CWP No. 16446 of 2007 (1)
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
CWP No. 16446 of 2007
Date of Decision: 22-08-2008
P.R. Sharma and others .....Petitioners
Versus
Union of India and others ....Respondents
Coram: HON'BLE MR. JUSTICE HEMANT GUPTA
HON'BLE MR. JUSTICE RAJESH BINDAL
Present: Shri S.K. Mukhi, Advocate, for the petitioner.
Shri Yogesh Putney, Advocate, for the respondents.
1. Whether Reporters of local papers may be allowed to see the
judgment?
2. To be referred to the Reporters or not?
3. Whether the judgment should be reported in the Digest?
HEMANT GUPTA, J.
The challenge in the present writ petition, filed on behalf of
the employees of the Food Corporation of India, is to the retrospective
effect given to Explanation-1 added to Section 17(2)(ii) of the Income Tax
Act, 1961 (for short `the Act’) inserted by Section 11 of Finance Act, 2007
with effect from 1.4.2002.
Section 17(2)(ii) of the Act, before its amendment was to the
following effect:-
“17. For the purposes of Sections 15 and 16 and of this
Section,
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(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 of
rent respecting any accommodation provided to the
assessee by his employer.”
CWP No. 16446 of 2007 (2)
The said provisions became subject matter of challenge
before different High Courts, but attained finality with the judgment of
the Hon’ble Supreme Court reported as Arun Kumar and others v.
Union of India and others, (2006) 286 ITR 89 (SC). Rule 3 of the
Income Tax Rules, 1962, was amended in the year 2001. The method of
valuation of perquisite on the basis of the population of the city was
substituted. The argument raised before the Hon’ble Supreme Court in
the said case was that liability to pay tax will arise only if a concession
shown in the matter of rent in respect of accommodation, is a perquisite
under the Act and that the authority must come to the conclusion that
Section 17(2)(ii) is attracted. Considering the said argument, the Hon’ble
Supreme Court found that Section 17(2)(ii) of the Act, would apply only
if there is a concession in respect of accommodation. The definition of
perquisite is inclusive in nature and takes within its sweep several
matters enumerated in clauses (i) to (vii). Section 17(2)(ii) declares that
the value of any “concession” in the matter of rent respecting any
accommodation provided to the employee by his employer would be a
“perquisite”. Nevertheless it must be a “concession” in the matter of rent
respecting any accommodation provided by the employer to his
employee. After finding so, the Court proceeded to hold as under:-
“The word “concession” has neither been defined
in the Act nor in the rules. According to the
Concise Oxford English Dictionary, “concession”
is “a thing that is conceded”; “a gesture made
in recognition of a demand or prevailing
standard”, ” a reduction in price for a certain
category of person”. It is a “grant; ordinarily
applied to a grant of specific privileges by
Government, a special privilege granted by a
Government, Corporation or other authority”
(P.R. Aiyer, Advanced Law Lexican, 2005; Vol.I;
page 944). It is “an act of yielding or conceding
CWP No. 16446 of 2007 (3)
as to a demand or argument; something
conceded; usually employing a demand; claim or
request”, “a thing yielded”, “a grant” [Indian
Aluminium Co. Ltd. v. Thane Municipal
Corporation [1992] Supp 1 SCC 480].
“Concession” is a form of “privilege” [V.
Pechimuthu v. Gowammal [2001] 7 SCC 617].
It is, therefore clear that before section 17
(2)(ii) can be invoked or pressed into service and
before calculation of concession as per rule 3 is
made, the authority exercising power must come
to a positive conclusion that it is a concession.
“Concession”, in our judgment is, thus a
foundational, functional or jurisdictional fact.”
xxx xxx xxx
In our opinion, the submission of Mr.
Salve is well founded and deserves to be
accepted that “concession” under sub-clause (ii)
of clause (2) of section 17 of the Act is a
“jurisdictional fact”. It is only when there is a
“concession” in the matter of rent respecting
any accommodation provided by an employer to
his employee that the mode, method or manner
as to how such concession can be computed
arises. In other words, concession is a
“jurisdictional fact”; the method of fixation of
amount is a “fact in issue” or “adjudicatory fact”.
If the assessee contends that there is no
"concession", the authority has to decide the
said question and record a finding as to whether
there is a “concession” and the case is covered
by Section 17(2)(ii) of the Act. Only thereafter
may the authority proceed to calculate the
liability of the assessee under the rules. In our
considered opinion, therefore, inspite of the legal
position that rule 3 is intra vires, valid and is not
inconsistent with the provisions of the parent Act
under Section 17(2)(ii) of the Act, it is still open
to the assessee to contend that there is no
CWP No. 16446 of 2007 (4)
“concession” in the matter of accommodation
provided by the employer to the employee and
hence the case did not fall within the mischief of
section 17(2)(ii) of the Act.”
The Hon’ble Supreme Court further found that Section 17
(2)(ii) does not contain any deeming clause that once it is established
that an employee is paying rent less than 10% of his salary in cities
having population of 4 lacs and 7.5 per cent, in other cities, it should
be deemed to be a “concession” within the meaning of the Act. The
Hon’ble Supreme Court concluded that Rule 3 would apply only to
those cases where a “concession” has been shown by the employer in
favour of an employee in the matter of rent respecting any
accommodation. The argument that Rule 3 is discriminatory creating
distinction between the employees of the Central Government and the
State Governments and other employees i.e. employees of companies;
corporations and other undertakings, did not find favour with the
Hon’ble Supreme Court. The Court found the aforesaid classification to
be a reasonable classification based on Intelligible Differentia. The same
was found to have reasonable rational nexus with the object sought to
be achieved and, thus, it was found that such provision cannot be held
ultra-vires to Article 14 of the Constitution of India.
By virtue of Section 11 of the Finance Act, 2007, an
explanation has been added giving deemed meaning to the word
“concession”. Such explanation has been incorporated with effect from
1.4.2002 i.e. to cover the period in respect of amended Rule 3 of the
Rules. Section 11(b) of the Finance Act, 2007 reads as under:-
“11. In Section 17 of the Income Tax,
xxx xxx xxx
(b) in clause (2),
(A) after sub-clause (ii),
(i) the following Explanations shall be
CWP No. 16446 of 2007 (5)inserted and shall be deemed to have been
inserted with effect from 1st day of April, 2002,
namely:-
Explanation 1. For the purposes of this sub-
clause, concession in the matter of rent shall be
deemed to have been provided if,
(a) in a case where an unfurnished
accommodation is provided by any employer
other than the Central Government or any State
Government and
(i) the accommodation is owned by the
employer, the value of the accommodation
determined at the rate of ten per cent of
salary in cities having population
exceeding four lakhs as per 1991 census
and seven and one-half per cent of salary
in other cities, in respect of the period
during which the said accommodation was
occupied by the assessee during the
previous year, exceeds the rent recoverable
from, or payable by, the assessee;
(ii) the accommodation is taken on lease
or rent by the employer, the value of the
accommodation being the actual amount
of lease rental paid or payable by the
employer or ten per cent of salary,
whichever is lower, in respect of the period
during which the said accommodation was
occupied by the assessee during the
previous year, exceeds the rent
recoverable from, or payable by, the
assessee;
(b) In a case where a furnished accommodation is
provided by the Central Government or any State
Government, the licence fee determined by the Central
Government or any State Government in respect of the
accommodation in accordance with the rules framed
by such Government as increased by the value of
furniture and fixtures in respect of the period during
CWP No. 16446 of 2007 (6)
which the said accommodation was occupied by the
assessee during the previous year, exceeds the
aggregate of the rent recoverable from, or payable by,
the assessee and any charges paid or payable for the
furniture and fixtures by the assessee;
(c) in a case where a furnished accommodation is
provided by an employer other than Central
Government or any State Government and
(i) the accommodation is owned by the
employer, the value of the accommodation
determined under sub-clause (i) of clause (a) as
increased by the value of the furniture and
fixtures in respect of the period during which the
said accommodation was occupied by the
assessee during the previous year, exceeds the
rent recoverable from, or payable by, the
assessee;
(ii) the accommodation is taken on lease or
rent by the employer, the value of the
accommodation determined under sub-clause (ii)
of clause (a) as increased by the value of the
furniture and fixtures in respect of the period
during which the said accommodation was
occupied by the assessee during the previous
year, exceeds the rent recoverable from, or
payable by, the assessee;
(d) in a case where the accommodation is provided
by the employer in a hotel (except where the assessee
is provided such accommodation for a period not
exceeding in aggregate fifteen days on his transfer
from one place to another), the value of the
accommodation determined at the rate of twenty-four
per cent of salary paid or payable for the previous
year or the actual charges paid or payable to such
hotel, whichever is lower, for the period during which
such accommodation is provided, exceeds the rent
recoverable from, or payable by the assessee.”
Learned counsel for the petitioners has vehemently argued
CWP No. 16446 of 2007 (7)
that by inserting the aforesaid explanation, the judgment of the Hon’ble
Supreme Court in Arun Kumar’s case, is sought to be set at naught and
therefore, the amendment is illegal. It is also contended that such
amendment creates liability of tax with retrospective effect and thus,
affects the rights of the petitioner adversely and, therefore, cannot be given
effect to. In support of his contention, the learned counsel for the
petitioners has relied upon Lohia Machines Ltd. and others v. Union of
India and others, (1985) 152 ITR 308 (SC); Kardicoppal Estate v. State of
Karnataka and another, (2004) 266 ITR 20 (KARN); D. Cawasji and Co. v.
State of Mysore and others, (1984)150 ITR 648 (SC); State of Punjab v.
Nestle India Ltd. and another, (2004) 269 ITR 97 (SC); K. Veeraswami v.
Union of India, (1991) 3 SCC 655; Voltas India Ltd. v. Union of India,
AIR 1995 SC 1881 and Radha Krishna Punchithaya v. H. Sanjeeva Rao,
AIR 1963 KER 348.
We have heard learned counsel for the parties at length, but
do not find any merit in the present petition.
The Hon’ble Supreme Court in Arun Kumar’s case (supra),
has categorically noticed that the word “concession” has not been defined
under the Act. Since an omission was found in the statute by the
Hon’ble Supreme Court, the said omission was rectified by inserting
explanation in question with retrospective effect. It is well settled that
the legislative power either to introduce enactment for the first time or to
amend the enacted law with retrospective effect, is not only subject to
competence, but also subject to several judicially recognised limitations.
The first is that amendment must provide or clearly imply retrospective
operation. Keeping in view the specific language of Section 11 of the
amending Act, the first test in respect of retrospective effect of the
explanation is satisfied. Another test is that where the legislative is
intending to overcome a judicial decision, the power cannot be used to
subvert the decision without removing the basis of the decision. The
CWP No. 16446 of 2007 (8)
Hon’ble Supreme Court in Arun Kumar’s case (supra), has categorically
and clearly found that the word “concession” has not been defined and it
does not contain any deeming clause. The said deficiency has been met
by an insertion of Explanation-I. The insertion of explanation is not to
subvert the decision of the Court, but to meet out the deficiency pointed
out by the Court. Therefore, it cannot be said that the amendment is to
subvert the judicial decision.
In Goodricke Group Ltd. v. State of West Bengal and
others, 1995 Supl. (1) SCC 707, it was held by the Hon’ble Supreme
Court that once the defect pointed out is rectified and remedied in the
impugned enactment, it can certainly be given retrospective effect to
cover the period covered by the earlier enactment which is not only a well
known but a frequently adopted measure by all the legislatures. It was
held to the following effect:-
“Lastly, the learned counsel for the petitioners
questioned the validity of the retrospective effect
given to the impugned enactment. We fail to see
any substance in this submission. If the Act is
good, it is good both prospectively and
retrospectively. Retrospective effect is given for
the period covered by the anterior provisions
which were struck down in Buxa Dooars Tea Co.
Ltd. v. State of W.B., (1989) 3 SCC 211. Once we
hold that the defect pointed out in Buxa Dooars
is rectified and remedied in the impugned
enactment, it can certainly be given retrospective
effect to cover the period covered by the earlier
enactment which is not only a well known but a
frequently adopted measure by all the
legislatures.
In American Remedies Pvt. Ltd. and another v. Govt. of
Andhra Pradesh and another, (1999)2 SCC 117, an argument was
raised that since assessee has not collected the amount of sales tax
CWP No. 16446 of 2007 (9)
from the consumers, therefore, the retrospective effect given to a statute
raising liability to pay the differential amount of tax, is not tenable. It
was held by the Hon’ble Supreme Court that merely because the
assessee has not collected the tax from the consumers is not a ground
to escape the liability of tax, in respect of retrospective effect to a statute.
In National Agricultural Cooperative Marketing
Federation of India Ltd. and another v. Union of India and others,
(2003)5 SCC 23, the Hon’ble Supreme Court has examined the scope of
legislative powers in giving retrospective effect to the statutes. It was
held to the following effect:-
“15. The legislative power either to introduce
enactments for the first time or to amend the enacted
law with retrospective effect, is not only subject to the
question of competence but is also subject to several
judicially recognised limitations with some of which we
are at present concerned. The first is the requirement
that the words used must expressly provide or clearly
imply retrospective operation. The second is that the
retrospectively must be reasonable and not excessive
or harsh, otherwise it runs the risk of being struck
down as unconstitutional. The third is apposite where
the legislation is introduced to overcome a judicial
decision. Here the power cannot be used to subvert the
decision without removing the statutory basis of the
decision.
xxx xxx xxx
20. As has been held in Ujagar Prints v. Union of
India, (1989) 3 SCC 488:-
“A competent legislature can always validate a
law which has been declared by courts to be
invalid, provided the infirmities and vitiating
infractors noticed in the declaratory judgment
are removed or cured. Such a validating law can
also be made retrospective. If in the light of
such validating and curative exercise made by
CWP No. 16446 of 2007 (10)the legislature-granting legislative competence –
the earlier judgment becomes irrelevant and
unenforceable, that cannot be called an
unenforceable legislative overruling of the
judicial decision. All that the legislature does is
to usher in a valid law with retrospective effect
in the light of which earlier judgment becomes
irrelevant.”
xxx xxx xxx
22. Once the circumstances are altered by
legislation, it may neutralise the effect of the
earlier decision of the Court which becomes
ineffective after the change of the law.”
In S.S. Bola and others v. B.D. Sardana and others,
(1997)8 SCC 522, it was held that what is really prohibited is that the
legislature cannot in exercise of its plenary power under Articles 245 and
246 of the Constitution merely declare a decision of a court of law to be
invalid or to be inoperative in which case it would be held to be an
exercise of judicial power. It was further held that undoubtedly under the
scheme of the Constitution, the legislature does not possess the same.
Keeping in mind the aforesaid principles, the act of the
legislature having given deemed meaning to the word “concession”,
cannot be said to be invalid. Thus, we are of the opinion that the
provisions of the amending Act, inserting Explanation-I to Section 17(2)
(ii) giving deemed meaning to the word “concession” with retrospective
effect falls within the legislative competence of the Parliament. Such
amendment does not declare a judicial decision to be invalid, but meets
out the deficiency pointed out by the Hon’ble Supreme Court.
The argument that the amendment is discriminatory or has
caused onerous financial burden on the petitioner, is again not
sustainable in law. The argument in respect of discrimination raised on
CWP No. 16446 of 2007 (11)
the basis of Rule 3 has been dealt with by the Hon’ble Supreme Court
in Arun Kumar’s case (supra). In fact the basis of determination of
concession contained in Rule 3 has been made part of the substantive
provision by inserting Explanation-I. The said explanation deals
separately with the cases of assessee, where unfurnished
accommodation is provided by any employer other than the Central
Government or the State Governments and in respect of furnished
accommodation provided by the Central Government or the State
Governments. Similarly, where the furnished accommodation is provided
by the employer other than the Central Government, the process of
determining concession has been explained.
For the reasons recorded by the Hon’ble Supreme Court in
Arun Kumar’s case (supra) holding that the provisions of Rule 3 are not
discriminatory or violative of Article 14 of the Constitution, we also do
not find any merit in the argument raised by the learned counsel for the
petitioner that the provisions of Explanation-I are discriminatory and
thus, violative of Article 14 of the Constitution of India.
The argument that the petitioner has to meet out the
financial burden with the retrospective effect on account of the
amendment, is again not tenable. In fact, a circular was issued by the
Food Corporation of India on 31.12.2001 to maintain status quo on
valuation of perquisite for computing income tax charges under the
salary head for residential accommodation consequent to the
amendment of Rule 3 with effect from 25.9.2001. It appears that Rule 3
was amended to deal with the mode of computation of valuation of
perquisite. The said Rule came to be interpreted before the Hon’ble
Supreme Court and it was held that in the absence of any deemed
meaning of word “concession”, Rule (3) cannot be applied. Therefore,
the question of applicability of Rule 3 was pending before the High
CWP No. 16446 of 2007 (12)
Courts, which came to be concluded by the judgment of the Hon’ble
Supreme Court in Arun Kumar’s case (supra). The issue raised was
subject to interpretation by the Courts. Therefore, it cannot be said that
the petitioners cannot be visited with the the consequences of the
amendment from the retrospective date.
Thus, we do not find any merit in the present petition.
Hence, the present writ petition is dismissed.
(HEMANT GUPTA)
JUDGE
(RAJESH BINDAL)
JUDGE
August 22 , 2008
ds