RAMASWAMI J.

The assessees in these two references are employees of the National & Grindlays Bank, Madras. T. C. No. 277/67 relates to the assessment year 1962-63 and T.C. No. 280/67 relates to the assessment year 1961-62. In the first case the assessee returned a sum of Rs. 69, 517 under the head "salary" which included a sum of Rs. 4, 636, being the value of rent-free quarters. The assessee's employer had paid a sum of Rs. 15, 119 by way of tax on the salary. The assessee had valued the rent-free accommodation at 12 1/2 per cent. on the basic pay after excluding the income-tax paid by the employer and the fuel and lighting charges borne by the employer. In the other case (T.C. No. 280/67) also the assessee, in calculating the value of the rent-free accommodation, has excluded the income-tax paid by the employer and the fuel and lighting charges borne by the employer. In both these cases the Income-tax Officer considered that the tax borne by the employer of the assessees was a "perquisite", that it represented a fixed regular payment and that, therefore, it should have been included in the sum in arriving at the value of the rent-free accommodation. Both the assessees filed appeals to the Appellate Assistant Commissioner. It was contended before him that the tax borne by the employer was neither fixed nor regular in nature and that it was in the nature of an ad hoc benefit given to the employees and, therefore, should have been excluded in computing the value of the perquisites in the form of rent free accommodation. Objection was also taken against the inclusion of the cost of fuel and electricity in the amount of salary for the same purpose. The Appellate Assistant Commissioner thought that all these items formed part of the profits derived from the employment and was, therefore, salary. In that view he confirmed the orders of the Income-tax Officer. In the appeal before the Tribunal, the assessees disputed only the inclusion of the income-tax paid by the employer in the salary. The Tribunal held that it would not be proper to include the tax borne by the employer as part of the assessees' salary for the purpose of calculating the value of rent-free accommodation, that the tax borne by the employer was a perquisite and a perquisite could not come under the term "salary" as defined in Explanation 2, rule 3, of the Income-tax Rules, 1962 Identical question has been referred in these two cases and it reads as follows

"Whether, on the facts and in the circumstances of the case, the amount of income-tax borne by the assessee's employers on behalf of the assessee could be treated as salary within the meaning of clause (2) of the Explanation to rule 3 of the Income-tax Rules, 1962, for the purposes of calculating the value of the rent-free accommodation?" *

It may be mentioned that for the assessment year 1961-62, the relevant rule is rule 24A of the Indian Income-tax Rules, 1922, and not rule 3 of the Income-tax Rules, 1962. Both in the order of the Tribunal and in the reference, T.C. No. 280/67, rule 3 of the Income-tax Rules, 1962, has been referred to instead of ruler 24A. But that does not make any difference because so far as the present question is concerned, both rule 24A of the Indian Income-tax Rules, 1922, and rule 3 of the Income-tax Rules, 1962, are identically worded. Since the interpretation and ascertainment of the exact scope of rule 3 is involved, it becomes necessary to extract the relevant portion which reads as follows

"3. Valuation of Perquisites.--For the purpose of computing the income chargeable under the head 'salaries' the value of the perquisites (not provided for by way of monetary payment to the assessee) mentioned below shall be determined in accordance with the following clauses, namely:--

(a) The value of rent-free residential accommodation shall ordinarily be estimated at a sum equal to, --

Where the accommodation is not furnished-10 per cent

Where the accommodation is furnished-12.5 per c