including membership fees and annual fees incurred by the employee or any member of his household, which is charged to a credit card (including any add-on-card), provided by the employer or otherwise, paid for r reimbursed by the employer as reduced by amount, if any, paid by or received from such employee. However, where such expenses are incurred wholly and exhaustively for official purpose, then no value of same shall be included as perquisite.
(vi) Provides the value of benefit to the employee resulting from the payment or reimbursement by the employer of any expenditure incurred (including the amount of annual or periodical fee) in a club by him or by any member of his household, it also provides that where the employer has obtained corporate membership of the club and the facility is enjoyed by the employee or any member of his household, the value of perquisite shall not include the initial fee paid for acquiring such corporate membership. In respect of this benefit, it has further been ordained that if such expenditure is wholly or exclusively incurred for business purposes, on fulfillment of certain conditions, the same is not to be included in perks, so also where the facilities of health club, sports and similar facilities provided uniformly to all employee by the employer the value of such facility is not to be included in the value of parks to augment the salary of employee.
64. Sub-rule (vii) prescribed to value the benefit to the employee resulting from the use by the employee or any member of his household of any moveable asset (other than assets already specified in this Rules and other than laptops and computers) belonging to the employer or hired by him be determined at 10% per annum of the actual cost of such asset incurred by the employer for providing such facilities; and lastly.
65. Sub-rule (viii) provides the value of benefit to the employee arising from the transfer of any moveable asset belonging to the employer directly or indirectly to the employee or any member of his household at less than the depreciated value to be computed at annual rate of 10% of such cost for each completed year during which asset was put to use by the employer and further reduced by amount, if any, paid or recovered from the employee being the consideration for such transfer. Provided that in the case of computers and electronic items, and motor cars the depreciation has been envisaged at higher rate.
66. After prescribing valuation of these specific common perquisites and fringe benefits residuary clause has been included as under:-
(8) The value of any other benefit of amenity, service or privilege provided by the employer shall be determined on the basis of cost to the employer under an arms’ transaction as reduced by the employees’ contribution, if any.
However, nothing contained in this sub-rule shall apply to the expenses on telephones including a mobile phone actually incurred on behalf of the employee by the employer.
67. This clearly shows that neither the parent legislation nor its delegate has ventured to exhaustively enlist the perquisites and fringe benefits.
68. The enumeration of aforesaid list of provisions providing for value of different kind of benefits or advantages received by an employer or any member of his household from the employer clearly indicates that neither the definition nor the Rule Making Authority has deviated from the basic concept of perquisites as part of salary as per the terms known generally in the oral parlance and in the context of tax law statutes.
WHETHER INSERTION OF CLAUSE (VI) IN SECTION 17(2) AMOUNTS TO ABDICATION OF ESSENTIAL LEGISLATION FUNCTION BY CENTRAL LEGISLATURE
69. There is no challenge to legislative competence of the Parliament to provide for taxing perquisites as part of income from salary, nor there is any contention against ordinary sense in which term perquisites or fringe benefits are understood by judicial world. Therefore, introduction of Clause (vi) in Sub-section (2) of Section 17 cannot be dubbed in any manner violative of any provisions of the Constitution or Parent Act.
70. What is essential for sustaining the delegation of such power is that legislative policy for exercise of such power must be made discernible by the legislature itself. Laying down of such legislative policy by the legislation is essential to delegate the power.
71. In this connection, we are reminded of the well-settled principles about the limits of legislative delegation. It is trite to say that legislature cannot delegate the essential legislative functions which consist in determination or choosing of the legislative policy and of formally enacting that policy into binding rule of conduct. This pronouncement was made by the Supreme Court in Re Article 143 of Constitution of India (6) and Harishanker Bagla v. State of M.P. (7).
72. Another principle which is equally well settled about laying down the limits of legislative delegation was explained by Benjamin Cardozo, J. in Panam Sugar Refining Co. v. Ryan (8), and Schecntar Poultry Corporation v. United States (9), that the legislature cannot delegate uncanalised and uncontrolled power and power delegated must not be ‘unconfined and vagrant’ but must be canalised within banks that keep it from overflowing. The banks that sets the limits of power delegated, are to be construed by the legislature by declaring the policy of the law and by laying down the standards for guidance of those on whom the power to execute the law is conferred and the delegate is only empowered to carry out the policy within the guidelines laid down by the legislature.
73. The principle was adverted to by referring to cases from U.S. Supreme Court in Re-Article 143, Constitution of India & Delhi Laws Act (supra), Hon’ble Mukherjee, J. referred to the aforesaid two decision and some others and approved the principle of the law laid by it and held that the policy of the law-making body and the standards to guide the administrative agency may be laid down in very broad and general terms. It is enough if the legislature lays down an intelligible principle which can be implemented by the subordinate authorities for specific cases or classes of cases.
74. In Tata Iron & Steel Co. Ltd. v. Workmen of Tata Iron & Steel Co. Ltd. and Ors. (10), it was held as under:-
“The legal position as regards the limitation of this power is, however, no longer in doubt. The delegation of legislative power is permissible only when the legislative policy and principle are adequately laid down and the delegate is only empowered to carry out the subsidiary policy within the guidelines laid down by the legislature. The legislature, it must be borne in mind, cannot abdicate its authority and cannot pass on to some other body the obligation and the responsibility imposed on it by the Constitution. It can only utilise other bodies or authorities for the purpose of working out the details within the essential principles laid down by it. In each case, therefore, it has to be seen it there is delegation of the essential legislative function or if it is merely a case in which some authority or body other than the legislature is empowered to work out the subsidiary and ancillary details within the essential guidelines policy and principles, laid down by the legislative wing of the Government.”
75. The principle was reiterated by the Supreme Court in Avinder Singh v. State of Punjab and Anr. (11), and speaking for the Court, Krishan Iyer, J. laid the following test for delegation:-
“Thus, we reach the second constitutional rule that the essentials of legislative functions shall not be delegated but the inessentials, however numerous and significant they be may well be made over to appropriate agencies. Of course, every delegate is subject to the authority and control of the principal and exercise of delegated power can always be directed, corrected or cancelled by the principal. Therefore, the third principal emerges that even if there be delegation, parliamentary control over delegated legislation should be a living continuity as a constitutional necessity.
Even if there be delegation of power, it should be as a constitutional necessity. It was further emphasised while what constitutes an essential feature cannot be delineated in detail it certainly cannot include a change of policy. The legislature is the master of legislative policy and if the delegate is free to switch it may be usurpation of legislative power itself.”
76. The principle was reiterated in Agricultural Market Committee v. Shalimar Chemical Works Ltd. (12)
77. From the discussion made above, it is abundantly clear that in computing taxable income derived by an assessee form various sources during previous year relevant to the assessment year, the legislative policy is clear laid down in the various provisions of the Act itself. Not only what constitutes an income or not, under which head, it is to be classified for the purpose of computing income from all sources, is also discernably clear from the provisions laid down in provisions relating to computation of income and other ancillary provisions providing for exemptions, deductions and laying down of conditions and limitations subject to which income is to be computed. For inclusion of value of any perquisites received by a person from his employer forms part of income from salary, and an inclusive definition has been provided to perquisite under Section 17(2) which is otherwise a well-known expression in legal world. Thus, detailed policy of taxing perquisites as part of income from salaries have been unfolded in Income Tax Act, 1961.
78. What has been left to the delegated legislation is to provide for method and mode of determining the money value of perquisites viz. any personal advantage, fringe benefit or reimbursement expense otherwise responsibility of the employee to incur, has been left to be gone into by the Rule Making Authority. This is primarily to achieve more practicable uniformity in the process of valuing perquisite received by avoiding imbalanced variation in valuation of perquisite in the hands of like income group employee with the proverbial chancellors’ foot depending upon who the decider is.
79. No legislative function has been bestowed on the Rule Making Authority to make a substantive provision to bring something to tax, which is not envisaged under the parent Act under the Head ‘Income from Salaries’ by inserting the impugned provision. It is in the nature of clarification and making it more obvious to remove doubts, if any, about the fact that fringe benefits which an employee receives from his employer by way of a personal advantage because of status as an employee and have nexus with the employer-employee relationship to be included in the wholesome expression “perquisite” and the valuation of different kinds of fringe benefits, which cannot be doubted to be advantages received by an employee from his employer because of his standing as an employee vis-a-vis such employer. Sub-clause (vi) has been inserted to provide for valuing fringe benefits uniformly on discernible principles, though framing of Rules.
80. The legislation and the Rule Making Authority also realised that it is not possible to lay down exhaustively the list of advantages received by an employee which can be encompassed within the purview of perquisite of fringe benefits, therefore, not with standing providing for method and made of valuing different kind to perquisites and fringe benefits specified under Rule 3 of the Income Tax Rules, 1962, a residuary clause has been also included by way of Sub-rule (viii) to Rule 3.
81. This goes to show that Clause (vi) of Section 17(2) has been inserted to make it easy the task to assessing authority to identify various types of fringe benefits availed by employee as part of perks received from the employer without making an attempt to lay down exhaustively the list of perquisites,
82. In absence of impugned Clause (vi), otherwise also, central Board of direct Taxes have been issuing circulars and guidelines from time to time to clarify the doubts raised about exibility of any particular advantage to the employee falling within the purview of perquisite, by inserting Clause (vi) to Sub-section (2) of Section 17, this task has now been specifically assigned to the Rule making authority to provide for valuing any fringe benefit which may come to force without there being any specific provision hereinbefore and which needs laying down a uniform standard for assessing the same.
83. In view of clear legislative policy of taxing provision providing for levying income tax on such income from salaries of an assessee, the provision cannot be said to suffer from conferring legislative authority on subordinate legislation without any discernible legislative policy laid down by legislature itself which could make it suffer from the vice of being a power without guidelines. It cannot be said that insertion of Clause (vi) in Sub-section (2) of Section 17 by Finance Act, 2001 suffers from any vagueness so as to make it s redundant provision resulting in abdication of essential legislative function.
WHETHER NOTIFICATION DATED 25.9.2001 VIOLATES LIMITS OF SUBORDINATE LEGISLATION
84. Coming to challenge to the vires of notification dated 25.9.2001 with particular reference to Rule 3 as has been substituted by the aforesaid notification w.e.f. 1.4.2001.
85. Before examining the issue is the light of contentions raised by learned counsel for the petitioner, we may notice the limits of judicial review of delegated legislation.
86. The delegated legislation is open to judicial review by the Courts particularly on two grounds. Firstly, whether it violates any of the provision of the Constitution and secondly, whether it violates any of the provisions of enabling Act and whether violation of enabling Act requires consideration of both (i) cases where violation of substantive provisions of enabling Act as well as (ii) cases of violation of mandatory procedure prescribed for bringing into existence such delegated legislation has been made.
87. The Supreme Court in Indian Express Newspapers (Bombay) Private Ltd. and Ors. v. Union of India and Ors. (13), detailed the consideration of judicial review of the sub-ordinate legislation. The Court pointed out that a subordinate legislation may be questioned on the grounds of (1) legislative competence on which the plenary legislation which delegated the power is also subject; (2) being ultra vires the parent statute or the Constitution in that it fails to take into account the very vital facts which either expressly or by necessary implication are required to be taken into consideration by the statute or the constitution or that it does not conform to the statutory or constitutional requirements; (3) being in conflict with any other statute; (4) being so arbitrary that it could not be said to conform to the statute or be violative of Article 14. But subordinate legislature cannot be questioned on ground of violation of natural justice which is available against an administrative action. It cannot be challenged merely on the ground that it is not reasonable or that it has not taken into account relevant circumstances which the court considers relevant.
88. The Court also pointed out distinction between the delegation of a legislative function in the case where question of reasonableness cannot be enquired into and the investment by statute to exercise particular discretionary powers. In the latter case, the question may be considered on all grounds on which administrative action may be questioned, such as, non application of mind, taking irrelevant matters into consideration, failure to take relevant matters into consideration etc. etc.
89. The first of the grounds is not the subject of enquiry in this case as there is not such challenge on the ground of legislative competence of the legislation to enact the law relating to subject as to what constitutes the taxable income. What consideration can be taken in computing the taxable income for levying the charge under the Parent Income Tax Law.
90. The provision has been challenged on the ground that it confers authority on the delegate to include something within the province of taxable income which is not income under the parent Act. The discretion has been left to the delegates for such inclusion of fringe benefits and amenities without providing the guidelines in that connection.
91. This contention in view of the discussion made aforesaid, cannot be sustained. Neither it can be said that unbriddled and uncanalised power has been vested with the Rule Making Authority which may amount to abdication of essential legislative function.
92. The second contention in respect of declaring Rule 3 w.e.f. 1.4.2001 being beyond the enabling provision of the parent Act also cannot be countenanced in view of our conclusion aforesaid. In fact, nothing has been included in making provision for valuing the perquisite in terms of Section 17(2) with particular reference to Section 17(2)(vi) , which otherwise would not have fallen within the term perquisite, as it is known to he legal world.
93. In this connection, we may also notice the well recognised principle that though power to tax is a legislative power to be exercised by parent legislature, ample latitude has been given to the legislature to delegate the power to work out the details of the tax laws in these implementation.
94. In Pandit Banarsi Das Bhanot v. The State of Madhya Pradesh and Ors., speaking for the Court T.L. Venkatarama Aiyar, J held as under:-
“Now the authorities are clear that it is not unconstitutional for the Legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods, and the like.”
95. Considering the provision of the Central Excise Act, 1944 under Section 37(2), enabling the Central Government to make Rules on various matters including exemption of any goods from whole or any part imposed by the Act. While rejecting the like contention as has been raised before us challenging the validity of the provision to be in the nature of abdication of essental legislative function, the Court in Orient Weaving Mills (P) Ltd. and Anr. v. Union of India and Ors. (14) held as under:-
“The Act recognised and only gives effect to the well established principle that there must be a great deal of flexibility, in the incidence of taxation of a particular kind.”
96. We have already noticed above that laying down the manner and mode in valuing perquisite by making Rules is a well-known method of providing machinery for working out the implementation of Income Tax for leving proper tax on the subject. In this connection, it is apposite to notice that under Wealth Tax Act, incidence of tax is on the net wealth owned and possessed by an assessee on the valuation date. Computation of the net wealth of an assessee, the assets forming part of taxable wealth, after leaving out the exempted assests, has to be valued with reference to the valuation date on which the tax is to be charged on the amount of net wealth so assessed. For the purpose of valuing certain types of properties it was left to the Rule Making Authority for prescribing method for valuing assets. In this context, Rule 13-B of the Wealth Tax Rules 1957 was brought into force w.e.f. 1.4.1979 prescribing the method for valuing any house wholly or mainly used for residential purpose. The matter came up before the Supreme Court in Commissioner of Wealth Tax v. Sharvan Kumar Swarup & Son. (15), and when the controversy arose whether prescribing method and mode of valuation alters the substantive right or the rule is merely procedural and whether it applies to all pending assessments that is to say the proceedings which have been initiated even before the commencement of relevant assessment year but were to be completed the Supreme Court held the provisions to be procedural in nature and applicable to the pending proceedings. The Court in coming to this conclusion approved the principle enunciated by Justice Shah in Kesoram Kindustries & Cotton Mills Ltd. v. CWT (16), on which there was no contrary opinion in considering the impact of Section 7 (2) of the Wealth Tax Act as it provided for valuation of assets owned or possessed by the assessee on the date of valuation. Justice Shah had observed as under:-
“Section 7(2) merely provides machinery in certain special cases for valuation of assets, and it is from the aggregate valuation of assets that the net wealth chargeable to tax may be ascertained……. This is a artificial rule adopted with a view to avoid investigation of a mass of evidence which it would be difficult to secure or, if secured, may require prolonged investigation.”
97. The Court also referred to its decision in Murarilal Mahabir Prasad v. B.R. Vad (17), laying down that the provision which prescribes for machinery for computation of tax and not bring a charge is to be construed as a machinery provision and said:-
“We are concerned in this case to determine not whether a particular turnover can be brought to sales tax but whether if the turnover was liable to be charged to sales tax, the firm can be assessed to tax after its dissolution. In other words, we are concerned with a provision which prescribes the machinery for the computation of tax and not with a charging provision of the Sales Tax Acts.”
98. Like principle was anunciated by the Supreme Court again in Associated Cement Company Ltd. v. C.T.O. (18), wherein the Court said-
“It is settled law that a distinction has to be made by the Courts while interpreting the provisions of a taxing statute between charging provisions which impose the charge to tax and machinery provisions which provide the machinery for the quantification of the tax and the levying and collection of the tax so imposed. While charging provisions are construed strictly, machinery sections are not generally subject to a rigorous constructions. The courts are expected to construe the machinery sections in such a manner that a charge to tax is not defeated.”
99. The Court also approved the principle that because a change made by the legislator in procedural provisions is expected to be for the general benefit of litigants and others, it is presumed that it applies to pending as well as future proceedings.
100. If the aforesaid principle is applied to the issue raised in the present case, the answer comes against the petitioner. We have noticed that the charging Section of the Income Tax Act provides for levying of tax and income computed in accordance with the provisions of the Act. We have also noticed the scheme of computing the income under different heads, depending upon the source from which it is received, earned or accrued by the assessee. The perquisites have been considered substantively to be forming part of the salary and the value of different perquisites are required to be included in the computation of total taxable income under the Head ‘Income from salaries.’ We have also noticed the connotation of term perquisites in the context of its understanding in law and also in the context of the provisions of the Income Tax Act and the Rules in question.
101. Apparently, once it is determined that a particular advantage, benefit or amenity received forms part of perquisite as defined under Section (vi) of the Act, the question of its quantification falls within machinery provision for quantification of proper tax liability of tax payer, which can be left to be determined according to well known principles of valuing a particular advantage to the assessee when he receives it with reference to the cost which the assessee is likely to incure in securing that advantage and to enquire into the prince which it was likely to pay for getting those amenities or benefits.
102. Applying the test approved by the Supreme Court in Kesoram Industries & Cotton Mills Ltd. (supra) and Murarilal Mahabir Prasad (supra) approved by a later decision of the Supreme Court in Saman Kumar Sharma’s case (supra), it can be said that Rules 3 of the Rules of 1962 is part of the machinery provisions in aid of quantification of taxable income for making the proper levy and does not affect the substantive provision. The methods of valuing different perquisites specified under the Rules have been devised with a view to avoid investigation of mass of evidence varying in nature and to reach as far as practicable uniform result vis-a-vis income of the assessee under the Head salaries by applying the prescribed mode of valuation of perquisites under Rule 3. It is a well known method of valuing perquisite, the cost at which the benefit is received by an assessee, so also value the payment in the hands of recipient of such benefit on a fixed percentage of the salary received by him to avoid the determination at different variable factors, which may result in arriving at a different conclusion on same set of facts by different assessing authorities. Therefore, the contention that Rule 3 alters substantively the charge of tax on assessee cannot be sustained. Once this conclusion is reached, the substantive contentions that in giving the retrospective effect to the Rule for assessing the income for assessment year 2001-2002, the Rule Making Authority has exceeded its limits also cannot be sustained.
103. Clause (vi) of Section (vi) is also clear in its term that it leaves only ‘valuation of other fringe benefits’ for the purpose of quantification of total income to be prescribed by the Rule Making Authority. It has not conferred any power on the delegate to expand the meaning of term ‘perquisite’ by including something within its ambit, which otherwise would not fall within it. The expression other fringe benefits has to be construed within the framework of parent Act. Thus, there is no delegation of essential legislative function of laying down the policy of taxing any subject. It has been kept within the hands of parent legislature. Only to provide the method or mode of quantifying its monetary value has been left to be detailed by subordinate legislation.
104. The constitutional validity has been challenged on two grounds which remains to be considered. Firstly, that is violates Articles 14 by providing valuation of house accommodation free of rent or at concessional rent by reiterating the points which we have noticed above and secondly that cause (vi) of Section (vi) having been brought into effect w.e.f. 1.4.2001 apparently has given restospective effect prior to the date substantive provision comes into operation.
WHETHER AMENDED RULE 3 VIOLATIVE ARTICLE 14
105. The next contention is about resultant violation of Article 14 of the Constitution in implementing the Rule 3 in relation to valuing the perquisite of free residential accommodation or providing accommodation at concessional rate. Valuing the perquisite of rent free accommodation or a accommodation at concessional rate by linking it to the salary is well known method applied in the case of working out total emoluments of an employee, valuing perquisite in respect of accommodation free or at concessional accommodation is primarily a device to sustain the uniformity of perquisites relating the house accommodation at comparatively lower level then actual rent rates prevailing in the market by prescribing the percentage of salary as basis of its valuation. In most cases where instead of providing employer’s own or leased accommodation to its employees the house rent allowance is also given on the basis of percentage of salary (in its narrower sense) is made on premise that so much of its income, a wage earner is likely to spend on getting a house accommodation commensurating with his income. We have already noticed that artificial method of valuing perquisite under Rule 3 as its object, to maintain the uniformity in the matter of taxability of the class of fixed income group viz. the salaried people with reasonable amount of flexibility. Its comparison with actual market rent of the house, cannot be made. In absence of any artificial mode of valuing, monetary value of perquisites could also have been assessed on the basis of assessment of market rent for the accommodation provided to be concerned employee. In that event for each different type of houses situated at different class of localities with different market value of land and the actual location of the house coupled with the quality of construction would give rise to lot of complexities in assessing the value of such perquisite in each case and would have caused great deal of delay in completing the proceeding. Thus, resulting delay in tax collection. Apart from this its would have created greater inequalities in taxing income from salaries of same status at different income. In these circumstances, provisions adopting percentage rate method of valuing the perquities on account of rent free accommodation or accommodation at a concessional rate cannot be said to be founded on without any reasonable nexus with the purpose sought to be achieved.
106. In this case it may also be noticed that the basic concept or principle of determining the value of free or concessional house accommodation has not been altered from existing principle under existing Rule 3 prior to its substitution vide impugned Notification. No challenge has been made to the principle of valuing various properties under existing Rule 3. Amendment has merely made more rational application of already prevalent mode for quantifying the income from salaries. Thus, principle adopted for determining money value of perquisites under Rule 3 really does not suffer from substantive challenge.
WHETHER NOTIFICATION DT. 25.9.2001 IS INVALID BECAUSE OF RETROSPECTIVITY
107. To the last question with regard to retrospectivity of the rule, we do not find any substance in that contention either.
108. Section 295 (1) confers upon Central Board of Direct Taxes the power to frame rules for the purpose of the Act generally. In particular Clause (c) of Sub-section (2) of Section 295 without prejudice to the generality of Sub-section (1) confers specific power to frame rules to provide for determination of the value of any perquisite chargeable to tax under the Act in such manner and on such basis as appears to the Board to be proper and reasonable. In exercise of such power Rules of 1962 were framed and Rule 3 of the Income Tax Rules, 1962 were framed and Rule 3 of the Income Tax Rules, 1962 deals with the valuation of the perquisite chargeables to tax under the head ‘Income form Salaries’. Thus the statutory authority under the parent Act for laying down the method, manner and procedure for valuing the perquisite chargeable to tax under the Act expressly exist.
109. It is also the contention of the learned counsel for the petitioner and it is well known principle that income chargeable to tax is to be assessed for the assessment year and therefore the law which governs the chargeability to tax and computing the income is the law which is in force as on 1st April at the time of commencement of the assessment year concerned ordinarily,
110. Clause (iv) to Sub-section (2) of Section 17 has been inserted w.e.f. 1.4.2002. Thus, Clause (vi) is applicable to income earned during the year ending on 31.3.2002. This previous year extends from 1.4.2001 to 31.3.2002. For computing the income earned during 1.4.2001 to 31.3.2002. Fringe benefits valued as prescribed were to be included. Thus, providing for machinery provision for quantifying income, which is taxable as per law on 1.4.2002 cannot be said to be violative of any well settled principle of computing income of previous year 2001-2002 as per substantive law prevailing on 1.4.2002 by applying existing machinery provision.
111. In the present context we have noticed that insertion of Sub-section (vi) in Section 2 of Section 17 is by way of abundant caution and to give the power to the Rule Making Authority to prescribe mode of valuing other fringe benefits also. Therefore, the question of giving retrospective effect to law relating to charge really to not arise. So far as computation of income of previous year ending on 31.3.2002 is concerned, it is to be made in accordance with substantive law prevailing on 1st April 2002 of the assessment year 2002-2003. Its quantification is to be made through machinery provision.
112. In the case of previous assessment year 2001-2002, the value of perquisites has to be made in accordance with machinery provision provided for valuing perquisite which came w.e.f. 1.4.2001. The determination, whether a particular benefit or amenity or advantage received by the assessee during the relevant previous year on 31st March, 2001 is a perquisite or not has to be determined is accordance with law as on 1.4.2002 and in the light of substantive provision in Section (vi) and if it falls within substantive provision it is to be computed in accordance with machinery provisions relating to quantification of income that is subject to tax. We have not been shown how in providing valuation of the various perquisites under Rule 3 vide impugned notification affect prejudically the petitioners in assessing their income. In fact, Sub-rule (ix) of Rule 3 as inserted, vide impugned Notification provides in clear terms while making it effective w.e.f. 1.4.2001 that it will be option of the employee to compute the value of all perquisites made available to him or any member of his household as per unamended Rule upto on 30th day of September, 2001, or as per amended Rule. By operation of rule, no prejudice is caused to the assessee on computation of his income, he is entitled to opt for computation of monetary value of perquisite as per Rules, which prevailed prior to 30.9.2001 in respect of the perquisite received by him upto that date. The impugned rule has not deviated from the basic substantive provisions.
113. Thus, viewed from many angle, neither the Clause (vi) inserted in Section (vi) vide Finance Act, 2001 nor the Notification substituting Rule 3 w.e.f. 1.4.2001 suffers from any invalidity and is not violative of any provision of Constitution or any of the provisions of the Parent Act.
114. Consequently, both these writ petitions fail and are hereby dismissed with no order as to costs.