Perquisite Value of Rent Free Accommodation

ITAT, DELHI BENCH `E’ : NEW DELHI

ACIT Vs Makote Hoshizaki

ITA No. 1903 (Del.) of 2008

MAIN CLAUSES

12. The perquisite value of rent-free accommodation is to be determined as per Rule 3 of I. T. Rules, 1962. With effect from 1.4.2001, under Rule 3 of I. T. Rules, 1962, for the purpose of computing the income chargeable under the head “Salaries”, the value of residential accommodation provided by the employer during the previous year shall be determined on the basis provided in the Table-I of Sub-Rule (1). In case of an employer other than the Central/State Government, where the accommodation is owned by the employer, (i) 20% of salary in cities having population exceeding 4 lakhs as per 2001 census; or (if) 15% of salary in other cities, in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee as the case may be, shall be taken as perquisite value of rent free accommodation. For determination of rent free furnished accommodation, the value of perquisite as determined as above shall be further increased by 10% per annum of the cost of furniture including television sets, radio sets, refrigerators, other household appliances, air- conditioning plant or equipment or other similar appliances or gadgets, if owned by the employer or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year. In a case where the accommodation is taken on lease or rent by the employer, the value of perquisite of rent free accommodation shall be the actual amount of lease rental paid or payable by the employer or 20% of salary whichever is lower as reduced by the rent if any, actually paid by the employee. In respect of rent free furnished accommodation, the value of perquisite as determined shall be further increased by 10% per annum of the cost of furniture including television sets, radio sets, refrigerators, other household appliances, air- conditioning plant or equipment or other similar appliances or gadgets if owned by the employer or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.

13. Thus the perquisite value of rent-free accommodation as per rule 3 will be 20 per cent of the salary (and not 10% as taken by the employer / assessee as well as by the assessing officer) as reduced by the rent, if any, actually paid by the employee or the actual rent paid by the employer in case the premises are not owned by the employer whichever is lower. From perusal of the assessment order, we find that the assessee received salary of Rs.56,48,694/ -fiom M/s. Nissho Iwai Corporation India. While working out taxable income, the assessee had taken Rs.5,64,869/ – as perquisite value on account of rent-free accommodation being 10 per cent of the basic salary of Rs.56,48,694/ -. In the instant case the employer had paid rent of Rs.6,00,000/ – per annum for the accommodation given to assessee tree of cost. Therefore, the perquisite value of rent-free accommodation will be Rs.6,00,000/ – as against Rs.5,64,869/ – taken by the assessee. Though the assessing officer computed salary of Rs 90,95,755/- (wrongly taken at 10% as against 20% for Delhi under amended rules) by including tax paid by the employer and worked out 10% of such salary at Rs 9,09,575/- as perquisite value of rent free accommodation but since the actual rent paid by the employer was less than 10% of the salary, he adopted the actual rent paid at Rs 6,00,000′- as value of rent free accommodation in place of Rs 5.64,869/- adopted by the assessee. Thus no tax element is included in the value of perquisite of Rs 6,00,000/- on account of rent free accommodation. The contention of assessee would have been correct had the assessing officer taken the perquisite value by taking 10% of salary at Rs. 9,09,755/- which included taxes paid by the employer. Therefore, in our considered opinion Ld assessing officer had rightly adopted the rentals of Rs. 6,00,000. – paid by the employer as perquisites for rent free accommodation. Consequently the addition made on account of rent free accommodation of Rs.35,131/- is not on account of taxes included in the salary for the purpose of computing perquisites under Rule 3 of the I. T. Rules. 1962. As contended by the assessee. Accordingly, in our considered view, the ld. CIT (Appeals) wrongly allowed the claim of the assessee. We, therefore, set aside the order of Ld CIT(A) and restore the order of assessing officer on this point.