ORDER
M. Katju, J.
This writ petition and connected writ petitions are being disposed of by a common judgment. The petitioner is challenging the validity of notification dated 25-9-2001 (Annexure-l to the writ petition), by which rule 3 of the Income Tax Rules, 1962 was substituted by the Income Tax (22nd Amendment) Rules, 2001 issued by the Central Board of Direct Taxes. The petitioner is also challenging the validity of section 17(2)(vi) of the Income Tax Act, 1961 as inserted by the Finance Act, 2001 on the ground that it has delegated essential legislative powers and that it is violative of Articles 19(1) and 246 of the Constitution.
2. We have heard learned counsels for the parties.
It is alleged in para 2 of the petition that the petitioner is an Association of Officers of Airport Authority of India.
3. Before dealing with the controversy in this case, we may refer to section 17(2)(vi) of the Income Tax Act which states that for the purposes of sections 15 and 16 and of that section 'perquisite' includes 'value of any other fringe benefit or amenity as may be prescribed'. The expression 'the value of fringe benefit or amenity as may be prescribed' was inserted by Finance Act, 2001 with effect from 1-4-2002. Before the above amendment by Finance Act, 2001 clause (vi) was not there in section 17(2) of the Act. Hence before the aforesaid amendment section 17(2) which defines perquisite read as follows :
'(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;
(iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases :
(a) by a company to an employee who is a director thereof;
(b) by a company to an employee being a person who has a substantial interest in the company;
(c) by any employer (including a company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income under the head 'Salaries' (whether due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds twenty four thousand rupees:
** ** **
ExplanationFor the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purposes of this sub-clause;
** ** **
(iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee;
(v) any sum payable by the employer, whether directly or through a fund, other than a recognized provident fund or an approved superannuation fund or a Deposit-linked Insurance Fund established under section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 (46 of 1948), or, as the case may be, section 6C of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), to effect an assurance on the life of the assessee or to effect a contract for an annuity; and'
4. Thus before the amendment by the Finance Act, 2001 a perquisite was whatever was mentioned in the Act itself i.e., in section 17(2). In other words before the amendment by the Finance Act, 2001 the perquisites were not determined by delegated legislation by Rules made under the Act.
5. Hence before the amendment by the Finance Act, 2001 interest-free loans given by the employer to the employees for various purposes e.g., purpose of car, house etc. were not treated as a perquisite since that was not provided in the Act.
6. Under the new rule 3 of the Income Tax Rules for the purposes of valuation of perquisite of rent-free accommodation employees have been classified under the new rule into two categories viz., (a) Central and State Government Employees (b) others. For the first category the system of valuation of the perquisite of the accommodation on the basis of rent payable as per the Rules framed by the government was retained. For others, i.e., for private as well as public sector employees it was provided that the valuation of the perquisite of accommodation would be 10% of the salary in cities having population exceeding 4 lakhs as per 1991 Census and 7.5% of the salary in other cities.
7. It may be mentioned that section 2(33) of the Income Tax Act states that the word 'prescribed' means prescribed by the Rules made under the Act. Section 295 of the Income Tax Act confers power on the Central Board of Direct Taxes to make Rules, and rule 3 has been framed for the purposes of section 17(2)(vi).
8. Annexure-1 to the writ petition is the new rule framed by the Central Board of Direct Taxes (hereinafter referred to as the CBDT) under section 295 read with section 17(2) of the Income Tax Act. A perusal of the same shows that the value of the perquisite provided to the employee directly or indirectly by the assessee or to any member of his house hold by reason of an employment shall be determined in accordance with the two tables appended to the notification. Table I deals with the value of residential accommodation, and Table II deals with the value of the perquisite of motor car and other benefits, amenities and fringe benefits. Since these are mentioned in great detail in Annexure-1 we are not repeating the same.
9. According to Websters Encyclopaedic Unabridged Dictionary, 'fringe benefit' means a benefit like free life or health insurance received by an employee in addition to his regular pay. 'Amenity' means the quality of being pleasing or agreeable in a situation, prospect, disposition etc. According to Thorndike Barnhart's World Book Dictionary, 'fringe benefit' means 'any benefit given to employees in addition to wages and compensation 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.'
10. In our opinion section 17(2)(vi) is not invalid or unconstitutional on the ground of excessive delegation. It may be noted that under section 296 of the Income Tax Act the Central Government has to lay every rule made under the Act before Parliament. Hence as held by the Supreme Court in Lohia Machines Ltd. v. Union of India : [1985]152ITR308(SC) and in Garewal v. State of Punjab : AIR1959SC512 , it cannot be said that the provision is invalid on the ground of excessive delegation.
11. By providing that the rule has to be laid before Parliament the legislature has retained control in respect of the rule framed by the executive, and hence it cannot be said that it is unguided or excessive delegation vide Delhi Municipality v, Union of India : [1968]3SCR251 . Hence we are clearly of the opinion that rule 3 framed under section 295 is not invalid on the ground of excessive delegation or violation of article 14 of the Constitution. The classification of the Central Government and State Government employees on the one hand, and the employees of the Public Sector and Private Sector cannot be said to be unreasonable.
12. In Hoechst Pharmaceuticals Ltd. v. State of Bihar : [1985]154ITR64(SC) (vide para 84) the Supreme Court observed :
'84. 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 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....'
13. In our opinion the employees of the government and employees of the Public and Private Sector Undertakings belong to two distinct and different classes. The nature of work, responsibility, and the service conditions including leave, salary and other allowance etc. are different for these two classes. Hence the classification of these two groups cannot be dubbed as arbitrary and discriminatory.
14. Rule 3 of the Rules framed by the Board in exercise of the powers under section 295 read with section 17(2)(vi) dealing with the advance of either interest free loans or loan at concessional rate of interest, by the employer to its employees results 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.
15. In view of the section 17(2)(vi) which has been introduced by the Finance Act, 2001, the earlier decision in the case of V.M. Salgaocar & Bros. (P) Ltd. v. CIT : [2000]243ITR383(SC) is not applicable in view of the specific provision of section 17(2)(vi) read with rule 3 of the Rules.
16. In view of the 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 loan or loans at the concessional rate of interest by the employer to its employees having been treated as a 'fringe benefit' or 'amenity', it is not possible to take the view that the same cannot be treated as 'a perquisite'.
17. In these circumstances section 17(2)(vi) cannot be said to be invalid on the ground of excessive delegation of power. Also, rule 3 framed under section 295 which provides for treating the interest-free loan or loan on concessional rate of interest as amenity at the fixed rate of 7.5% or 10% of the salary depending upon the accommodation situate in the cities as amenity to public sector or private sector employees cannot be treated as invalid or void as contended by the petitioner. Hence, the writ petition is liable to be dismissed and the provisions of section 17(2)(vi) of the Income Tax Act as inserted by the Finance Act, 2001 as well as rule 3 of the Income Tax Rules framed in pursuance of section 17(2)(vi) by the Board are legal and valid. A similar view has been taken in the case of Tata Workers' Union v. Union of India .
18. We may mention that the Karnataka High Court in BHEL Employees' Association v. Union of India (2003) 261 ITR 151 and the Jharkhand High Court in Tata Workers Union's case (supra) upheld the validity of section 17(2)(vi) as well as rule 3 and we are in respectful agreement with these decisions.
19. It may be mentioned that in tax matters the government has a greater latitude to tax one category and not to tax other categories vide Anant Mills Co. Ltd. v. State of Gujarat : [1975]3SCR220 ; R.K. Garg v. Union of India 1982 U.P.T.C. 355; Malwa Bus Service v. State of Punjab : [1983]2SCR1009 ; ITO v. N. Takin Roy AIR 1976 SC 670; Amalgamated Tea Estate v. State of Keralal 975 U.P.T.C. 89, etc. A taxing statute is not open to attack on the ground that it taxes some persons or objects and not others - East India Tobacco Co. v. State of AP : [1963]1SCR404 . The state has a wide discretion in selecting the objects or persons that it will tax, and in order to tax something it is not bound to tax everything - Orient Wvg. Mills (P.) Ltd v. Union of India : 1978(2)ELT311(SC) ; State of MP v. Bhopal Sugar Industries AIR 1974 SC 1179. It can pick and choose objects, areas, persons, rates of tax, etc. - V. Venugopala Ravi Varma Rajah v. Union of India : [1969]74ITR49(SC) ; Gopal Narain v. State of U.P. `; Khyerbari Tea Co. Ltd. v. State of Assam : [1964]5SCR975 ; TG. Venkataraman v. State of Madras : (1967)IILLJ246SC , etc.
20. The above decisions have been followed by the decision of this court in Lallooji & Sons v. State of U.P. 2003 U.P.T.C. 900. In Rapti Commission Agency v. State of U.P. 2003 U.P.T.C. 780, we have considered the scope of judicial review of a statute at great length and have observed that the courts must exercise judicial restraint in such matters. In that decision we observed :
'The court should always hesitate to declare a Statute unconstitutional, unless it finds it clearly so, because invalidating a Statute is a grave step. Of the three organs of the state, only the judiciary has the power to declare the Constitutional limits of all three, This great power should therefore be used by the judiciary with the utmost humility and selfrestraint.'
21. In Lochner v. New York (1905) 198 U.S. 45, Mr. Justice Holmes, the celebrated Judge of the U.S. Supreme Court in his classic dissenting judgment pleaded for judicial tolerance of state legislative action even when the court may disapprove of the State Policy. Similarly, in his dissenting judgment in Griswold v. Connecticut 381 U.S. 479, Mr. Justice Hugo Black warned that 'unbounded judicial creativity would make this court a day-to-day Constitutional Convention. 'Justice Frankfurter has pointed out that great Judges have constantly admonished their brethren of the need for discipline in observing their limitations (see Frankfurter's 'Some Reflections on the Reading of Statutes').
22. In our opinion the state should not be hampered by the court, particularly in tax and social regulatory measures unless they are clearly unconstitutional. All legislation (such as the kind we are examining), is essentially ad hoc and experimental. Since social problems now-a-days are extremely complicated, this inevitably entails special treatment for distinct social phenomena. If legislation is to deal with realities it must address itself to variations in society. The state must therefore, be left with wide latitude in devising ways and means of imposing and collection of taxes or social control measures, and the court should not, unless compelled by the Constitution, encroach into this field.
23. As Justice Frankfurter of the U.S. Supreme Court observed in American Federation of Labour v. American Sosh & Door Co. (1949) 335 U.S. 538 :
'Even where the social undesirability of a law may be convincingly urged, invalidation of the law by a court debilitates popular democratic government. Most laws dealing with social and economic problems are matters of trial and error. That which before trial appears to be demonstrably bad may belie prophecy in actual operation. But even if a law is found wanting on trial, it is better that its defects should be demonstrated and removed by the legislature than that the law should be aborted by judicial fiat. Such an assertion of judicial power defeat responsibility from those on whom in a democratic society it ultimately rests. Hence, rather than exercise judicial review Courts should ordinarily allow legislatures to correct their own mistakes wherever possible.'
24. Similarly in his dissenting judgment in New State Ice Co. v. Liebmann (1932) 285 U.S. 262 Mr. Justice Brandeis, the renowned Judge of the U.S. Supreme Court, observed that the government must be left free to engage in social experiments. Progress in the social sciences, even as in the physical sciences, depends on 'a process of trial and error' and courts must not interfere with necessary experiments.
In the same decision Justice Brandeis also observed :
'To stay experimentation in things social and economic is a grave responsibility. Denial of the right to experiment may be fraught with serious consequences to the Nation.' (See also 'The Legacy of Holmes and Brandeis' by Samuel Kanefsky).
25. As Mr. Justice Holmes of the U.S. Supreme Court observed in this dissenting judgment in Tyson v. Banton 273 U.S. 418 :
'I am far from saying that I think this particular law a wise and rational provision. That is not my affair. But if the people of the State of New York speaking by their authorized voice say they want it. I see nothing in the Constitution of the United States to prevent their having their will.'
26. For the reasons given above their is no merit in these petitions, and they are therefore dismissed. Interim order is vacated.