COMMISSIONER OF INCOME TAX Vs. BAWA SINGH CHAUHAN
HIGH COURT OF DELHI
COMMISSIONER OF INCOME TAX
BAWA SINGH CHAUHAN
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(1.)THIS reference under S. 256(1) of the INCOME TAX ACT, 1961 (hereinafter referred to as "the Act"), raises the following question for the opinion of the Court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the perquisite of rent -free accommodation provided to the assessee by the employer was not includible in his total income under the head 'Salary' for the reason that the assessee did not make use of the same during the previous year ?"
(2.)THE assessee is an individual deriving income from a steel re -rolling mill at Kamptee. The assessment year to which the question relates is the year 1964 -65 relevant to the previous year
ended on 31st March, 1964. Besides deriving income from property, the assessee is also a
managing director of a company known as Bawa Iron & Steel Works Ltd., (hereafter referred to as
"the company"), which had its registered office at Sonepat. The assessee received a remuneration
of Rs. 9,750 from the company. The company provided the assessee with a rent -free house, a car
and a telephone and a few other amenities which were not specified. In respect of all these
perquisites, the ITO estimated their value at a sum of Rs. 2,400 as in the previous year and
included it as income of the assessee. The assessee did not show any value for these perquisites on
the ground that the assessee had not used the perquisites provided by the company. The ITO
negatived this contention and included the value of Rs. 2,400 in the assessment. Aggrieved by this
addition, the assessee preferred an appeal to the AAC. The AAC, on the facts and in the
circumstances, thought it fair to make an addition of Rs. 2,000 by way of perquisites. He thus
reduced this addition by Rs. 400.
The assessee went in appeal before the Tribunal. The Tribunal deleted the entire addition. It held that although the employee had acquired the right to make use of perquisites provided by the
employer, it has to be seen whether the expression "provided" used in S. 17 of the Act, means the
accommodation provided by the employer must in fact be used by the employee or whether it was
sufficient if the employer merely makes available the accommodation for use irrespective of the
fact whether the employee had made use of the accommodation thus provided. The Tribunal drew
a distinction between the expression "due" and "provided" and came to the conclusion that if the
employee for any reason is unable to derive benefit out of the rent -free accommodation provided,
then the employee is not liable to be taxed in respect of the value of the perquisite. The Tribunal
observed that taxing of a perquisite is taxing a notional income and if notional income is to be
taxed, the legal fiction must be carried to the logical end. If notional income is to result, there must
be performance of that part of the contract which the employee has to perform normally using the
accommodation provided, otherwise the notional income does not come into being. The Tribunal
held the view that the notional income would come into being only if the assessee derived benefit
out of the perquisites and not otherwise. It accordingly deleted the addition of Rs. 2,000.
(3.)IT is necessary to notice the provisions of ss. 15 and 17 of the Act. Sec. 15 reads as follows :
"The following income shall be chargeable to income -tax under the head 'Salaries' (a) any salary due from an employer or a former employeer to an assessee in the previous year, whether paid or not; (b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income -tax for any earlier previous year. Explanation : For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year, it shall not be included again in the total income of the person when the salary becomes due." Sec. 17, insofar as it is relevant, is reproduced : "(1) 'Salary' includes - ... (iv) any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages; ... (2) 'perquisite' includes : (i) the value of rent -free accommodation provided to the assessee by his employer;..." A combined reading of ss. 15 and 17 is that the salary would include amongst other things perquisites, Sub -s. (2) of S. 17 gives a further inclusive definition of perquisite as including the value of rent -free accommodation provided to the assessee by his employer. By this legal fiction, the salary is made to include the value of rent -free accommodation provided to the assessee by his employer. This would bring to charge as a perquisite the value of rent -free accommodation. On facts it is found that the rent -free accommodation was provided to the assessee by his employer. The only question is that the assessee had not utilized the rent -free accommodation provided to him. The statute has used the word "provided" which means making it available for the use of the assessee. There may be circumstances under which the employee may not make use of the rent - free accommodation provided to the assessee. In our opinion, unless the assessee forgoes his right to the provision of rent -free accommodation provided to the assessee by his employer or waives his right before the income accrues, the notional income has to be brought to charge as a perquisite equivalent to the value of rent -free accommodation.
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