HEMANT GUPTA,J - (1.) THE challenge in the present writ petition, filed on behalf of the employees of the Food Corporation of India, is to the retrospective effect given to Explanation-1 added to Section 17(2)(ii) of the Income Tax Act, 1961 (for short 'the Act') inserted by Section 11 of Finance Act, 2007 with effect from 1.4.2002.
(2.) SECTION 17(2)(ii) of the Act, before its amendment was to the following effect :- "17. For the purposes of Sections 15 and 16 and of this Section, xx xx xx (2) perquisite includes, (i) the value of rent-free accommodation provided to the assessee by his employer. (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer." The said provisions became subject matter of challenge before different High Courts, but attained finality with the judgment of the Hon'ble Supreme Court reported as Arun Kumar and others v. Union of India and others, (2006)286 ITR 89 (SC). Rule 3 of the Income Tax Rules, 1962, was amended in the year 2001. The method of valuation of perquisite on the basis of the population of the city was substituted. The argument raised before the Hon'ble Supreme Court in the said case was that liability to pay tax will arise only if a concession shown in the matter of rent in respect of accommodation, is a perquisite under the Act and that the authority must come to the conclusion that Section 17(2)(ii) is attracted. Considering the said argument, the Hon'ble Supreme Court found that Section 17(2)(ii) of the Act, would apply only if there is a concession in respect of accommodation. The definition of perquisite is inclusive in nature and takes within its sweep several matters enumerated in clauses (i) to (vii). Section 17(2)(ii) declares that the value of any "concession" in the matter of rent respecting any accommodation provided to the employee by his employer would be a "perquisite". Nevertheless it must be a "concession" in the matter of rent respecting any accommodation provided by the employer to his employee. After finding so, the Court proceeded to hold as under: "The word "concession" has neither been defined in the Act nor in the rules. According to the Concise Oxford English Dictionary, "concession" is "a thing that is conceded"; "a gesture made in recognition of a demand or prevailing standard", " a reduction in price for a certain category of person". It is a "grant; ordinarily applied to a grant of specific privileges by Government, a special privilege granted by a Government, Corporation or other authority" (P.R. Aiyer, Advanced Law Lexican, 2005; Vol. I; page 944). It is "an act of yielding or conceding as to a demand or argument; something conceded; usually employing a demand; claim or request", "a thing yielded", "a grant" [Indian Aluminium Co. Ltd. v. Thane Municipal Corporation, [1992] Supp SCC 480]. "Concession" is a form of "privilege" (V. Pechimuthu v. Gowammal, 2001(4) R.C.R.(Civil) 169 (SC) : (2001)7 SCC 617). It is, therefore clear that 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, functional or jurisdictional fact." xxx xxx xxx In our opinion, the submission of Mr. Salve is well founded and deserves to be accepted that "concession" under sub-clause (ii) of clause (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"; the method of fixation of amount is a "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 a "concession" and the case is covered by Section 17(2)(ii) of the Act. Only thereafter may the authority proceed to calculate the liability of the assessee under the rules. In our considered opinion, therefore, inspite 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."
(3.) THE Hon'ble Supreme Court further found that Section 17(2)(ii) does not contain any deeming clause that once it is established that an employee is paying rent less than 10% of his salary in cities having population of 4 Lacs and 7.5 per cent, in other cities, it should be deemed to be a "concession" within the meaning of the Act. The Hon'ble Supreme Court concluded that Rule 3 would apply only to those cases where a "concession" has been shown by the employer in favour of an employee in the matter of rent respecting any accommodation. The argument that Rule 3 is discriminatory creating distinction between the employees of the Central Government and the State Governments and other employees i.e. employees of companies, corporations and other undertakings, did not find favour with the Hon'ble Supreme Court. The Court found the aforesaid classification to be a reasonable classification based on Intelligible Differentia. The same was found to have reasonable rational nexus with the object sought to be achieved and, thus, it was found that such provision cannot be held ultra-vires to Article 14 of the Constitution of India.;