Bilal Naziki J.
The judgment of the court was delivered by
This writ petition has been filed by A. P. Circle of All India Bharat Sanchar Nigarn Ltd. Executives Association and A. P. Circle of BSNL Employees Union. In the writ affidavit filed by Pandu Ranga Rao, Vice-president of A. P. Circle of the first petitioner association it is contended that at the all-India level, the first petitioner has over 55,000 members and the A. P. circle has in its rolls about 5,000 members. All the members of both the petitioners were the servants of the Government of India under the Ministry of Communications and Information Technology and by the creation of Bharat Sanchar Nigam Ltd. (BSNL hereinafter referred to as) they became the employees of the BSNL from 1-10-2000. They have members on all-India level as well as A. P. circle. They seek a declaration by this writ petition that there was no liability on the first respondent to deduct tax at source in terms of section 192 of the Incometax Act, 1961 (hereinafter referred to as 'the Act') in the matter of rent respecting any accommodation provided by the second respondent to the members of the petitioner associations. They also seek a writ of prohibition restraining the first respondent from enforcing the provisions of section 192 of the Act against the petitioners with regard to a 'non-existing perquisite' and also restraining respondents Nos. 3 and 4 from treating the first respondent as an assesse& in default.
It is not disputed that the salaries of the members of the petitioner associations are subject to tax in terms of section 192 of the Act. 10 to 15 per cent. of the members of the petitioner associations have been allotted quarters originally as Government servants and presently they continue to hold as employees of the second respondent. These quarters are allotted as per pay scales and types of quarters as categorized by CPVVD norms under the Ministry of Housing and Urban Development, Government of India. Some officials of the same rank are allotted the similar type of quarters and are charged the same licence fee. No concession is allowed to anyone. As per the rules and service conditions, standard rent or licence fee had been charged by the department of Telecommunications before the absorption by the second respondent, as such there was no taxable perquisite in the matter of rent in respect of accommodation provided by the Government of India originally. It is further contended that for the same accommodation provided by the BSNL-second respondent, a clarification was issued through GM, (pers-V) by letter No. 1-2/05-PAT (BSNL), dated 9-6-2005. In this clarification it was stated that if the accommodation is provided by the company whether owned or leased and the rate of recovery for this facility is less than 10 per cent. of salary, the difference between 10 per cent. of salary and actual amount recovered from the employee is a perquisite. The same communication also contained that after filing of the returns the employees can seek the refund from income-tax authorities and they can also take recourse to legal remedies available in the Income Tax Act as well, if they feel aggrieved by the assessment. In response to this letter, the first respondent issued a note on 12-12-2005, which reads as under :
'As per the amendments effected by the Finance Bill, 2005, if a non-Government employee is provided with a rent-free or concessional accommodation then it is always chargeable to tax as a perquisite. For the financial year 2005-06, 20 per cent. of salary in respect of the period during which the accommodation is occupied by the employee is to be taken as perquisite after deducting the licence fee paid by the employee. As such, the recovery of income-tax is being effected with effect from the pay and allowances from the mon-11-2005 from the non-Government employees who are in occupation of staff quarters, after taking into account the valuation of accommodation provided by BSNL as perquisite.'
This note is now being followed by the drawing and disbursing officers working throughout the State of Andhra Pradesh under the first respondent and consequently the tax is being deducted at source by treating the difference between 20 per cent. of salary (or 10 per cent. of salary~ as the case may be) and the standard rent charged in respect of the quarters allotted by the second respondent to the members of the petitioner associations. It is the case of the petitioners that what was not a perquisite as long as the members of the petitioner associations remained Government servants, has become a perquisite in the eyes of the DDC)s by virtue of the clarification letter and note. These clarifications, according to the petitioner associations, are contradictory to the law declared by this court in Steel Executives Association v. Rashtriya Ispat Nigam Ltd. : [2000]241ITR20(AP) . Therefore, they seek quashing of the clarification letter and also the note and further seek a direction that the tax should not be deducted for the perquisite as is being done now.
Counters have been filed by the respondents. In the counter filed by the third respondent it is stated that the writ petition needs to be dismissed on the ground that the rules, as they existed when Steel Executives Association v. Rashtriya Ispat Nigam Ltd. : [2000]241ITR20(AP) was decided, have been amended and according to the respondent, under section 192 of the Income Tax Act a person responsible for paying any income chargeable under the head 'Salaries' is bound to deduct income-tax at the time of payment of salary and in terms of section 17 the salary includes perquisites and sub-section (2) of section 17 also defines perquisite as under :
'(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 ; . . . '
Rule 3 of the Income-tax Rules has undergone a change after the judgment in Steel Executives Association v. Rashtriya Ispat Nigam Ltd. : [2000]241ITR20(AP) . There is no challenge to rule 3 of the Income-tax Rules as amended, therefore, this court would only go to the question whether in terms of rule 3 of the Income-tax Rules the impugned clarification and note could have been issued. In order to appreciate the law laid down by the judgment cited supra, it will be necessary to have a look at rule 3 as it existed at the time of the judgment supra. Rule 3 laid down :
'3. For the purpose 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 accommodation shall be determined on the basis provided hereunder, namely : . . . .'
Sub-rule (a) (ii) of rule 3 mentions the names of employers who provided accommodation and it includes Reserve bank of India, corporation established by a Central, State or Provincial Act, company, body or undertaking including a society and it further lays down,
'(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 :
Provided that where the assessee claims and the assessing officer is satisfied that the sum arrived at on the aforesaid basis exceeds the fair rental value of the accommodation, the value of the perquisite to the assessee shall be limited to such fair rental value ;
(2) if the accommodation is furnished, an amount calculated in accordance with sub-clause (ii)(1) plus 10 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.'
The amended rule 3 of the Income-tax Rules reads as under
'3. 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 assessee (hereinafter referred to as employee) or to any member of his household by reason of his employment shall be deten-nined in accordance with the following sub-rules, namely :-
(1) The value of residential accommodation provided by the employer during the previous year shall be determined on the basis provided in the Table below :
Sl. No.
Circumstances
Where accommodation is unfurnished
Where accommodation is unfurnished
(1)
(2)
(3)
(4)
(2)
Where the accommodation is provided by any other employer
(i) 20 per cent. of salary in cities having population exceeding 4 lakhs as per 2001 census; (ii) 15 per cent. of salary in
The value of perquisite as determined under column (3) and increased by 10 per cent. per annurn of the cost of furniture (including television sets, radio
(1)
(2)
(3)
(4)
and-(a) where the accommodation is owned by the employer, or
other cities, in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee.
sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such fumiture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(b) where the accommodation is taken on lease or rent by the employer
Actual amount of lease rental paid or payable by 'the employer or 20 percent. of salary whichever is lower as reduced by the rent, if any, actually paid by the employee.
The value of perquisite ~as determined under ~column (3) and increased by 10 per cent. per annum, of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such fiffnitare is hired from a third 'party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.
(3)
. . .
. . .
. . .'
8 From a perusal of the two sets of Rules, it becomes dear that the fair rent was a relevant factor in the earlier rules, whereas the fair rent is not at all a factor in terms of the amended rules. Rule 3(1)(i) applies to the accommodation provided by the Central Government or the State Government to the employees and rule 3(1)(ii) applies to persons whose accommodation is provided by any other employer and where the accommodation is owned by the employer, the value of the accommodation has to be taken as 20 per cent. of salary in cities having population exceeding 4 lakhs as per the 2001 census and 15 per cent. of salary in other cities. This rule applies to unfurnished accommodation and in the case of furnished accommodation, the rate of 20 per cent. and 15 per cent. shall be increased by another 10 per cent. Since there is no challenge to this rule, therefore, this court cannot ask respondents Nos. 1 and 2 not to do what they are legally bound to do. For this reason alone, we do not find merit in this writ petition which is accordingly dismissed. No costs.