1. Petitioner No. 1, in this petition, is the Officers' Association, Bhilai Steel Plant, which is a society registered under the Madhya Pradesh Societies Registrikaran Adhiniyam, 1973. Petitioner No. 2 is an officer of the Bhilai Steel Plant (hereinafter referred to as 'the Plant') serving at present as Divisional Engineer (Construction). Petitioner No. 2 is in occupation of a quarter, the rent of which is Rs. 100 per month. This rent was fixed as the standard rent by the plant under Rule 45A of the Fundamental Rules which have been applied to the officers. In other words, the rent of the quarter is Rs. 100 irrespective of the salary of the occupant. The salary payable to petitioner No. 2 works out to nearly Rs. 1,500 per month. Petitioner No. 2 is thus paying a rent which is less than one-tenth of his salary. There are other officers employed in the Plant who are also occupying quarters and paying rent less than one-tenth of the salary of an officer. In deducting income-tax at source under Section 192 of the I.T. Act (hereinafter referred to as 'the Act'), the management of the Plant is treating the difference between the one-tenth of his salary and the rent paid by him as a perquisite. The management says that this course is being adopted on the basis of the instructions received from the I.T. authorities. The petitioners contend that merely because the rent paid by an officer is less than one-tenth of his salary, the difference cannot be treated as perquisite and income-tax cannot be deducted at source on that footing. The petitioners pray for a direction that the respondents be restrained from treating the difference between 10 per cent. of the salary and the rent paid as a perquisite for purposes of deduction of income-tax at source.
2. The I.T. authorities, joined as respondents in this petition, deny that there is any circular or instruction issued to the management for treating the difference between 10 per cent. of the salary and the rent paid as a perquisite for purposes of deduction of income-tax at source. They, however, submit that this is the correct legal position. The stand of the management is that it has to deduct the income-tax on this interpretation, otherwise it would be made liable for the payment of tax under Section 201 of the Act. Normally a question of the nature raised in this petition is determined at the stage of assessment but having regard to the fact that the dispute involves a large number of employees and relates to the construction of certain provisions of the Act and the Rules made thereunder and touches the performance of the statutory function entrusted to an employer under Section 192 in making the deduction at source, it is desirable that the question be decided in this petition under Article 226 of the Constitution.
3. Section 17(1) of the Act defines 'salary' to include, amongst others, perquisites. The definition of 'perquisite' is contained in Section 17(2) which, in so far as relevant, reads as under:
'(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 ;'
4. Section 295(1) of the Act empowers the Board to make rules for carrying out the purposes of the Act. Section 295(2) enumerates various matters on which rules can be made without prejudice to the generality of the power conferred by Section 295(1). One of the matters enumerated in Section 295(2)(c) is as follows :
'(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 ;'
5. Rule 3 of the I.T. Rules made under Section 295 deals with the valuation of perquisites. In so far as relevant, the rule reads as follows:
'3. Valuation of perquisites.--For the purposes 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 accommodations shall be determined on the basis provided hereunder, namely :--......
(ii) where the accommodation is provided...
(B) by a corporation established by a Central, State or Provincial Act, or by a company in which all the shares are held (whether singly or taken together) by the Government or the Reserve Bank of India or a corporation owned by that Bank, to any person employed by it;......
an amount equal to-
(1) if the accommodation, is unfurnished, 10 per cent. of the salary due to such person or officer, as the case may be, in respect of the period during which the said accommodation was occupied by him during the previous year.
(2) if the accommodation is furnished, an amount calculated in accordance with Sub-clause (ii)(1) plus 15 per cent. per annum, of the original cost of the furniture (including television sets, radio sets, refrigerators, other household appliances and air-conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable therefor;......
(b) The value of residential accommodation provided at a concessional rent shall be determined as the sum by which the value computed in accordance with Clause (a), as if the accommodation were provided free of rent, exceeds the rent actually payable by the assessee for the period of his occupation during the relevant previous year.'
6. Sub-clause (ii) of the definition of 'perquisite' in Section 17(2) extends the meaning of that term by including therein 'the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer'. It is 'any concession in the matter of rent' which falls within this clause. If the employer gives no concession to the employee in the matter of rent, there can be no question of any perquisite. A case of concession in the matter of rent would arise when the rent normally payable for the accommodation is higher than the rent paid. The definition of 'perquisite' does not say that if the rent paid by the employee is less than 10 per cent. of his salary, the difference will be deemed as perquisite. It is not uncommon that accommodations suiting the standard of the officers are not available and they have to occupy accommodations which are of lower category. The rent of such accommodations is low and if the rent paid in such a situation is less than 10 per cent. of the salary (which is the rent normally payable for an accommodation of the category which should have been allotted to the officer), the difference cannot be treated as perquisite. Similary, if the rent of an accommodation is fixed irrespective of the person who occupies it, the difference between 10 per cent. of salary and the fixed rent paid cannot be said to be any perquisite. In these cases it cannot be said that the officer was granted any concession in the matter of rent.
7. Rule 3, the relevant portions of which have been extracted, has been framed in exercise of the rule-making power conferred by Section 295(2)(c). The object of Section 3 is the determination of the value of the perquisite chargeable to tax. The rule operates at the stage when a finding is reached that the employee is in receipt of any perquisite as defined in Section 17(2). The rule cannot be used to determine whether the officer is really in receipt of any perquisite. The rule applies only for determining the value of the perquisite when the fact of receipt of perquisite is otherwise established. Rule 3(a) deals with the case when the employee is in occupation of rentfree residential accommodation. If the fact that the employee is in occupation of rent-free accommodation is established, the value thereof would be calculated by applying the method provided in Rule 3(a). Similarly Rule 3(b) applies when the employee is in occupation of residential accommodation at a concessional rent. If it is established that the employee is in fact in occupation of an accommodation at a concessional rent, the value thereof would be calculated in the manner provided in this rule. The effect of the rule in taking the value of rent-free unfurnished accommodation at 10 per cent. is not to lay down that the moment it is found that an employee is paying less than 10 per cent. of his salary as rent, it must be deemed that he has been provided accommodation at a concessional rent.
8. The question whether an employee is in occupation of an accommodation at a concessional rent, in other words, the question whether the employee is in receipt of any concession in the matter of rent, would depend upon two factors : (i) the normal rent for the accommodation in occupation of the employee, and (ii) rent actually paid by the employee. If the employee is paying that rent which is the normal rent of the accommodation in his occupation, it cannot be said that he is receiving any concession in the matter of rent even though the rent paid by him is less than 10 per cent. of his salary. As earlier pointed out, there is no deeming clause in the definition of 'perquisite' contained in Section 17(2) that once it is established that an employee is paying rent less than 10 per cent. of his salary it must be deemed that he is receiving a concession in the matter of rent and no such deeming clause can be inferred from Rule 3. Indeed, if Rule 3 were to be so construed, it will go beyond the rule making power conferred by Section 295(2) and would become invalid. We are, therefore, clearly of opinion that the management of the plant was not right in treating in every case the difference between 10 per cent. of the salary and the rent actually paid as a perquisite for the purposes of deduction of income-tax.
9. The petition is allowed. Respondent No. 2 is directed not to treat the difference between the rent actually paid and 10 per cent. of the salary as a perquisite in every case for purposes of deduction of income-tax. These shall be no order as to costs of this petition. The security amount shall be refunded to the petitioners.