IMPORTANT POINT
Commercial and tax legislations tend to be highly sensitive and complex as they deal with multiple problems and are contingent.

This common judgment decides the appeals filed by staff unions and officers’ associations of various banks, impugning judgments which dismiss their writ petitions, where the vires of Section 17(2)(viii) of the Income Tax Act, 1961¹[For short, “Act”.] or Rule 3(7)(i) of the Income Tax Rules, 1962²[For short, “Rules”.], or both, were challenged.

2. Section 17(2)(viii) of the Act includes in the definition of ‘perquisites’³[Section 17(2) of the Act defines perquisites. It specifies a list of benefits/advantages, incidental to employment, and received in excess of salary, which are made taxable as perquisites. Section 17(2)(viii) is a residuary clause that authorizes a subordinate rule-making authority to prescribe ‘any other fringe benefits or amenities’ that are liable to taxation as ‘perquisites’.], ‘any other fringe benefit or amenity’, ‘as may be prescribed’.⁴[Before amendments brought in by Finance (No.2) Act, 2009, with effect from 01.04.2010, Section 17(2)(vi) of the Act read: “(vi) the value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XIIH) as may be prescribed”. Post the amendment, Section 17(2)(viii), in effect contains the same stipulations as erstwhile Section 17(2)(vi), with some modifications. It states: “(viii) the value of any other fringe benefit or amenity as may be prescribed.” Thus, the present Section 17(2)(viii) contains similar stipulations as erstwhile Section 17(2)(vi), reference to Chapter XIIH only being deleted. To retain uniformity, we will be referring to it as Section 17(2)(viii).] Rule 3 of the Rules prescribes additional ‘fringe benefits’ or ‘amenities’, taxable as perquisites, pursuant to Section 17(2)(viii). It also prescribes the method of valuation of such perquisites for taxation purposes. Rule 3(7)(i) of the Rules stipulates that interest-free/concessional loan benefits provided by banks to bank employees shall be taxable as ‘fringe benefits’ or ‘amenities’ if the interest charged by the bank on such loans is lesser than the interest charged according to the Prime Lending Rate⁵[For short, “PLR”.] of the State Bank of India⁶[For short, “SBI”.].

3. Section 17(2)(viii) and Rule 3(7)(i) are challenged on the grounds of excessive and unguided delegation of essential legislative function to the Central Board of Direct Taxes⁷[For short, “CBDT”.]. Rule 3(7)(i) is also challenged as arbitrary and violative of Article 14 of the Constitution insofar as it treats the PLR of SBI as the benchmark instead of the actual interest rate charged by the bank from a customer on a loan.

4. Sections 15 to 17 of the Act relate to income tax chargeable on salaries.

Section 15 stipulates incomes that are chargeable to income tax as ‘salaries’.

Section 16 prescribes deductions allowable under ‘salaries’.

Section 17 defines the expressions ‘salary’, ‘perquisites’ and ‘profits in lieu of salary’ for Sections 15 and 16.

5. Section 17(1) includes in the definition of ‘salary’: wages, annuity or pension, gratuity, fee, commission, perquisites, or profits in lieu of or in addition to salary or wages, advance of salary, payments received by an employee in respect of leave not availed, annual accretion to the balance at the credit of the employee participating in a recognised provident fund, etc.

6. Section 17(2) relates to ‘perquisites’ and reads:⁸[Post 01.04.2010.]

“(2) “Perquisite” includes—

(i) the value of rent-free accommodation provided to the assessee by his employer computed in such manner as may be prescribed;

(ii) the value of any accommodation provided to the assessee by his employer at a concessional rate.

Explanation.— For the purposes of this sub-clause, it is clarified that accommodation shall be deemed to have been provided at a concessional rate, if the value of accommodation computed in such manner as may be prescribed, exceeds the rent recoverable from, or payable by, the assessee;

(iii) the value of any benefit or amenity granted or provided free of cost or at c