Facts of the Case

The assessee, Shri V.V. Burman, was a Whole-Time Director of M/s Dabur India Limited and derived income from salary, dividends, interest, capital gains, and other sources from the company. The company had provided him residential accommodation situated at 43A, Prithviraj Road, New Delhi.

The property had been taken on rent from M/s Monica Burman at a monthly rent of Rs. 7,000. A substantial portion of the premises was allotted to the assessee at a concessional rate, while another part was leased to M/s Inventure India B.V.

The assessee did not declare any perquisite value in respect of the accommodation in his income-tax return. During assessment proceedings, the Assessing Officer determined the fair rental value of the property on the basis of the Municipal Corporation of Delhi valuation of Rs. 13,42,177 and, after allowing deductions, computed a perquisite value of Rs. 11,55,157, which was added to the taxable income of the assessee.

The Commissioner of Income Tax (Appeals), relying upon CBDT Instruction No. 1099 dated 20.09.1977 and judicial precedents, reduced the perquisite value to Rs. 36,231. The Revenue challenged this relief before the Income Tax Appellate Tribunal. The Tribunal dismissed the Revenue’s appeals for Assessment Years 1993-94 and 1994-95 and directed the Assessing Officer to decide the matter in accordance with its earlier order relating to Assessment Year 1992-93. The assessee thereafter approached the High Court under Section 260A.

 

Issues Involved

  1. Whether Rule 3(a)(iii) of the Income-tax Rules applies to residential accommodation taken on rent by an employer and provided to an employee at a concessional rate.
  2. Whether the Tribunal committed an error in directing the Assessing Officer to decide the matter in accordance with its earlier order for Assessment Year 1992-93.
  3. Whether any substantial question of law arose from the Tribunal’s order warranting interference under Section 260A of the Income-tax Act.

 

Petitioner’s Arguments

The assessee contended that:

  • The Tribunal had misapplied the law governing valuation of perquisites.
  • CBDT Instruction No. 1099 dated 20.09.1977 prescribed the proper method for valuation of residential accommodation taken on rent by a company and provided to its employee.
  • The Commissioner (Appeals) had correctly computed the perquisite value at Rs. 36,231.
  • The Tribunal’s order suffered from legal infirmity and therefore gave rise to a substantial question of law requiring consideration by the High Court.
  • The valuation adopted by the Assessing Officer on the basis of municipal valuation was excessive and contrary to the applicable legal framework.

 

Respondent’s Arguments

The Revenue argued that:

  • The controversy stood concluded by binding judicial precedents.
  • Reliance was placed upon Hindustan Aeronautics Ltd. vs Commissioner of Income Tax (243 ITR 808) and CIT vs K.S. Sundaram (251 ITR 781, SC).
  • Rule 3(a)(iii) applied irrespective of whether the residential accommodation was owned by the employer or taken on rent by the employer.
  • The Tribunal merely directed the Assessing Officer to decide the issue in accordance with the Tribunal’s earlier order for Assessment Year 1992-93.
  • No prejudice had been caused to the assessee and no substantial question of law arose for determination by the High Court.

 

Court Order / Findings

The Delhi High Court dismissed the appeal and upheld the Tribunal’s order.

The Court observed that the controversy was fully covered by the decision of the Madras High Court in CIT vs K.S. Sundaram (239 ITR 851), which had subsequently been affirmed by the Supreme Court in CIT vs K.S. Sundaram (251 ITR 781, SC).

The Court noted that the Supreme Court had approved the principle that Rule 3 applies both where:

  • the property is owned by the employer, and
  • the property is taken on rent by the employer and provided to the employee.

The Court held that Rule 3 contains no restrictive language limiting its applicability only to employer-owned properties. Therefore, valuation of the perquisite must be undertaken strictly in accordance with Rule 3.

The Court further held that:

  • The Tribunal had merely restored the matter to the Assessing Officer for fresh computation in accordance with its earlier decision.
  • Proceedings for Assessment Year 1992-93 were already pending and had not been set aside.
  • No error was found in the Tribunal’s direction.
  • No substantial question of law arose from the Tribunal’s order.

Accordingly, the appeal was dismissed with parties left to bear their own costs.

 

Important Clarification

Applicability of Rule 3 to Rented Accommodation

The judgment reiterates that Rule 3(a)(iii) applies equally to:

  • Accommodation owned by the employer; and
  • Accommodation taken on rent by the employer and allotted to the employee.

Hardship Cannot Override Statutory Rules

The Court accepted the principle laid down in K.S. Sundaram that even if application of Rule 3 results in hardship to an employee, courts cannot refuse to apply the rule. Any modification must come from the legislature or the CBDT and not through judicial interpretation.

No Substantial Question of Law

Where the issue is already settled by the Supreme Court and the Tribunal has merely followed binding precedent, an appeal under Section 260A is not maintainable.

 

Sections / Rules Involved

  • Section 260A, Income-tax Act, 1961
  • Rule 3(a)(iii), Income-tax Rules, 1962
  • CBDT Instruction No. 1099 dated 20.09.1977
  • Provisions relating to valuation of perquisites arising from employer-provided residential accommodation

 


Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2005:DHC:11439-DB/SK03022005ITA3732003_151602.pdf

 

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