Federal Bank Executive Forum Vs Union Bank of India (Madras High Court)
Summary: The Madras High Court dismissed the writ petition filed by Federal Bank Executive Forum challenging the constitutional validity of Rule 3(7)(i) of the Income Tax Rules, 1962, and sub-paragraph 15 of Bulletin 53/2008 issued by the Chief Commissioner of Income Tax. The petitioner sought a declaration under Article 226 that the rule and impugned bulletin provision were unconstitutional, ultra vires the Income Tax Act and void. The case was heard by Chief Justice Sushrut Arvind Dharmadhikari and Justice G. Arul Murugan, who delivered the order on 14 October 2026. There was no appearance on behalf of the petitioner.
The High Court noted that the legality of the relevant salary-perquisite provisions, including Section 17(2)(viii) of the Income Tax Act and Rule 3(7)(i), had already been examined in a batch of writ petitions. In All India Union Bank Officers & Others v. Union of India (CDJ 2016 MHC 2413), the Madras High Court had rejected the challenge on 20 April 2016, holding that a benefit or perquisite forming part of an employee’s remuneration package could lawfully be subjected to tax. That ruling was subsequently sustained by the Supreme Court.
In All India Bank Officers’ Confederation v. The Regional Manager, Central Bank of India and Others (2024 INSC 389; (2024) 464 ITR 286), decided on 7 May 2024, the Supreme Court upheld the statutory and rule-making framework for taxation of interest-free and concessional loans extended to bank employees. It held that Section 17(2)(viii) laid down sufficient legislative policy and standards and that Rule 3(7)(i) did not amount to excessive delegation of essential legislative power. The rule was therefore intra vires the parent provision.
The Supreme Court also held that the adoption of the State Bank of India’s prevailing lending rate as a common benchmark for determining the taxable loan benefit was neither arbitrary nor discriminatory under Article 14 of the Constitution. It reasoned that a uniform yardstick provided certainty, reduced disputes over different banks’ lending rates and promoted consistent valuation of employee perquisites. Fiscal legislation was entitled to reasonable latitude in selecting a practical and administratively workable method.
Applying these binding judgments, the Madras High Court held that the constitutional challenge raised by Federal Bank Executive Forum was squarely covered by the earlier decisions in favour of the Revenue. The writ petition was consequently dismissed without an order as to costs, and the connected interim application was closed. The order does not separately decide the validity of the bulletin provision on independent grounds; its disposition follows from the settled validity of Rule 3(7)(i).
Cases Discussed
- All India Bank Officers’ Confederation Vs The Regional Manager, Central Bank of India and Others (Supreme Court); 2024 INSC 389; (2024) 464 ITR 286; Civil Appeal No. 7708 of 2014 and batch; 07/05/2024: The Supreme Court affirmed the legality of taxing concessional employee loans, the delegated rule-making power and the SBI-rate valuation benchmark. The decision directly governed the present dispute.
- All India Union Bank Officers & Others Vs Union of India, represented by its Secretary to Government, Ministry of Finance & Others (Madras High Court); CDJ 2016 MHC 2413; 20/04/2016: The Division Bench rejected the challenge to Section 17(2)(viii) and Rule 3(7)(i); its judgment was affirmed on appeal.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
This writ petition is filed seeking a declaration to declare Rule 3(7)(i) of the Income Tax Rules and also impugned sub-para 15 of Bulletin 53/2008 issued by the 4 th respondent as unconstitutional, ultra vires the Income Tax Act and, therefore, null and void.
2. The provisions of Section 17(2), 17(2)(iii), 17(2)(vi), 17(2) (viii) of the Act and Rule 3(7)(i) of the Income Tax Rules, 1962 (in short ‘the Rules’) were under challenge before this Court in separate writ petitions and a Division Bench of this Court, heard the entire batch of writ petitions analogously and by common judgment dated 20.04.2026 in the case of All India Union Bank Officers & Others vs. Union of India, rep. By its Secretary to Government, Ministry of Finance & others (CDJ 2016 MHC 2413), dismissed the writ petitions and upheld the constitutional validity of Section 17(2)(viii) of the Act and Rule 3(7)(i) of the Rules. The relevant portion of the judgment dated 20.04.2016 reads as under:
“49. More than helping the petitioners, the said decision helps the respondent – Department. If salary is taxable and some perquisite or benefit forms part of a package, the same should also be taxed. Therefore, we are of the considered view that the challenge to Section 17(2) (viii) as well as Rule 3(7)(i) has to fail.
50. As a consequence, all the above writ petitions are dismissed as devoid of any merits. Consequently, all connected pending MPs are also dismissed. There will be no order as to costs.”
3. In the appeals filed against the aforesaid judgment before the Hon’ble Supreme Court, vide judgment dated 07.05.2024, in the case of All India Bank Officers’ Confederation vs. The Regional Manager, Central Bank of India and Others (2024 INSC 389 :: (2024) 464 ITR 286) (Civil Appeal No.7708 of 2014 and batch of cases), the Hon’ble Supreme Court upheld the judgment of this Court dated 20.04.2016 and dismissed the appeals upholding the constitutional validity of Section 17(2) of the Act and Rule 3(7) of the Rules.
3.1. The relevant portions of the Supreme Court judgment is usefully reproduced hereunder:
31. We are of the opinion that the enactment of subordinate legislation for levying tax on interest free/concessional loans as a fringe benefit is within the rule- making power under Section 17(2) (viii) of the Act. Section 17(2)(viii) itself, and the enactment of Rule 3(7)(i) is not a case of excessive delegation and falls within the parameters of permissible delegation. Section 17(2) clearly delineates the legislative policy and lays down standards for the rule-making authority. Accordingly, Rule 3(7)(i) is intra vires Section 17(2)(viii) of the Act. 26 AIR (1967) SC 1895. Section 17(2) (viii) does not lead to an excessive delegation of the ‘essential legislative function’.
II. Is Rule 3(7)(i) arbitrary and violative of Article 14 of the Constitution insofar as it treats the PLR of SBI as the benchmark?
32. Rule 3(7)(i) posits SBI’s rate of interest, that is the PLR, as the benchmark to determine the value of benefit to the assessee in comparison to the rate of interest charged by other individual banks. The fixation of SBI’s rate of interest as the benchmark is neither an arbitrary nor unequal exercise of power. The rule-making authority has not treated unequal as equals. The benefit enjoyed by bank employees from interest-free loans or loans at a concessional rate is a unique benefit/advantage enjoyed by them. It is in the nature of a ‘perquisite’, and hence is liable to taxation.
33. Rule 3(7)(i), it can be hardly argued, is arbitrary or irrational for the reason it benchmarks computation of the perquisite with reference to the SBI’s PLR. SBI is the largest bank in the country and the interest rates fixed by them invariably impact and affect the interest rates being charged by other banks. By fixing a single clear benchmark for computation of the perquisite or fringe benefit, the rule prevents ascertainment of the interest rates being charged by different banks from the customers and, thus, checks unnecessary litigation. Rule 3(7)(i) ensures consistency in application, provides clarity for both the assessee and the revenue department, and provides certainty as to the amount to be taxed. When there is certainty and clarity, there is tax efficiency which is beneficial to both the tax payer and the tax authorities. These are all hallmarks of good tax legislation. Rule 3(7)(i) is based on an uniform approach and yet premised on a fair determining principle which aligns with constitutional values.
34. It is also apposite to note that when it comes to uniform approach the laws relating to fiscal or tax measures enjoy greater latitude than other statutes. The Legislature should be allowed some flexibility in such matters and this Court would be more inclined to give judicial deference to legislative wisdom. Commercial and tax legislations tend to be highly sensitive and complex as they deal with multiple problems and are contingent. This Court would not like to interfere with the legislation in question, which prevents possibilities of abuse and promotes certainty. It is not iniquitous, draconian or harsh on the taxpayers. A complex problem has been solved through a straitjacket formula, meriting judicial acceptance. To hold otherwise, would lead to multiple problems/issues and override the legislative wisdom. The universal test in the present case is pragmatic, fair and just. Therefore, Rule 3(7) is held to be intra vires Article 14 of the Constitution of India.
35. We, accordingly, dismiss the appeals and uphold the impugned judgments of the High Courts of Madras and Madhya Pradesh. No order as to costs.”
4. In view of the fact that already the issue regarding the constitutional validity of Rule 3(7)(i) of the Rules has been considered by this Court and decided in favour of the Revenue and the said order was also upheld by the Supreme Court in the judgment referred supra, the issue raised in this writ petition is squarely covered by the aforesaid judgments of this Court and the Hon’ble Supreme Court.
In view of the above, the writ petition stands dismissed. There shall be no order as to costs. Consequently, the interim application stands closed.
