The perquisite value of Rent Free Accommodation shared between expatriates should be on a proportionate allocable basis
Court – Delhi bench of the Income-tax Appellate Tribunal
Citation :ACIT v. Shri Toshio Takeuchi (2010-TII-163-ITAT-DEL-INTL)
Brief :ITAT Delhi held that the perquisite value of rent free accommodation (RFA) provided by the employer being shared between expatriates should be on a proportionate allocable basis provided it is supported by appropriate evidence.
Facts of the case
• The taxpayer was an expatriate employee (expatriate) of Denso India Ltd (the employer).
• The expatriate was provided with a company leased accommodation by the employer.
• The said accommodation was shared by the expatriate with other expatriates of the company.
• The lease agreement for the company leased accommodation was between the employer and the landlord.
• While filing the return of Income, the expatriate had taken the value of RFA on the basis of his share in the company leased accommodation.
Issue before the Tribunal:- Whether perquisite value of RFA wherein accommodation was shared with other expatriates, should be on a proportionate allocable basis or on the entire amount of rent payable for the premises?
The Assessing Officer’s (AO) decision
• AO discarded the evidences (a copy of lease deed and employers certificate), provided by the expatriate for the reason that the expatriate could not substantiate his claim that the accommodation was shared. He was of the view that the allocable rent was only an ad hoc estimate and purely self-serving.
• The AO disregarded the expatriates claim for computing the RFA at proportionate basis and considered the entire amount of annual rent for the purpose of computing the perquisite value in the hands of the expatriate, thereby making an addition to the declared income of the expatriate.
The Commissioner of Income Tax (Appeals) [CIT (A)] decision :- The CIT (A) deleted the addition made by the AO on the ground that the AO was not right in rejecting the claim of the expatriate of sharing residential accommodation.
• The Tribunal held that the facts in the instant case are identical to the case of ACIT v. Shri Shunichiro Hiromosa (ITA No. 2853/Del/2010) wherein Tribunal decided in favour of taxpayer. Accordingly, the Tribunal citing the following observations from the said decision, dismissed the appeal of the revenue:
• The expatriate had produced the evidence and discharged the onus laid upon him to prove the value of RFA being assessed as a perquisite.
• If the AO had any doubt about the allocation made by the employer or any evidence found to be incorrect, the AO was empowered to make enquiry from the employer and could also verify from the property owner whether the accommodation was actually being shared by the expatriate employees.
• Tribunal held that the AO was totally wrong in making the addition on the basis of presumptions and surmises as no material was available with the AO to consider the evidences provided by the expatriate as incorrect.
This is a welcome decision in which the expatriates are taxed only on the proportionate value for a shared company leased accommodation provided to them.
It is interesting to note that the Tribunal has also accepted the same stand in another ruling as well in the case of ACIT v. SHRI YOSHIHIRO SAKA (ITA No.2856/Del/2010).
However, it is advisable that necessary documents be obtained from the employer, alongwith the copy of the lease deed stating the fact that the leased accommodation is shared amongst various employees and also a basis of allocating the rental cost between the expatriates sharing the revenue.