2006 Supreme(SC) 862

2006(7) Supreme 607
SUPREME COURT OF INDIA
(From Jharkhand High Court)
Y.K. Sabharwal, CJI., C.K. Thakker and P.K. Balasubramanyan, JJ.
Arun Kumar & Ors.—Appellants
versus
Union of India & Ors.—Respondents
Civil Appeal No. 3270 of 2003
With
TC (C) Nos. 101 and 102 of 2006
Decided on 15-9-2006
Counsel for the Parties :
For the Appellants : Jagdeep Dhankar, M.N. Krishnamani, Harish N. Salve, M.L. Verma, Sr. Advocates, Barun K. Sinha, Ms. Pratibha Sinha, B.K. Satija, Satya Mitra, M.K. Dua, Yash Pal Dhingra, Anil Mittal and Dr. Kailash Chand, Advocates.
For the Respondents : Mohan Parasaran, A.S.G., Navin Prakash, Gaurav Dhingra, Chidananda D.L., Ms. Sulakshana Jayaram, Senthil Velan, B.V. Balaram Das, Ms. Kirti Mishra and Rustom B. Hathikhanawala, Advocates.
For MPSEB : Rohit Singh, D.K. Sinha, Bharat Sangal, N.P. Midha, R.K. Kumar, S. Chatterji and L. Roshmani, Advocates.
For TISCO : M.L. Verma, Sr. Advocate, Punit Dutt Tyagi, Advocate.

IMPORTANT POINTS
1. Rule 3 of the Income Tax Rules, 1962, as amended by the Income Tax (Twenty-second) Amendment Rules, 2001, which amended the method of computing valuation of perquisites under Section 17(2) of the Income Tax Act, 1961, is not inconsistent with the provisions of the parent Act and it cannot be held ultra vires Article 14 of the Constitution.
2. Article 14 of the Constitution prohibits dissimilar treatment to similarly situated persons, but does not prohibit classification of persons not similarly situated, provided such classification is based on intelligible differentia and is otherwise legal, valid and permissible.

Headnote:(i) Income Tax Act, 1961—Section 17(2), 192(2C), 295—Income Tax Rules, 1962—Rule 3 as Amended by the Income Tax (Twenty-second) Amendment Rules, 2001—Computation of valuation of perquisites—Amendment of method of—Substituted Rule 3 revised method of computing valuation of perquisites in the matter of rental accommodation provided by employers to their employees—Validity of Rule 3 challenged—Appellants were employed as officers/executives by TISCO—For purpose of accommodating its employees, TISCO constructed several residential bungalows/flats/quarters around its plants—They were allotted to its employees as also to other agencies including employees of the Central Government and State Government—TISCO used to fix annual licence fees of each such accommodation at the rate of 5 of the capital cost/expenditure of the bungalows/flats/quarters—Pursuant to the amendment in Rule 3, TISCO issued a letter informing all its employees about change of method of valuation of perquisite which were to be added to the salary of employees for taxing purposes —Writ petitions filed for declaring Rule 3 as ultra vires the Act—High Court upheld validity of Rule 3 holding classification between cities with population of less than four lakhs and others with more than four lakhs as reasonable and rational—Whether Rule 3 of the Rules can be held arbitrary, discriminatory or ultra vires Article 14 of the Constitution—(No)—Constitution of India—Article 14.

       Held : Rule 3 prior to its amendment in 2001 was totally different. It dealt with the method of calculation of concession keeping in view the concept of "fair rental value". In the light of the principle and phraseology in Rule 3, the rule making authority provided an opportunity to the assessee to satisfy the Assessing Officer that the rent sought to be recovered from the employee could not be said to be concession as it was fair rent, reasonable rent, market rent or standard rent. When the rule is amended and the concept of "fair rental value" has been done away with and the only method which has been adopted is to calculate the rent on the basis of population of the city in question, it cannot be successfully contended that the intention of the rule making authority was to afford an opportunity to the assessee to convince the Assessing Officer that the rent recovered by the employer from his employee was not in the nature of concession. Nor a court of law would, by interpretative process, grant such opportunity to the assessee so as to enable him to convince the Assessing Officer that the rent fixed was not covered by Section 17(2)(ii) of the Act and therefore was not a perquisite. We are, therefore, unable to accept the argument of Mr. Salve and allow import of the principles of natural justice in Rule 3.(Para 62)

       Before Section 17(2)(ii) can be invoked or pressed into service and before calculation of concession as per Rule 3 is made, the authority exercising power must come to a positive conclusion that it is a concession. Concession, in our judgment is, thus a foundational, fundamental or jurisdictional fact.(Para 70)

       "Concession" under clause (ii) of sub-section (2) of Section 17 of the Act is a jurisdictional fact. It is only when there is a concession in the matter of rent respecting any accommodation provided by an employer to his employee that the mode, method or manner as to how such concession can be computed arises. In other words, concession is a jurisdictional fact; method of fixation of amount is fact in issue or adjudicatory fact. If the assessee contends that there is no concession, the authority has to decide the said question and record a finding as to whether there is concession and the case is covered by Section 17(2)(ii) of the Act. Only thereafter the authority may proceed to calculate the liability of the assessee under the Rules. In our considered opinion, therefore, in spite of the legal position that Rule 3 is intra vires, valid and is not inconsistent with the provisions of the parent Act under Section 17(2)(ii) of the Act, it is still open to the assessee to contend that there is no concession in the matter of accommodation provided by the employer to the employee and hence the case did not fall within the mischief of Section 17 (2) (ii) of the Act.(Para 82)

       We are, however, not inclined to enter into larger question as in our view, it is not necessary in the light of statutory provision relating to concession in the matter of rent respecting any accommodation in Section 17(2)(ii) of the Act. We are of the view that Rule 3 would apply only to those cases where concession has been shown by an employer in favour of an employee in the matter of rent respecting accommodation. Thus, whereas charging provision is found in the Act of Parliament [Section 17(2)(ii)], machinary component is in the subordinate legislation (Rule 3). The latter will apply only after liability is created under the former. Unless the liability arises under Section 17(2)(ii) of the Act, Rule 3 has no application and the method of valuation for calculating concessional benefits cannot be resorted to.(Para 89)

       In our opinion, distinction sought to be made by the rule making authority between employees of the Central Government as well as State Governments and other employees i.e., employees of Companies, Corporations and other Undertakings is reasonable classification based on intelligible differentia. It has also rational nexus to the object sought to be achieved. Rule 3 takes into account service conditions of employees of Government vis-a-vis employees of Corporations, Companies and other Undertakings and prescribes method of calculating value of all perquisites. Such a provision, in our considered opinion, cannot be held ultra vires Article 14 of the Constitution.(Para 94)

       For the foregoing reasons, we hold that though Rule 3 of the Rules cannot be held arbitrary, discriminatory or ultra vires Article 14 of the Constitution nor inconsistent with the parent Act [Section 17(2)(ii)], it is in the nature of machinery-provision and applies only to the cases of concession in the matter of rent respecting any accommodation provided by an employer to his employees. Whether or not Parliament could have in the exercise of legislative power created a deeming fiction as to concession in the matter of rent in certain circumstances (for which we express no final opinion), no such deeming provision is found in the Act. It is, therefore, open to the assessee to contend that there is no concession in the matter of accommodation provided by the employer to the employees and the case is not covered by Section 17(2)(ii) of the Act.(Para 96)

       (ii) INTERPRETATION OF STATUTES—Literal Interpretation—If the provision of law is explicitly clear, language unambiguous and interpretation leaves no room for more than one construction, it has to be read as it is—In that case, it is not open to a Court to invoke doctrine of ‘reading down’ with a view to save the statute from declaring it ultra vires by carrying it to the point of ‘perverting the purposes of the statute’.(Paras 57 and 58)

       (iii) WORDS AND PHRASES—Term ‘perquisite’—Meaning—It is a privilege, gain or profit incidental to an employment in addition to regular salary or wages—Income Tax Act, 1961—Section 17.

       Held : The definition of the term perquisite covers various items mentioned therein. It is also clear that the definition is inclusive in nature and not exhaustive. According to Bouviers Law Dictionary, the expression perquisite in a most limited sense means "something gained by a place or office beyond the regular salary or fee". Oxford English Dictionary defines perquisite as "any casual emolument, fee or profit attached to an office or position in addition to a salary or wages". According to Websters New International Dictionary, perquisite is "a gain or profit incidentally made from employment in addition to regular salary or wages, especially one of a kind expected or promised". Perquisite is thus a privilege, gain or profit incidental to an employment in addition to regular salary or wages.(Paras 17 to 21)

       Indian Courts have also held that perquisite is a benefit or an advantage received by the holder of an office over and above his salary. The benefit received by an employee is incidental to employment in excess of or in addition to the salary. (Para 23)

       (iv) WORDS AND PHRASES—Expression ‘concession’—Meaning—Income Tax Act, 1961—Section 17.(Para 51)