CIT Vs Shankar Krishnan (Bombay High Court)
Whether Notional Interest on Security Deposit paid by employer for accommodation of its employee will also be included while calculating perquisites.
BRIEF FACTS:
1. The Assessee is a salaried employee with McKinley & Company Inc., India. The Assessee was provided with rent free accommodation in Cuffe Parade, Mumbai by his employer company. The monthly rent paid by the employer in respect of the said flat was Rs.10,000/- p.m. The employer had given an interest free refundable security deposit of Rs.30 lacs to the landlord for renting out the said premises.
2. In the Assessment Year 2000-20021 , in question, the Assessee computed the perquisite value of the accommodation at Rs.1,20,000 calculated (@Rs.10,000/- pm.) being the rent paid by the employer to the landlord. The Assessing Officer was of the opinion that since the employer had given interest free deposits of Rs.30 lacs to the landlord, interest @ 12% on the said deposit is required to be taken into consideration for estimating a fair rental value of the flat given to the Assessee and accordingly, the Assessing Officer enhanced the perquisite value of the residential accommodation provided to the Assessee.
APPEAL BEFORE CIT(A)
3. On appeal filed by the Assessee, the CIT(A) upheld the decision of the assessing officer.
APPEAL BEFORE ITAT
4. On further appeal filed by the assessee, the ITAT held that under Rule 3 of the IT Rules, 1962 as amended with retrospective effect from 1.4.2001, the value of perquisites for the residential accommodation provided by the employer shall be the actual amount of lease rent paid or payable by the employer or 10% of the salary whichever is lower, as reduced by the rent, if any, actually paid by the employee.
5. The Tribunal held that under the amended rules, there is no concept of determination of the fair rental value for the purpose of ascertaining the perquisite value of the rent free residential accommodation provided to the employees.
6. In the present case, the yearly rent paid by the employer was Rs.1,20,000/- whereas 10% salary of the employee came to Rs. 14,01,878/- as such, the rent paid by the employer being less than 10% of the salary of the employee, the perquisite value of the accommodation was liable to be computed at Rs.1,20,000/. Accordingly, the ITAT held that as per the amended Rule 3, the perquisite value of the accommodation given by the assessee is liable to be accepted.
APPEAL BEFORE HIGH COURT
Challenging the above said order, the revenue has filed the present appeal.
7. Mr.Suresh Kumar, learned counsel appearing for the revenue submitted that since the employer has paid a sum of Rs.30.0 lacs for obtaining the residential premises, notional interest payable on the said deposit has to be taken into consideration while including the perquisite value of the premises given by the employer to the assessee.
8. Rule 3 of the Income Tax Rules, 1962 as amended by the Income Tax (Twenty-second Amendment) Rules, 2001 to the extent relevant reads thus:
“3. Valuation of perquisites. – For the purpose of computing the income chargeable under the head Salaries, the value of perquisite s provided by the employer directly or indirectly to the assessee (hereinafter referred to as employee) or to any member of his household by reason of his employment shall be determined in accordance with the following subrules, namely –
(1) The value of residential accommodation provided by the employer during the previous year shall be determined on the basis provided in the Table below:-
TABLE I
