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BHEL Employees' Association Vs. Union of India (UOi) and Ors. (17.02.2003 - KARHC) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberWrit Petition Nos. 7405, 8891 to 9021 of 2002
Judge
Reported in(2003)180CTR(Kar)412; [2003]261ITR15(KAR); [2003]261ITR15(Karn)
ActsIncome Tax Act, 1961 - Sections 14, 15, 16, 17 and 17(2); Income Tax Rules, 1962 - Rule 3; Constitution of India - Article 14; Central Boards of Revenue Act, - Sections 295 and 296
AppellantBHEL Employees' Association
RespondentUnion of India (UOi) and Ors.
Appellant AdvocateSubharao and Co.
Respondent AdvocateM.V. Seshachala, Adv. for respondent Nos. 1 to 3 and ;A.S. Bopanna, Adv. for respondent No. 4
DispositionPetitions dismissed
Excerpt:
- religious endowments act, 1863 [repeal by act ii /1927] section 6 of act ii of 1927 & section 8; [a.s. bopanna, j] application of the repealing act held, section 8 would clearly indicate that the repeal of religious endowments act would apply in so far as hindu religious endowments to which the act applies. but in so far as the jain religious endowments, the repeal by act (ii) of 1927 is not applicable. further, the religious endowments act 1863 has been repealed only in so far as it applies to hindu religious endowments and the repeal is specific to that extent and therefore the applicability of the act to the jain religious endowments act, 1863 is still applicable to the jains of dakshina kannada. section 10; maintainability of application under power of the district judge to.....p. vishwanatha shetty, j.1. since, in all these petitions common questions have been raised and arose for consideration, all these petitions along with a few other connected petitions were taken up for hearing together.2. the petitioner in writ petition no. 7405 of 2002 and writ petitions nos. 8891 to 9021 of 2002 is the bhel employees' association which is a registered trade union under the indian trade unions act, 1926 (hereinafter referred to as 'the trade unions act'). it is claimed by the petitioner in the said petitions that the petitioner-association represents the interest of the workmen numbering around 1,100 employed in the electronics division of the bharat heavy electricals ltd. (hereinafter referred to as 'the bhel') ; and these petitions have been filed by the association on.....
Judgment:

P. Vishwanatha Shetty, J.

1. Since, in all these petitions common questions have been raised and arose for consideration, all these petitions along with a few other connected petitions were taken up for hearing together.

2. The petitioner in Writ Petition No. 7405 of 2002 and Writ Petitions Nos. 8891 to 9021 of 2002 is the BHEL Employees' Association which is a registered trade union under the Indian Trade Unions Act, 1926 (hereinafter referred to as 'the Trade Unions Act'). It is claimed by the petitioner in the said petitions that the petitioner-association represents the interest of the workmen numbering around 1,100 employed in the Electronics Division of the Bharat Heavy Electricals Ltd. (hereinafter referred to as 'the BHEL') ; and these petitions have been filed by the association on behalf of the members who are residing in the BHEL quarters and also in the colony belonging to the BHEL.

3. The first petitioner in Writ Petition No. 7205 of 2002 is Bharat Earth Movers Officers' Guild and the second petitioner is the assistant manager employed in the Bharat Earth Movers Ltd. (hereinafter referred to as 'the BEML'). The first petitioner in Writ Petition No. 7206 of 2002 is the ITI Officers' Association and the second petitioner in the said petition is the assistant executive engineer in the employment of the Indian Telephone Industries (hereinafter referred to as 'the ITI'). It is claimed by the BEML Officers' Guild and also by the ITI Officers' Association in these petitions that the associations have been constituted to secure and safeguard the legitimate, legal rights and privileges of its members.

4. The petitioner in Writ Petition No. 8253 of 2002 is the All India State Bank Officers Federation, a trade union registered under the Trade Unions Act; and the petitioner in Writ Petition No. 8254 of 2002 is a deputy manager of the State Bank of India.

5. It is the case of the petitioners that the respondents in these petitions are either Government of India companies, or banks or public sector enterprises and they are functioning under the administrative control of the Government of India and all of them are instrumentalities of the State within the meaning of article 12 of the Constitution of India. It is also the case of the petitioners that the respondent-companies, undertakings and banks provide residential accommodation/quarters either constructed and owned on their own or taken on lease for the purpose of allotting the same to its employees and they also advance loans either free of interest or at concessional rate of interest.

6. In these petitions they have called in question the constitutional validity of-

1. Section 17(2)(vi) of the Income-tax Act, 1961, as amended by means of the Finance Act, 2001 ; and

2. Rule 3 of the Income-tax Rules, 1962, as notified by the fifth respondent by means of its notification dated September 25, 2001, a copy of which has been produced as annexure 'A' to this petition.

7. In some of the petitions, in addition to the challenge made to the constitutional validity of Clause (vi) of Sub-section (2) of Section 17 of the Act and Rule 3 of the Rules, the petitioners also have challenged the validity of the notification/order/memo issued by the management of the companies/banks/ undertakings, proposing to deduct income-tax on the value of perquisites given to their employees.

8. As noticed by me earlier, the petitioners in these petitions are either the associations or the employees of companies, banks or public sector undertakings.

9. A few facts, which are not in serious dispute and relevant for the disposal of these petitions may be stated as hereunder :

The Union of India amended Section 17(2) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), by means of the Finance Act, 2001, with effect from April 1, 2002, by inserting Sub-clause (vi) to Section 17(2) of the Act. Sub-clause (vi) of Section 17(2) of the Act, as amended, reads as follows : '(vi) the value of any other fringe benefit or amenity as may be prescribed.'

10. The Central Board of Direct Taxes, Government of India (hereinafter referred to as 'the Board'), by means of its notification dated September 25, 2001 (see [2001] 251 ITR (St.) 81), amended the Income-tax Rules, 1962 (hereinafter referred to as 'the Rules'), with effect from April 1, 2001, for the purpose of computing the income chargeable under the head 'Salaries', the value of perquisites provided by the employer directly or indirectly to the employee or any member of his household by means of his employment. As a result of the said amendment 10 per cent, of the salaries and the standard rent fixed by the employer and the interest on housing loans/conveyance loans and also benefit of the services rendered by the servant made available by the employer, subject to certain conditions, are treated as income, for the purpose of computation of income-tax, in the hands of the employee. In the light of the amendment of the Rules as stated above, the management of the companies, banks or public sector undertakings have issued circulars/instructions notifying its employees that the value of perquisites for the purpose of income chargeable under the head 'Salaries' will be calculated and deducted from the salary payable during January/February, 2002. It is the case of the petitioners that as a result of the amendment made to Section 17(2) of the Act and Rule 3 of the Rules for the purpose of computing the income chargeable under the head 'Salaries', the value of the perquisites by way of :

(a) Accommodation ;

(b) Free or concessional educational facilities ;

(c) Interest-free or concessional loan ;

(d) Value of free meals ;

(e) Value of any gift or voucher or token in lieu of such gift;

(f) Value of travelling, touring, accommodation and any other expenses paid by the employer or reimbursed ;

(g) Membership fees or annual fees charged to credit card obtained by the employee or any member of his household ;

(h) Expenditure in a club ;

(i) Value of benefit resulting from the use of any moveable asset;

(j) Value of benefit arising from the transfer of any moveable asset belonging to the employees ; and

(k) Value of any other benefit or amenity, service, right or privilege provided by the employer, etc.

are required to be included and computed with effect from April 1, 2001.

11. Sri K. Subbarao, Sri Sarangan, learned senior counsel, Sri M. C. Narasimhan, Sri K. P. Kumar, Sri Yoganarasimha, Sri P. S. Rajgopal, Sri B. L. Acharya, Sri S. V. Prakash, Sri V. S. Gunjal, Sri M. Rajanna, learned counsel appearing for the petitioners, in these petitions and connected matters challenging the constitutional validity of Sub-clause (vi) of Section 17(2) of the Act and Rule 3 of the Rules as amended by means of notification dated September 25, 2001 (see [2001] 251 ITR 81), a copy of which has been produced as annexure A to Writ Petitions Nos. 7205-7206 of 2002, urged eight grounds. Firstly, they submitted that Sub-clause (vi) of Clause (2) of Section 17 of the Act is required to be struck down on the ground that the essential legislative function has been delegated to the executive, and therefore, the same suffers from the viceof excessive delegation. It is their submission that it is not permissible for the Legislature to allow the Board to prescribe or say what is 'fringe benefit' or 'amenity'. According to learned counsel, it is for the Legislature to state what are 'fringe benefits' or 'amenities' to enter the computation of income ; and the Board could only prescribe the manner of qualifying or determining the value of such 'fringe benefits' or 'amenities'. In other words, according to learned counsel, the power to determine 'fringe benefit' or 'amenity' cannot be delegated to the Board. Alternatively, they submitted, even assuming that such a delegation is permissible, in the instant case, since there is no guidelines laid down for the executive to determine what is meant by 'fringe benefit' or 'amenity', the impugned provision is liable to be struck down on the ground that the impugned provision is highly arbitrary, unreasonable and confers uncontrolled and unguided power on the executive and as such is violative of the rights guaranteed to the petitioners under article 14 of the Constitution of India. Secondly, they submitted that the impugned Rule 3 of the Rules which provides for various types of 'fringe benefits' or 'amenities' is' also liable to be struck down on the ground that the said rule is highly arbitrary, unreasonable, discriminatory in nature and violative of the rights guaranteed to the petitioners under Article 14 of the Constitution of India. Elaborating this submission, learned counsel pointed out that there cannot be any discrimination between the Central or State Government employees on the one hand, and the public sector and private sector employees on the other. They also submitted that prior to issue of the impugned notification, the Central Government employees as well as the State Government employees and the employees of public sector undertakings were treated alike and there being no substantial change in their status, it was not permissible to have made distinction between the Central Government and the State Government employees on the one hand, and the employees of the public sector and private sector undertakings on the other. It is their submission that the inequality among the employees of all salaried class just on the ground that they do not either happen to be Government of India employees or the employees of the State Government, is highly discriminatory and arbitrary in nature and the said classification made is neither reasonable nor fair and it has no nexus with the object sought to be achieved. They also submitted that in public sector undertakings the wage revision takes place only after the Government grants its assent; and there is absolutely no difference in the salary of public sector employees and the Government employees; and in the majority of cases, salaries earned by the employees of public sector and private sector undertakings are far below those of Government employees. It is also their submission that all along the Central and State Government employees and the employees of public sector undertakings were almost treated on par with the Government employees. It is also their grievance that the employees of public sector under-takings who are on par with the Government servants have been unjustly and wrongly grouped together along with the private sector employees. Therefore, it is their submission that grouping together of public sector employees along with the private sector employees also amounts to discrimination in law inasmuch as the unequals are put together for the purpose of imposition of tax. They also submitted that the classification must be rational and must be based, on some qualities and characteristics which are to be found in all persons grouped together and absent in the others left out of the class or group ; and the classification made must have the rational nexus with the object sought to be achieved by law. According to them, a situation where fair rental or standard rent available is sought to be ignored altogether in favour of a higher quantification of 7.5 per cent./10 per cent., the said quantification allowed to be made is liable to be struck down as arbitrary and unreasonable. Illustrating this submission, they pointed out that if three residential quarters, similar in accommodation and quality in all respects, are occupied by three officers 'A', 'B' and 'C' of different ranks, the value of perquisite in each case will be different depending upon the salary of the employee. When the salary of an employee goes up, while he remains in the same accommodation, the value of the perquisite will go up correspondingly resulting in serious hardship to the employee and under these circumstances, a fair and reasonable rule for computation of perquisites which stood the test of the time, should not have been replaced by unreasonable and arbitrary rules. In support of this submission/learned counsel relied upon the decisions of the Supreme Court reported in the case of State of Maharashtra v. . v. CIT : [2000]243ITR383(SC) . Fifthly, they submitted that the impugned rule, which provides that the entire cost of travel incurred by the employer to the spouse of the employee should be treated as a perquisite, is also highly unreasonable and arbitrary. Recording to learned counsel, the travel is undertaken by the employee at the behest of the employer and no benefit whatsoever is derived by the employee, and the spouse accompanies the employee on many occasions in discharge of social obligations of the employer in other countries. It is their sixth submission that the impugned rule provides for extremely impractical, cumbersome procedure with regard to the use of motor cars provided by the employer to his/its employees inasmuch as the employee having to maintain complete details of journey undertaken for official purpose including the date of travel, destination, mileage and the amount of expenditure incurred thereon ; and the employee has to give a certificate that the expenditure was incurred for official purposes and the supervising authority of the employee is also required to give a certificate to that effect that the expenditure was incurred for official purposes. This procedure, learned counsel pointed out, is wholly unwarranted and cumbersome entailing waste of valuable time both of the employer and the employee and requires to be struck down as being unreasonable and arbitrary. Seventhly, they submitted that the imposition of tax on the emoluments paid to a servant made available to the employee by its employer on the ground that either it is a perquisite or an amenity provided to the employee, is liable to be struck down on the ground that it amounts to double taxation ; and double taxation will not be countenanced unless the statute specifically and expressly provides for it; and in this case there is no such prescription. Finally, it is submitted that the impugned Rule 3 of the Rules which was notified by means of notification--annexure Al, dated September 25, 2001, is liable to be nullified on the ground that on the date of issue of the said notification, Sub-clause (vi) of Clause (2) of Section 17 of the Act was not in the statute book and as such the Board had no authority to make the impugned rule.

12. However, Sri M. V, Sheshachala, learned counsel appearing for the respondents, strongly repelled the each and every submission made by learned counsel appearing for the petitioners. He pointed out that in the light of the Budget Speech made by the Finance Minister in Parliament that the value of the 'fringe benefits' or 'amenities' would be determined on the basis of their cost to the employer, Sub-clause (vi) of Clause (2) of Section 17 of the Act came to be inserted, and correspondingly Rule 3 of the Rules also came to be substituted. It is his submission that the scheme of the Act to charge income under the head 'Salaries' is to bring all benefits, received by an employee from the employer, to tax. So far as the contention of learned counsel for the petitioners that Sub-clause (vi) of Clause (2) of Section 17 of the Act is liable to be struck down on the ground that it suffers from the vice of excessive delegation is concerned, Sri Sheshachala pointed out that the intention of Parliament was to bring all types of perquisites to tax unless specifically exempted by it; and once this basic policy is enunciated, it cannot be said that the delegation made is an excessive delegation. He also pointed out that the Rules framed were also placed before Parliament and under those circumstances Parliament had the occasion to look into the Rules. Further, the power to prescribe 'fringe benefit' or 'amenity' by means of a rule, is conferred on a very high body like the Board, which is familiar in the matter of collection of State revenue. It is his further submission that while Sub-clauses (i), (ii), (iii), (iv) and (v) of Clause (2) of Section 17 of the Act prescribe specific items of perquisites, Sub-clause (vi) of Clause (2) of Section 17 of the Act provides a residuary clause bringing into operation so as to apply to all types of perquisites. In support of this submission, he relied upon the decision of the Supreme Court in the case of Municipal Corporation of Delhi v. Birla Cotton Spinning and Weaving Mills : [1968]3SCR251 , in the case of Supreme Court Advocates-on-Record Association v. Union of India : AIR1994SC268 and also in the case of Agricultural Market Committee v. Shalimar Chemical Works Ltd. : AIR1997SC2502 and drew my attention to paragraphs 26 and 27 of the said judgment. Sri Sheshachala further submitted that there is no merit in the submission of learned counsel appearing for the petitioners that the Board being the delegated body of the Legislature, has no power to act to name the items of perquisites ; and power conferred is only to fix the value of 'fringe benefit' and 'amenity'. According to him, when the Legislature under Sub-clause (vi) of Clause (2) of Section 17 of the Act empowered the Board, by means of Rules, to prescribe the item of 'fringe benefit' or 'amenity', such prescription cannot be said as one made without the authority of law. In support of this submission, he relied upon the decision of the Supreme Court in the case of Asst, Collector of Central Excise v. Ramakrishnan Kulwant Rai : [1990]184ITR387(SC) . He also pointed out that the meaning attached to the words 'fringe benefits' or 'amenities' and Sub-clauses (i) to (v) of Clause (2) of Section 17 of the Act also gives sufficient guidelines to the Board while prescribing which of the items are required to be specified as 'fringe benefits' or 'amenities'. With regard to the second contention of learned counsel appearing for the petitioners that Rule 3 of the Rules which prescribes the valuation of rent-free accommodation at one rate for Central and State Government employees and another rate for employees of public sector and private sector undertakings, and as such the same is liable to be struck down as being arbitrary, discriminatory in nature and violative of rights guaranteed to the petitioners under Article 14 of the Constitution of India is concerned, Sri Sheshachala submitted that the policy of the Central Government in so far as the public sector undertakings are concerned, is that they should compete and prosper in the new environment of privatisation. He further pointed out that the classification made between the Central Government and the State Government employees on the one hand and the employees of public sector and private sector undertakings on the other is a reasonable classification which has a direct nexus with the object sought to be achieved. Elaborating this submission, he pointed out that Rule 3(1) of the Rules has prescribed the rate of rent-free accommodation of Central and State Government employees in terms of the provisions contained in Article 309 of the Constitution of India ; and the service conditions of the employees of the Central and the State Government are governed by the regulations framed by the President of Union of India and the Governor of the respective States ; and in so far as the Central Government employees, regulations are framed as per HRA and CCA rules and in so far as the State Government employees are concerned, KCSR rules are made applicable ; and whereas, in so far as other employees of public sector and private sector undertakings are concerned, fixed rate of 7.5 per cent, and 10 per cent, has been fixed and this rate is approximately commensurate with the HRA granted to those employees who are not provided with the house. Therefore, he submits that the classification of employees of public sector and private sector undertakings with that of the Government employees is in consonance with the object and policy of the Central Government. In support of this submission, he relied upon the decision of the Supreme Court in the case of Ram Krishna Dalmia v. Justice S. R. Tendolkar, : [1959]1SCR279 and AIR 1958 SC 44 (sic). It is his submissionthat in the impugned Rule 3 of the Rules, the discretion of the Assessing Officer is removed and uniformity is brought about and procedure of valuing property both by valuing of similar accommodation located in the vicinity and determination of municipal value, whichever is less is dispensed with providing a simple procedure ; and/ therefore, the petitioners cannot have any grievance on that account. Sri Sheshachala pointed out that there is no merit in the submission of learned counsel for the petitioners that neither Sub-clause (vi) of Clause (2) of Section 17 of the Act nor Section 295(2)(c) of the Act authorises the Board to specify the 'fringe benefit' or 'amenity' ; and what is authorised is only the value of assessment of 'fringe benefits' or 'amenities' concerned. He further pointed out that Clause (a) of Sub-section (2) of Section 295 of the Act confers power on the Board to ascertain and determine any class of income, and Clause (c) of Section 295(2) of the Act confers power on the Board for determination of any perquisite chargeable to tax in such manner and such basis as it appears to the Board to be proper and reasonable, and Clause (p) of Section 295(2) of the Act confers power on the Board to make rules in any manner which by the Act is to be or may be required to be prescribed. Therefore, he submits that the combined reading of Sub-clause (vi) of Clause (2) of Section 17 of the Act and Clauses (a), (c) and (p) of Section 295(2) of the Act confers power on the Board to identify and specify the specific items of 'fringe benefits' or 'amenities'. So far as the fourth contention of learned counsel for the petitioners that the interest-free loans or loans advanced at concessional rate of interest cannot be treated as perquisite is concerned, he submitted that under Section 17(2)(vi) of the Act all perquisites has now been brought to tax and as such interest-free loan or loan at concessional rate of interest advanced can be treated as perquisite. It is his further submission that the decision of the Supreme Court in the case of S. K. Dutta, ITO v. Lawrence Singh Ingty : [1968]68ITR272(SC) is of no assistance to the facts of the present case, as all perquisites have now been brought to tax under Section 17(2)(vi) of the Act. Learned counsel for the respondents next submitted that merely because the employee and the employer are required to maintain the details regarding the usage of the vehicle provided by the employer to the employee ; and the procedure prescribed is a cumbersome one, is not a ground to declare the said provision as either arbitrary or illegal. Repelling the seventh submission of learned counsel for the petitioners that adding the salary of a servant deputed to the residence of the employee would amount to double taxation in the hands of the employee is concerned, he pointed out that since the petitioners have not raised any pleading in this regard in any of the petitions, the petitioners should not be permitted to raise this contention. He further pointed out that under Section 4(1) of the Act, income shall be charged on every person and, therefore, the income arising in the hands of the servant will be charged as tax or exempted as per the status of that person ; the employee is taxed in so far as the perquisite which is equivalent to the monetary benefit the employee receives, and, therefore, there is no question of double taxation. With regard to the last contention of learned counsel appearing for the petitioners that Rule 3 substituted with effect from April 1, 2001, is beyond the rule-making authority, as Section 17(2)(vi) of the Act came into effect only from April 1, 2002, is concerned, Sri Sheshachala pointed out that Section 17(2)(vi) came into effect by virtue of the Finance Act, 2001, which has received the assent of the President on May 11, 2001, and the same gave effect to the proposal of the Central Government for the financial year 2001-02. He further pointed out that sections 2 to 101 of the Finance Act, 2001, came into force with effect from April 1, 2001. According to him 'with effect from April 1, 2001' as inserted after Section 17(2)(vi) of the Act would mean that the same would be applicable to the assessment year 2002-03, i.e., for the financial year 2001-02 with the accounting period commencing from April 1, 2001. In support of this submission, he relied upon the decision of the Supreme Court in the case of CIT v. Isthmian Steamship Lines : [1951]20ITR572(SC) . He also relied upon the Division Bench judgment of the Jharkhand High Court in the case of Tata Workers' Union v. Union of India , wherein the contentions, similar to the one regarding validity of Rule 3 of the Rules advanced, came to be negatived by the said court. Therefore, he submits that these petitions are liable to be dismissed as devoid of any merit.

13. In the light of the rival submissions made by learned counsel appearing for the parties, the questions that would arise for my consideration in these petitions are :

1. Whether Sub-clause (vi) of Clause (2) of Section 17 of the Income-tax Act is liable to be struck down as unconstitutional and

2. Whether Rule 3 of the Income-tax Rules is liable to be struck down as illegal and void in law on the grounds urged

14. Section 15 of the Act provides that items mentioned in Clauses (a), (b) and (c) of Section 15 of the Act are liable to be charged as income-tax under the head 'Salaries'. Section 16 of the Act provides that the income chargeable under the head 'Salaries' shall be computed after making deductions set out in the said section. Section 17 of the Act further elaborates as to what are the items of which could be treated as 'salary', 'perquisite' and 'profits'. Sub-clauses (i) to (v) of Clause (2) of Section 17 of the Act make the items mentioned thereunder as perquisites. Sub-clause (vi) of Clause (2) of Section 17 of the Act further provides that the value of any other 'fringe benefit' or 'amenity' as may be prescribed also should be treated as 'perquisite'.

15. Clause (12) of Section 2 of the Act defines the 'Board', and the Board means the 'Central Board of Direct Taxes' constituted under the Central Boards of Revenue Act, 1963 (hereinafter referred to as 'the CBR Act'). Clause (33) of Section 2 of the Act provides that the word 'prescribed' means prescribed by rules made under the Act. Sub-section (1) of Section 295 of the Act confers power on the Board, subject to the control of the Central Government by issue of a notification in the Gazette of India, to make rules for carrying out the purposes of the Act. Sub-section (2) of Section 295 of the Act further provides that without prejudice to the generality of the power conferred on the Board under Sub-section (1) of Section 295 of the Act, the Board could make rules in respect of various matters provided under Clauses (a) to (p) of Subsection (2) of Section 295 of the Act. Clauses (a), (c) and (p), on which reliance is placed by learned counsel, appearing for the respondent in support of his plea that the power is conferred on the Board to frame Rule 3 of the Rules, read as follows :

'295. (2)(a) the ascertainment and determination of any class of income;

(c) the determination of the value of any perquisite chargeable to tax under this Act in such manner and on such basis as appears to the Board to be proper and reasonable ; . . . and

(p) any other matter which by this Act is to be, or may be, prescribed.' Now, let me examine each of the contentions advanced by learned counsel appearing for the petitioners.

16. Before I proceed to consider the first contention advanced by learned counsel appearing for the petitioners that Sub-clause (vi) of Clause (2) of Section 17 of the Act is liable to be struck down on the ground that it suffers from the vice of excessive delegation and also on the ground that it is arbitrary and confers uncontrolled and unguided power on the executive, it is necessary to refer to the law laid down by the apex court on this question.

16. In the case of Avinder Singh v. State of Punjab : [1979]1SCR845 , the Supreme Court laid down the tests mentioned hereunder for valid delegation of legislative power :

(i) the Legislature cannot efface itself;

(ii) it cannot delegate the plenary or the essential legislative function ;

(iii) even if there be delegation, Parliamentary control over delegated legislation should be a living continuity as a constitutional necessity.'

17. It was further observed in the said decision as follows :

'While what constitutes an essential feature cannot be delineated in detail it certainly cannot include a change of policy. The Legislature is the master of legislative policy and if the delegate is free to switch policy, it may be usurpation of legislative power itself.'

18. In the case of Agricultural Market Committee : AIR1997SC2502 , the Supreme Court, after reviewing the law on the subject, at paragraphs 24 and 26 has observed as follows (page 2507) :

'24. The power of delegation is a constituent element of the legislative power as a whole under Article 245 of the Constitution and other relative articles and when the Legislature enact laws to meet the challenge of the complex socio-economic problems, they often find it convenient and necessary to delegate subsidiary or ancillary powers to delegates of their choice for carrying out the policy laid down by the Acts as part of the administrative law. The Legislature has to lay down the legislative policy and principle to afford guidance for carrying out the said policy before it delegates its subsidiary powers in that behalf (see : Vasantlal Maganbhai Sanjanwala v. State of Bombay : 1978CriLJ1281 ). This court in another case, namely, the Municipal Corporation of Delhi v. Birla Cotton Spinning and Weaving Mills : [1968]3SCR251 , as also in an earlier decision In re: The Delhi Laws Act, 1912, the Ajmer-Merwara (Extension of Laws) Act, 1947 and The Part C States (Laws) Act, 1950 : [1951]2SCR747 , has laid down the principle that the Legislature must retain in its own hands the essential legislative functions and what can be delegated is the task of subordinate legislation necessary for implementing the purposes and objects of the Act concerned.'

'26. The principle which, therefore, emerges out is the essential legislative function consists of the determination of the legislative policy and the Legislature cannot abdicate essential legislative function in favour of another. Power to make subsidiary legislation may be entrusted by the Legislature to another body of its choice but the Legislature should, before delegating, enunciate either expressly or by implication, the policy and the principles for the guidance of the delegates. These principles also apply to taxing statutes. The effect of these principles is that the delegate which has been authorised to make subsidiary rules and regulations has to work within the scope of its authority and cannot widen or constrict the scope of the Act or the policy laid down thereunder. It cannot, in the garb of making rules, legislate on the field covered by the Act and has to restrict itself to the mode of implementation of the policy and purpose of the Act.'

19. In the case of Ajay Kumar Banerjee v. Union of India [1984] 65 FJR 25; AIR 1984 SC 1130 at paragraphs 8 and 29 of the judgment at page 1141, the court has observed thus (page 40 of 65 FJR) :

'28. It is well settled that unlimited right of delegation is not inherent in the legislative power itself. This court has reiterated the aforesaid principle in Gwalior Rayon Silk . v. Asst. CST : [1974]94ITR204(SC) . The growth of legislative power of the executive is a significant development of the 20th century. The theory of laissez-faire has been given a go-by and large and comprehensive powers are being assumed by the State with a view to improve social and economic well-being of the people. Most of the modern socio-economic legislations passed by the Legislature lay down the guiding principles of the legislative policy. The Legislatures, because of limitation imposed upon them and the time factor, hardly can go into the matters in detail. The practice of empowering the executive to make subordinate legislation within the prescribed sphere has evolved out of practical necessity and pragmatic needs of the modern welfare state, (emphasis supplied).

'29. Regarding delegated legislation, the principle which has been established is that Legislature must lay down the guidelines, the principles of policy for the authority to whom power to make subordinate legislation is entrusted. The legitimacy of delegated legislation, depends upon its being used as ancillary which the Legislature considers to be necessary for the purpose of exercising its legislative power effectively and completely. The Legislature must retain in its own hand the essential legislative function which consists in declaring the legislative policy and lay down the standard which is to be enacted into a rule of law, and what can be delegated is the task of subordinate legislation which by it very nature is ancillary to the statute which delegates the power to make it effective provided the legislative policy is enunciated with sufficient clearness or a standard laid down. The courts cannot and do not interfere on the direction that undoubtedly rests with the Legislature itself in determining the extent of the delegated power in a particular case. It is true that in this case under Section 16(1)(g), rationalisation or revision of pay scales and other terms and conditions of service of officers and other employees wherever necessary is one of the purpose for which a scheme can be framed under Section 16(1) of the Act. It is also true that incidental, consequential and supplementary matters as are necessary to give full effect to the scheme are also authorized under Clause (j) of Sub-section (1) of Section 16. It has also to be borne in mind that scheme and every amendment to a scheme framed under Section 16 shall be laid as soon as may be after its is made before each House of Parliament. The last provision is indicative of the power of superintendence that the Legislature maintains over the subordinate legislation or scheme framed by the delegate under the authority given under the Act.... But we must bear in mind the observations of Mukherjee J. in The Delhi Laws' case [1951] SCR 747; AIR 1951 SC 332 to the following effect (at page 400) ;

'The essential legislative function consists in the determination or choosing of the legislative policy and of enacting that policy into a binding rule of conduct. It is open to the Legislature to formulate the policy as broadly and with as little or as much details as it thinks proper and it may delegate the rest of the legislative work to a subordinate authority who will work out the details within the framework of that policy'.' (emphasis supplied)

20. Now, let me examine, in the backdrop of the law laid down by the Supreme Court, whether Sub-clause (vi) of Clause (2) of Section 17 of the Act, is liable to be struck down on the ground that suffers from the vice of excessive delegation and also on the ground that it gives uncontrolled and unguided power to the executive in the matter of identifying what is meant by 'fringe benefit' and 'amenity' ?

21. Sub-clauses (i) to (v) of Clause (2) of Section 17 of the Act specifies various items that could be treated as 'perquisites'. As could be seen from the said provisions, the value of rent-free accommodation provided to the assessee by his employer; the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer ; any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee ; any sum payable by the employer whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund, etc., by virtue of inclusive definition are made as 'perquisites'. However, Sub-clause (vi) of the said section further provides, the value of any other 'fringe benefit' or 'amenity', which may be prescribed, also would come under the purview of 'perquisite'. The said provision makes the value of any other 'fringe benefit' or 'amenity' as may be prescribed by the Board, also should be treated as a perquisite. However, the power of determining which item should be treated as 'fringe benefit' or 'amenity', is conferred on the Board and the Board has to do it by means of the rules framed on that behalf. While classifying various types of income for the purpose of charge of income-tax, among other things, 'salaries' has been classified as one of the heads. Section 16 of the Act, as noticed by me earlier, provides that various items of income set out under Section 15 could be charged under the head 'Salaries'. Section 17 of the Act, by virtue of a deeming provision, makes various types of income an assessee gets, as 'salary', 'perquisite' and 'profits'. The reading of Sections 14, 15, 16 and 17 of the Act and the scheme of the Act in addition to the normal or dictionary meaning that could be given to the words, to my mind appears, that sufficient guidelines are given to the executive to determine what could be treated as 'fringe benefit' or 'amenity'. 'Fringe benefit' or 'amenity' has its natural and commercial meaning. The law dictionaries also have explained what is 'fringe benefit' and 'amenity'. According to Webster's Encyclopedic Unabridged Dictionary, 'fringe benefit' means--a benefit, as free life of health insurance, received by an employee in addition to his regular pay, 'amenity' means--the quality of being pleasing or agreeable in situation, prospect, disposition, etc.; according to Thorndike Barnhart World Book Dictionary, 'fringe benefit' means--any benefit given to employees in addition to wages and compensations required by law like paid holidays and vacations, and recreational facilities, 'amenity' means--. . . a pleasant feature, a thing which makes life easier; according to Chambers 20th Century Dictionary, 'fringe benefit' means something in addition to wages or salary that forms part of the regular remuneration from one's employment. According to Stroud's Judicial Dictionary 'amenity' means--pleasant circumstances or features, advantages. Therefore, the words 'fringe benefit' or 'amenity' are well understood, both in daily and in commercial use ; and in the backdrop of the provisions contained in Sub-clauses (i) to (v) of Clause (2) of Section 17 of the Act, the power given to the Board to identify 'fringe benefit' and 'amenity' is not open to challenge on the ground that it is unguided, arbitrary and as such suffers from the vice of excessive delegation. The power to frame rules under Section 295 of the Act is conferred on a high functionary of the Government of India created under the CBR Act. The Board consists of very high functionaries of the Government of India who are expected to have deep knowledge about the policy as envisaged for imposition of tax in the country. Such a body is conferred with the power to identify what is meant by 'fringe benefit' or 'amenity'. The intention of the Legislature, as pointed out by Sri Sheshachala, is to bring to tax all perquisites unless specifically exempted by it. This is clear from the reading of Sections 14, 15, 16 and 17 of the Act. Therefore, once this basic policy can be gathered from the provisions of the Act, it is not possible for me to accept the contention of learned counsel appearing for the petitioners that the impugned provision suffers from the vice of excessive delegation as it gives uncontrolled, unguided and arbitrary power to the executive. Further it is also relevant to point out that Section 296 of the Act mandates that every rule made under the Act, as soon as it is made, should be placed before the House of Parliament. Therefore, the Legislature has retained control in respect of the rule framed by the executive, and such a rule framed by the executive would get the approval of Parliament. In the case of Delhi Municipality, : [1968]3SCR251 , the Supreme Court while considering the question whether the power conferred by Section 150 of the Delhi Municipal Corporation Act on the corporation to levy any of the optional taxes by prescribing maximum rates of tax to be levied; to fix class or classes of persons or the description or descriptions of articles and properties to be taxed and to lay down the system of assessment and exemptions, if any, to be granted, held, is not unguided and cannot be said to amount to excessive delegation. The court observed that where the legislative policy is enunciated with sufficient clearness or a standard is laid down, the courts should not interfere and what guidance and to what extent, and whether guidance has been given in a particular case or not, depends upon on a consideration of the provisions of the particular Act with which the court has to deal including its preamble. It is further held in the said decision that the nature of the body to which delegation is made is also a factor to be taken into consideration in determining whether there is sufficient guidance in the matter of delegation and what form the guidance should take is again a matter which cannot be stated in general terms and it will depend upon the circumstances of each statute under consideration (see para 28). Whenever a challenge is made on the ground that a provision of the statute suffers from vice of excessive delegation, the question that is required to be considered by the court is whether the 'legislative will' has been exercised or not ; and once it is established that the Legislature itself has willed that a particular thing be done and that it has merely left the execution of it to a chosen instrumentality, there can be no question of excessive delegation. In my view, in the present case, there is sufficient guidance both for the meaning that is required to be attached to the words 'fringe benefit' and 'amenity'. In the light of the discussion made above, the principle laid down in the cases of A. N. Parasuraman, : AIR1990SC40 ; Harakchand Ratanchand Banthia, : [1970]1SCR479 ; Ajay Kumar Banerjee [1984] 65 FJR 25; AIR 1984 SC 1130; Devi Das Gopalkrishnan : [1967]3SCR557 and Sr. Superintendent of Post Office, : [1989]3SCR796 , relied upon by learned counsel appearing for the petitioners have no application to the facts of the present case. Under these circumstances, it is not possible, as noticed by me earlier, to take the view that Sub-clause (vi) of Clause (2) of Section 17 of the Act should be struck down on the ground it confers an unguided, uncontrolled power to the rule-making authority to make the rule and also on the ground that it suffers from vice of excessive delegation. Therefore, I am of the view that the first contention advanced by learned counsel for the petitioners is liable to be rejected and accordingly it is rejected.

22. The second question is, whether Rule 3 of the Rules, as amended, requires to be struck down on the ground urged by learned counsel appearing for the petitioners. Rule 3 of the Rules provides that for the purpose of computing the income chargeable under the head 'Salaries' from the value of perquisites provided by the employer directly to the employee, i.e., the assessee or any member of his household by reason of his employment, shall be determined in accordance with the said provision. While the submissions were very effectively made by learned counsel appearing for the petitioners that Rule 3 of the Rules is required to be struck down on the ground that it is discriminatory, arbitrary and violative of rights guaranteed to the petitioners under article 14 of the Constitution of India, I find no merit in the said submission. When the validity of a statute or a rule is challenged on the ground that it is violative of the right to equality guaranteed under Article 14 of the Constitution of India, it is necessary to ascertain, in the first place, the policy underlying the statute and the object intended to be achieved by it. Having ascertained the policy and the object of the legislation, while examining its validity, the court has to apply dual test as to whether (1) the classification is rational and based upon an intelligible differentia, which it distinguishes from other persons or things that are grouped together from others that are left out of the group (2) the basis of differentiation has any rational nexus or relation with the object sought to be achieved ?

23. It is well settled that differentiation is not always discriminatory, and if there is a rational nexus on the basis on which differentiation is made with the object sought to be achieved by a particular provision, then such differentiation is not discriminatory and does not violate the principles enshrined under Article 14 of the Constitution of India. Whether the same result or better results could have been achieved and whether basis of differentiation could have been evolved are all matters which are in the domain of the Legislature and it must be left to its wisdom. The court cannot proceed to examine it with mathematical exactitude. While now it is well accepted that the taxing laws are not outside the purview of article 14 of the Constitution of India, however/ the Legislature enjoys a wide latitude in the matter of selection of persons, subject matter, events, etc., for taxation in view of the fact that wide variety of diverse economic criteria goes into the formation of fiscal policy ; and, therefore, tests of vice of discrimination in a taxing law are less rigorous ; and while examining the grievance of hostile discriminatory treatment, what is required to be looked into by the court is not its phraseology, but the real effect of its provisions. The State, in exercise of its governmental power, naturally has to make laws operating differently in relation to different groups or class of persons to attain certain ends. In this, no precise or set formulae or doctrinaire tests or precise scientific principles of exclusion or inclusion can be applied. Article 14 of the Constitution of India does not forbid reasonable classification of persons, objects and transactions for the purpose of attaining the specific ends. However, what is necessary in order to pass the test of permissible classification under Article 14 is that the classification made must not be 'arbitrary, artificial or evasive', but must be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved. There is always a presumption in favour of the constitutionality of a statute, and the burden is upon him who alleges that there has been a clear transgression of constitutional principles to establish. The petitioners in these petitions have failed to discharge the said burden. As noticed by me earlier, in a matter of levy of tax, wide discretion and latitude is left to the State and the court should be very slow in interfering with the policy decisions and the discretion exercised by the State in the matter of either the persons or the objects, which are picked for imposition of tax or the quantum of tax levied. It is not necessary for the State to tax everything in order to tax something. In this connection, it is useful to refer to the observation made by the Supreme Court in the case of Kunnathat Thathunni Moopil Nair v. State of Kerala : [1961]3SCR77 , in the case of East India Tobacco Co. v. State of Andhra Pradesh : [1963]1SCR404 and in the case of Federation of Hotel and Restaurant Association of India v. Union of India : [1989]178ITR97(SC) .

24. In the case of Kunnathat Thathunni Moopil Nair v. State of Kerala : [1961]3SCR77 , the Supreme Court has observed as follows :

'If the taxation, generally speaking, imposes a similar burden on everyone with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not be open to attack on the ground of inequality, even though the result of the taxation may be that the total burden on different persons may be unequal. Hence, if the Legislature has classified persons or properties into different categories, which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal. Similarly, different kinds of property may be subject to different rates of taxation, but so long as there is a rational basis for the classification, Article 14 will not be in the way of such a classification resulting in unequal burdens on different classes of properties. But if the same class of property similarly situated is subjected to an incidence of taxation, which results in inequality, the law may be struck down as creating an inequality amongst holders of the same kind of property. It must, therefore, be held that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in Article 14, though the courts are not concerned with the policy underlying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the court might think more just and equitable. The Act has, therefore, to be examined with reference to the attack based on Article 14 of the Constitution.'

25. In the case of East India Tobacco Co. v. State of Andhra Pradesh : [1963]1SCR404 , the Supreme Court has observed as follows (page 533 of 13 STC) :

'It is not in dispute that taxation laws must also pass the test of Article 14. That has been laid down recently by this court in Kunnathat Thathunni Moopil Nair v. State of Kerala : [1961]3SCR77 . But in deciding whether a taxation law is discriminatory or not it is necessary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of Article 14.'

26. In fact, the principle enunciated in the said decisions was also reiterated by the Supreme Court in the case of S. K. Datta, ITO : [1968]68ITR272(SC) , relied upon by learned counsel for the petitioners, in paragraph 8 of the judgment.

27. In the case of Federation of Hotel and Restaurant Association of India v. Union of India : [1989]178ITR97(SC) , the observation made by the Supreme Court at page 121 reads as hereunder :

'It is now well settled that though taxing laws are not outside Article 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy, the Legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile discriminatory treatment, what is looked into is not its phraseology, but the real effect of its provisions. A Legislature does not, as an old saying goes, have to tax everything in order to be able to tax something. If there is equality and uniformity within each group, the law would not be discriminatory. Decisions of this court on the matter have permitted the Legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes.

But, with all this latitude, certain irreducible desiderata of equality shall govern classifications for differential treatment in taxation laws as well. The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class. But this alone is not sufficient. Differentia must have a rational nexus with the object sought to be achieved by the law. The State, in the exercise of its Governmental power, has, of necessity, to make laws operating differently in relation to different groups or class of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. It is also recognised that no precise or set formulae or doctrinaire tests or precise scientific principles of exclusion or inclusion are to be applied. The test could only be one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience.

Classifications based on differences in the value of articles or the economic superiority of the persons of incidence are well recognised. A reasonable classification is one which includes all who are similarly situated and none who are not. In order to ascertain whether persons are similarly placed, one must look beyond the classification and to the purposes of the law.'

28. In the case of Jaipur Hosiery Mills (P.) Ltd. v: State of Rajasthan [1970] 26 STC 341 ; [1971] 1 SCR 481, the Supreme Court at page 483 paragraph 3 has observed as follows (page 343 of 26 STC) :

'... it has to be borne in mind that in matters of taxation, the Legislature possesses the large freedom in the matter of classification. Thus, wide discretion can be exercised in selecting persons, or objects which will be taxed and the statute is not open to attack on the mere ground that it taxes some persons or objects and not others. It is only when within the range of its selection the law operates unequally and cannot be justified on the basis of a valid classification that there would be a violation of Article 14.'

29. In State of Gujarat v. Shri Ambica Mills Ltd. : [1974]3SCR760 , the Supreme Court has observed as thus (page 403 of 45 FJR):

'In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The Legislature, after all, has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events--self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.'

30. In G. K. Krishnan v. State of Tamil Nadu : [1975]2SCR715 of the judgment, Mathew J., speaking for the Bench, referred to the following observations of the Supreme Court of U. S. A, (San Antonio School District v. Rodrigues [1973] 411 US 1) :

'Thus we stand on familiar ground when we continue to acknowledge that the justices of this court lack both the expertise and the familiarity with local problems so necessary to the making of the wise decisions with respect to the raising and disposition of public revenues. Yet, we are urged to direct the States either to alter drastically the present system or to throw out the property tax altogether in favour of some other form of taxation. No scheme of taxation, whether the tax is imposed on property, income, or purchases of goods and services, has yet been devised which is free of all discriminatory impact. In such a complex arena in which no perfect alternatives exist, the court does well not to impose too rigorous a standard of scrutiny lest all local fiscal schemes become subjects of criticism under the Equal Protection Clause.'

31. In the case of ITO v. N. Takin Roy Rymbai : [1976]103ITR82(SC) , the Supreme Court has observed as follows :

'In the present case, the bases of classification cannot be said to be arbitrary or unintelligible nor as being without a rational nexus with the object of the law. A hotel where a unit of residential accommodation is priced at over Rs. 400 per day per individual is, in the legislative wisdom, considered a class apart by virtue of the economic superiority of those who might enjoy its custom, comforts and services. This legislative assumption cannot be condemned as irrational. It is equally well recognised that judicial veto is to be exercised only in cases that leave no room of reasonable doubt. Constitutionality is presumed.'

32. In the case of Hoechst Pharmaceuticals Ltd. v. State of Bihar : [1985]154ITR64(SC) , the Supreme Court has observed thus:

'On questions of economic regulations and related matters, the court must defer to the legislative judgment. When the power to tax exists, the extent of the burden is a matter for the discretion of the law-makers. It is not the function of the court to consider the propriety or justness of the tax, or enter upon the realm of legislative policy. If the evident intent and general operation of the tax legislation is to adjust the burden with a fair and reasonable degree of equality, the constitutional requirement is satisfied . . .'

33. In my view, the classification of the Central and State Government employees on the one hand and the employees of the public sector and private sector undertakings on the other, for the purpose of determining the value of perquisites with reference to the accommodation provided to those employees by their employers, cannot be considered as an unreasonable classification and has no nexus with the object sought to be achieved. While the value of the perquisites in respect of the Central and State Government employees is required to be determined in respect of the accommodation provided to them in accordance with the Rules framed by that Government as reduced by the rent actually paid by the employee, the employees of other employers, i.e., other than the Central and State Government employees, are made to pay 10 per cent, of the salary in cities having population exceeding four lakhs as per 1997 census and 7.5 per cent, of the salary in other cities by way of perquisite received by them in respect of the accommodation provided to them. For the same reason, the grouping of employees of the public sector and private sector undertakings for the purpose of assessing the fringe benefits and other amenities cannot be treated as grouping persons who are dissimilarly situated in one group. The employees of the Government of India and the State Government and the employees of the public sector and private sector undertakings belong to two distinct and different class of employees. The nature of work, responsibility, service conditions of these employees which includes, leave, salary and other allowances are different and varied. The classification of these two groups of employees cannot be dubbed as one unreasonable, arbitrary and discriminatory in nature or lacks rationality. The petitioners have failed to show by placing necessary materials that all of them are similar, identically situated without there being any difference whatsoever. Further, I find considerable force in the submission of Sri Sheshachala that Rule 3(1) of the Rules has prescribed rate of rent-free accommodation of Central and State Government employees in terms of the provisions contained in Article 309 of the Constitution of India and the service conditions of Central and State Government employees are governed by the regulations framed by the President of the Union of India and the Governors of the States, respectively ; and, therefore, in so far as the Central Government employees, regulations are framed as per HRA and CCA Rules and so far as State Government employees are concerned, they are governed by the KCSR Rules ; and in this background, if so far as employees of public sector undertakings as well private sector employees are concerned, fixed rate of 7.5 per cent, and 10 per cent, has been fixed and this rate is approximately commensurate with the HRA granted to those employees who are not provided with house, it cannot be said that the said rule is required to be struck down on the ground that it is either arbitrary, unreasonable, discriminatory in nature or violative of the rights guaranteed to the petitioners under Article 14 of the Constitution of India.

34. In Rule 3 of the Rules, as rightly pointed out by Sri Sheshachala, the discretion conferred on the assessing authority is removed and uniformity is brought about and the procedure of valuing property both by value of similar accommodation located in the vicinity and determination of municipal value, whichever is less, is dispensed with.

35. The decision of the Supreme Court in the case of S. K. Dutta, ITO v. Lawrence Singh Ingty : [1968]68ITR272(SC) relied upon by learned counsel for the petitioners, in my view, is of no assistance to the petitioners. That was a case where certain concessions were given to the members of the scheduled castes. In that background, the Supreme Court took the view that there is no justification to deny the same to the members of scheduled castes, merely because they are Government servants as the conditions of scheduled castes who are in Government service cannot be considered far better than the other scheduled castes who are not in Government service.

36. The decision of the Supreme Court in the case of State of Maharashtra v. Manubhai Pragaji Vashi : AIR1996SC1 relied upon by the learned counsel for the petitioners, also in my view, has no bearing to the facts of the present case. That was a case where the Supreme Court took the view that when the benefit of grant-in-aid was extended to the non-Government colleges with faculties, i.e., arts, science, commerce, engineering and medicine, there was no justification for not extending the grant-in-aid to the benefit of non-Governmental law colleges and it amounts to discrimination.

37. Further, there cannot be any quarrel with the proposition laid down by the Supreme Court in the case of E. P. Royappa : (1974)ILLJ172SC ; Maneka Gandhi : [1978]2SCR621 and R. K. Garg : [1982]133ITR239(SC) that every action of the State, if it is unreasonable or arbitrary is liable to be struck down on the ground that it is violative of the right to equality guaranteed under Article 14 of the Constitution of India. However, the question is whether the impugned rule is violative of the right to equality guaranteed to the petitioners under Article 14 of the Constitution of India As noticed by me earlier, it is not.

38. The next question is as to whether there is any merit in the third contention of learned counsel for the petitioners that under Clause (c) of Sub-section (2) of Section 295 of the Act, the Board is authorised to determine only the value of any fringe benefit chargeable under the Act; and there is no power conferred on the Board to determine what is meant by 'fringe benefit' or 'amenity' I am unable to find any merit in this submission. As noticed by me earlier while dealing with the first contention, I have taken the view that Sub-clause (vi) of Clause (2) of Section 17 of the Act provides for determination of what is meant by 'fringe benefit' or 'amenity', by means of prescription in the Rules. The provisions contained in Section 295(2)(c), in my view, are wide enough to empower the Board to frame Rules for the purpose of identifying the types of 'fringe benefits' or 'amenities'. Sub-clause (vi) of Clause (2) of Section 17 of the Act confers residuary power of determining the 'fringe benefit' or 'amenity'. The words 'as may be prescribed' referred to in Sub-clause (vi) of Clause (2) of Section 17 of the Act, in my view, must be understood as conferring power on the rule-making authority to prescribe what is meant by 'fringe benefit' or 'amenity'. There is no scope to take the view that what is authorised to the rule-making authority is only to assess the value of the 'fringe benefit' or 'amenity' and not the prescription or identification of either the 'fringe benefit' or 'amenity'. The Supreme Court in the case of Assistant Collector : [1990]184ITR387(SC) , relied upon by Sri Sheshachala, took the view that the Legislature had empowered the rule-making authority in the said case to prescribe by Rules, the manner of collection of duties of excise on all excisable goods other than salt. It is useful to refer to the observation made at page 393 of the said judgment, which reads as hereunder :

'In enacting Section 3 of the Act, i.e., the Central Excise and Salt Act, Parliament had empowered the rule-making authority to prescribe by rules the manner of levy of duties and also the manner of collection of duties of excise on all excisable goods other than salt. Manifestly, the rule-making power conferred by this section is very much wider in its ambit than the power conferred on the rule-making authority under Section 3 of the Medicinal and Toilet Preparations (Excise Duties) Act, whereunder only the manner of collection of duties could be laid down by the rules. We respectfully agree with this view.'

39. The principle enunciated by the Supreme Court in the said decision, in my view, would fully apply to the facts of the present case. Therefore, the third contention of learned counsel for the petitioners also is required to be rejected.

40. I am also unable to find any merit in the fourth submission advanced by learned counsel for the petitioners that when the loans are given or arranged by the employer without interest or at concessional rate of interest, the same cannot be taken as perquisite up to the prescribed rate of 10 per cent, in respect of HRA and conveyance allowance and 13 per cent, in respect of other loans. It is necessary to point out that the advance of either interest-free loan or loan at concessional rate of interest, by the employer to its employees would result in benefit to the employee. It relieves the employee of his liability to pay interest on such loans if the employee is required to raise the loan from an outside agency. While it reduces his financial liability, it will have to be considered as an income saved. In that event it could undoubtedly be treated as 'fringe benefit' or 'amenity' given to the employee. I am of the view that the principle enunciated by the Supreme Court in the case of V. M. Salgaocar and Bros Pvt. Ltd. : [2000]243ITR383(SC) that the interest-free loans advanced or the loans advanced at the concessional rate of interest by the employer to its employees cannot be treated as a perquisite, has no application to the facts of the present case. The Supreme Court in the said decision,after approving the observation made by the Calcutta High Court in the case of CIT v. P. R. S. Oberoi : [1990]183ITR103(Cal) , had taken the said view in the background of the fact situation where the provisions similar to Sub-clause (vi) of Clause (2) of Section 17 of the Act which was initially introduced in the Act, subsequently came to be repealed and as such the interest-free loans or the loans at the concessional rate of interest cannot be treated as perquisite. Introduction of Sub-clause (vi) of Clause (2) of Section 17 of the Act by means of the Finance Act, 2001, and prescription of the interest-free loans or loans at the concessional rate of interest by the employer to its employees having been made as 'fringe benefit' or 'amenity', it is not possible to take the view that the same cannot be treated as a 'fringe benefit' or 'amenity' as has been done in the impugned rule. In this connection, it is useful to refer to the observation made at paragraph 23 of the said judgment, which reads as hereunder (page 402) :

'Section 17(2) of the Act, by an inclusive definition, sought to include loans given by an employer to its employee for purchase of a building or site or a site with building or for purchase of a motor car without charging any interest or at a concessional rate, as perquisite, The word 'includes' is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. It is a cardinal rule of interpretation that if, by an inclusive definition, the meaning of the word is to be enlarged, it would receive a strict interpretation. It is also a cardinal rule of construction of a fiscal statute that, even if two views are possible, the view which is favourable to the assessee must be accepted while construing the provisions of a taxing statute. For the reasons aforesaid, the non-charging of interest on the amount overdrawn in the relevant year cannot be treated as a benefit for the purposes of Section 17(2)(iii) of the Act.'

41. Further, the prescription of interest rate at 10 per cent, in the case of house building allowances and conveyance allowances and 13 per cent, in respect of other loans for the purpose of determining the value of perquisite cannot be considered as highly irrational, has no bearing with the interest that is levied on commercial transactions in the open market. Even otherwise, taking of loan from the employer is an optional one. If the rate of interest chargeable for the loan obtained from sources other than the employer is less than the one prescribed for the purpose of assessing the value of perquisite, the option is available to the employee to avail of the loans from sources other than his employer. Therefore, I am also unable to find any merit in the submission of learned counsel for the petitioners that merely because, Life Insurance Corporation of India is able to grant loans to banks at 7 per cent, interest per annum for meeting its voluntary retirement liability, the rate of interest to be calculated at 10 per cent, as prescribed in the impugned rule, is liable to be struck down as being highly unreasonable and arbitrary.

42. There is also no merit in the fifth submission made by learned counsel for the petitioners that the entire cost of travel incurred by the employer to the spouse of the employee cannot be treated as 'fringe benefit' or 'amenity' on the ground that the employee undertakes the travel at the behest of the employer and as such no benefit whatsoever is derived to the employee ; and the spouse accompanies the employee on many occasions in discharge of the social obligations of the employer in other countries. The employee is given the option to take his spouse when he travels and if the cost of the travel of the spouse of the employee is met by the employer, in my view, the said cost has to be treated as either 'fringe benefit' or 'amenity' extended to the employee. There is no relationship of master and servant between the spouse of the employee and the employer of the employee, and the employer cannot compel the employee to take the spouse when the employee undertakes travel for the purpose of his employer. Therefore, as noticed by me earlier, taking of spouse by the employee is an optional one, and under these circumstances treating the cost of travel of the spouse of the employee incurred by the employer as 'fringe benefit' or 'amenity' cannot be treated either as irrational, arbitrary or unreasonable.

43. The sixth submission of learned counsel for the petitioners that the impugned rule is required to be struck down to the extent it requires the employer to maintain the complete details of journey undertaken for official purposes by his employee in respect of the vehicle provided by the employer on the ground that the procedure prescribed is extremely impracticable and cumbersome and impossible to comply with, is also devoid of any merit. Merely because, the rule provides for certain procedure regarding maintenance of accounts in respect of the use of the vehicle provided by the employer to its employee when he uses it for official purpose, in my view, is not a ground to strike down the said rule. I do not find any impracticability in maintaining the accounts as contended by learned counsel for the petitioners. Any difficulty or hardship in maintaining the accounts is not a ground to nullify the validity of the rule ; and the object of insistence of maintenance of the accounts is to ensure that when the vehicle is used for official purposes the same should not be treated as perquisite and when it is used by the employee for his personal purposes it should be treated as a perquisite in the hands of the employee.

44. The seventh question is whether adding the salary of a servant deputed to the residence of the employee would amount to double taxation in the hands of the employee as contended by learned counsel for the petitioners In my view it will not amount to double taxation. As rightly pointed out by Sri Sheshachala, under Section 4(1) of the Act, the income shall be charged on every person, and, therefore, the income earned by the servant will be charged as tax or exempted as per the status of that servant. The employee is taxed inso far as the perquisite which is equivalent to the monetary benefit the employee receives. Therefore, the servant is required to pay tax in respect of income he/she derives ; and the employee is required to pay tax in respect of the perquisite, which is equivalent to the monetary benefit, he receives. If the services of a servant are not made available to the employee by his employer, the employee will have to spend from his/her pocket for the salary of a servant, if he/she intends to have one. Further, if the employee does not intend to have one, it is open to him/her not to have the services of a servant from his employer. It is optional. Therefore, I am unable to find any merit in the submission of learned counsel for the petitioners that adding of salary of the servant provided by the employer deputed to the residence of the employee would amount to double taxation.

45. The one other contention that remains to be considered is whether Rule 3 of the Rules which was substituted with effect from April 1, 2001, is required to be declared as illegal on the ground that it was beyond the power of rule-making authority, as Sub-clause (vi) of Clause (2) of Section 17 of the Act came into effect only from April 1, 2002, as contended by learned counsel for the petitioners. I do not find any merit in this submission also. The incorporation of Sub-clause (vi) of Clause (2) of Section 17 of the Act was with effect from April 1, 2002, would mean that it is applicable to the assessment year 2002-03, i.e., for the financial year 2001-02 (for the previous year), with the accounting period commencing from April 1, 2001. Therefore, it must be held to apply to the assessment year, as in the case of income-tax matter the law to be applied is the law in force in the assessment year unless otherwise stated or implied. Sections 2 to 101 of the Finance Act has received the assent of the President of Union of India on May 11, 2001, and deemed to have come into force with effect from April 1, 2001, and the same was given effect to the proposal of the Central Government for the financial year 2001-02. Section 17(2)(vi) of the Act also came into effect by virtue of the Finance Act, 2001. The decision of the Supreme Court in the case of CIT v. Isthmian Steamship Lines : [1951]20ITR572(SC) relied upon by Sri Sheshachala fully supports his contention. In the said decision, at page 577, the Supreme Court has observed as follows :

'It will be observed that we are here concerned with two datum lines : (1) the April 1, 1940, when the Act came into force, and (2) the April 1, 1939, which is the date mentioned in the amended proviso. The first question to be answered is whether these dates are to apply to the accounting year or the year of assessment. They must be held to apply to the assessment year, because in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied. The first datum line therefore affected only the assessment year of 1940-41, because the amendment did not come into force till the April 1, 1940. That means that the old law applied to every assessment year upto and including the assessment year 1939-40.'

46. Further, it is also necessary to point out that the Division Bench of the Jarkhand High Court by its judgment dated June 14, 2002 (Tata Workers Union v. Union of India ), made in Writ Petition No. 1703 and connected writ petitions negatived the challenge made to the constitutional validity of the impugned rule. I am in respectful agreement with the views expressed in the said decision. Therefore, as noticed by me earlier, I do not find any merit in the last submission of learned counsel for the petitioners.

47. Therefore, in the light of the discussion made above and in the light of my conclusion that none of the submissions made by learned counsel for the petitioners merits consideration by this court, I am of the view that these petitions are liable to be rejected. Accordingly, they are rejected. However, no order is made as to costs.


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