Skip to content


First Income-tax Officer Vs. M.E.A. Pace - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1983)6ITD781(Mum.)
AppellantFirst Income-tax Officer
RespondentM.E.A. Pace
Excerpt:
.....out the perquisite value of this accommodation at rs. 9,394 without taking into consideration the fair rental value of the same.the ito, however, found that the flats in the same building were let out for a monthly compensation of rs. 2,000 to rs. 4,700, according to their respective areas. the ito, therefore, determined the fair rental value of the flat provided to the assessee at rs. 2,500 per month. he proceeded to include the value of the perquisite on account of rent-free accommodation on this basis. on an appeal by the assessee before the a ac, the a ac relied on the supreme court decision in the case of mrs. sheila kaushish v. cit [1981] 131 itr 435 and held that the assessee's working of the perquisite on account of rent-free accommodation at rs. 9,394 was correct. he,.....
Judgment:
1. The assessee was provided with rent-free accommodation. The employer had worked out the perquisite value of this accommodation at Rs. 9,394 without taking into consideration the fair rental value of the same.

The ITO, however, found that the flats in the same building were let out for a monthly compensation of Rs. 2,000 to Rs. 4,700, according to their respective areas. The ITO, therefore, determined the fair rental value of the flat provided to the assessee at Rs. 2,500 per month. He proceeded to include the value of the perquisite on account of rent-free accommodation on this basis. On an appeal by the assessee before the A AC, the A AC relied on the Supreme Court decision in the case of Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435 and held that the assessee's working of the perquisite on account of rent-free accommodation at Rs. 9,394 was correct. He, therefore, allowed the assessee's appeal.

2. The revenue has, therefore, filed the present appeal against the order of the AAC deleting the addition of Rs. 8,985 made by] the ITO on the basis of the fair rental value. In the course ,of the hearing of the appeal, it was submitted that under Explanation 2 to Rule 3(a)(iii) of the Income-tax Rules, 1962, the fair rental value of unfurnished accommodation provided by the employer to the employee would be the rent which a similar accommodation would realise in the same locality or the municipal valuation in respect of the accommodation, whichever was higher. In the instant case, it is submitted that the reliance by the AAC on the municipal valuation alone was erroneous. On behalf of the assessee, it is submitted that under Section 23(l)(a) of the Income-tax Act, 1961 ('the Act'), the annual value of any property would be the sum for which the property might reasonably be expected to be let from year to year. This provision , was almost similar in nature to Explanation 2 to Rule 3(a)(iii), according to which the fair rental value of the accommodation was to be ascertained. It was submitted that the learned Judges of the Supreme Court were interpreting the same for which the property might reasonably be expected to be let from year to year in the case of Mrs. Sheila Kaushish (supra), according to which the standard rent determinable under the provisions of the Rent Control Act would be the annual value. Therefore, the order of the AAC basing the perquisite value under Rule 3(a)(iii) on the municipal annual letting value of the premises was in order and called for no interference.

3. We have carefully considered the facts and circumstances of the case and the submissions on either side. The learned Judges of the Supreme Court were called upon to interpret the provisions of Section 23(l)(a) in the case of Mrs. Sheila Kaushish (supra) where they explained that the sum for which the property might reasonably be expected to be let from year to year, in the case of rented premises, had to be the standard rent as fixed in the case of the premises or the municipal valuation. Under Explanation 2 to Rule 3(a)(iii), what the ITO is expected to ascertain is the fair rental value of an unfurnished accommodation. The Explanation calls upon the ITO to ascertain first the municipal valuation in respect of the accommodation and the rent which a similar accommodation would realise in the same locality.

Thereafter, the ITO is expected to adopt the higher of the two figures to be the fair rental value of such rent-free accommodation provided to the employee. The Explanation presupposes the two figures to be different, as in the instant case. The Explanation, in terms, calls upon the ITO to adopt the value which is higher. In the instant case, may be the amount of Rs. 9,394 was the municipal valuation for the accommodation, but the ITO has, on the basis of the rents prevailing in the same building, proceeded to determine the fair rental value of the property, which he determined at Rs. 30,000. Under Explanation 2 he has to take the higher of the two, viz., Rs. 30,000 to be the perquisite value of the property, This he has done. The AAC has, therefore, erred in interfering with the same on a wrong understanding of the law. The order of the AAC is reversed and the order of the ITO is restored. The appeal filed by the revenue is hereby allowed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //