The amendments to Section 17(2) of the Income Tax Act, 1961, are constitutional, addressing legislative gaps without infringing on judicial authority or violating Article 14 of the Constitution.

JUDGMENT :

Per MS Sonak J :-

1. Heard learned counsel for the parties.

2. Learned counsel for the parties agree that a common judgment and order can dispose of these Petitions because substantially common issues of law and fact arise. Learned counsel agree that Writ Petition No.825 of 2006 may be treated as the lead Petition.

3. The Petitioners are Associations/Federations of the officers of nationalised banks. They purport to represent the bank officers. In some of the Petitions, there was a prayer for a grant of leave to prosecute these Petitions in a representative capacity. However, such prayers were not pursued, possibly because the Petitioners felt that if the impugned provisions of the Income Tax Act, 1961 ("IT Act") were struck down, then the benefit of such striking down would inure to all the bank officers and not just the bank officers whom the Petitioners expressly represent.

4. Though the reliefs in some of these Petitions are somewhat convoluted and confused, the Petitioners mainly challenge Explanations 1 and 4 below Section 17(2) of the IT Act by the Finance Act, 2007, which entered force with limited retrospective effect. [Explanations 1 to 3 from 1 April 2002, and explanation 4, from 1 April 2006]. (impugned amendments).

5. The impugned amendments introduced a legal fiction that an employee shall be deemed to have received a concession in the value of rentals once it was established that the employee was provided an employer-owned accommodation and the rent recoverable or payable by the employee-assessee was less than the specified percentage of such employee’s salary.

PETITIONER’S CONTENTIONS

6. Mr Sean Wassoodew, Mr K. P. Anil Kumar and Mr Sagar Rane, learned counsel for the Petitioners, contended that the impugned amendments were introduced to nullify or overrule the Hon'ble Supreme Court's decision in Arun Kumar and others vs. Union of India and others, [(2007) 1 SCC 732]. They pointed out that the impugned amendments no longer rendered it necessary for the AOs to determine the jurisdictional fact of whether any concession in the matter of rent was actually granted by the employer to the employees. By a deeming provision, concession in the matter of rent was deemed provided upon fulfilment of some conditions. Accordingly, learned counsel for the Petitioners contended that this is a case of impermissible judicial override, which defies the doctrine of separation of powers. Mr Wassoodew relied on the decision of the Hon'ble Supreme Court in Indian Aluminum Co. and others vs. State of Kerala and others, [(1996) 7 SCC 637] to support this contention.

7. The learned counsel for the Petitioners submitted that the impugned amendments and the Explanations below Section 17(2)(ii) of the IT Act introduced thereby are inconsistent, repugnant and destructive of the main body of Section 17(2)(ii), which provides that a “perquisite” includes the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer. They submitted that by introducing a legal fiction and dispensing with the requirement of determining whether any concession was being granted to the employees, Section 17(2)(ii) was rendered otiose.

8. Learned counsel for the Petitioners, without prejudice to the above contentions, contended that the legislature, by granting retrospectivity to the impugned amendments had acted with manifest arbitrariness. They submitted that there was no ambiguity in Section 17(2)(ii) of the IT Act as interpreted by the Hon’ble Supreme Court in the case of Arun Kumar (supra). They submitted that in the absence of any ambiguity, it was not open to the legislature to introduce any Explanations and, by such Explanations, to create a legal fiction and bring about substantive and substantial changes regarding the taxability of perquisites. They submitted that the impugned amendments are neither clarificatory nor declaratory. Therefore, relying on Union of India and others vs. Martin Lottery Ag