Rent-Free Accommodation cannot be taxed if Salary is NIL

The issue before us in the instant case relates to the taxability of rent free accommodation provided by POL to the assessee. The assessee is a part-time director in the company from 01.04.2005 and he was not given any salary by POL. Admittedly the assessee was given rent free accommodation by POL in the capacity of director. From the submission of Ld. AR, we find that assessee was acting as a part-time director as well as employee in the company as evident from the meeting of Board of Directors which is placed on pages 7 and 8 of the paper book filed along with CO No.3/Kol/2015. As the assessee was not drawing any salary from POL then in our considered view the perquisites cannot be determined in terms of the provision of Sec. 17(2) r.w.r. 3 of the Rules.

As the non-furnished rent free accommodation provided to the assessee is owned by M/s POL, therefore 15% of the salary shall be taken as perquisites in the hands of the assessee. However we find that admittedly the assessee is not withdrawing any salary from the POL then in such situation it cannot be determined as per rule 3 of income tax rule. Thus it is clear that the provisions of section 17(2) are very much applicable to the instant facts of the case but the same cannot be determined under rule 3 of IT rules for the reasons as discussed above.

Similarly, the provisions of Sec. 28(iv) of the Act are attracted if the benefit of perquisites is arising to the assessee from the business or exercise of the profession. As there is no dispute that there was existing employees and employer relationship between assessee and POL then there is no question of attracting the benefit or perquisites as define u/s. 28(iv) of the Act.

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