1. These cross appeals relating to the assessment years 1991-92 and 1993-94 are disposed of by this common order as under: 2. This Departmental appeal arises from the order dated 26^th December, 2001 of the learned Commissioner of Income-tax (Appeals)-XXVIII, Mumbai. The grounds of appeal raised by the Revenue are as under: On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in rectifying his original order Under Section 154 on 26.12.2001 on the basis of the decision of Bombay High Court in the case of MAE Paes reported in 230 ITR pg.60 with was decided on 17.9.1997 subsequent to the original appellate order dated 23, 1997.
Without prejudice to the above, the learned CIT(A) has failed to take into cognizance the decision of the Supreme Court in the case of Murlidhar Dalmia reported in 145 ITR (st.) 4 relied upon by the Assessing Officer in the assessment order under consideration.
Further, the Madras High Court in the case of CIT v. K.S. Sundaram 239 TTR 851 on the relevant issue has held that Rule 3)(a)(iii) is mandatory. This decision has also been upheld by the Supreme Court reported in 251 ITR 781.
3. The relevant facts, stated briefly, are that the assessment was made by the Assessing Officer under Section 143(3) on 28^th March, 1994. The assessee, during the year, was the Chief Representative of BHF Bank in India and he was provided rent free accommodation at 'Rashmi', Gamodia Road, Mumbia, by the employer. The BHF Bank had taken the aforesaid premises at a monthly rent of Rs. 6,000/- along with giving interest free deposit of Rs. 80,00,000/- to the landlord. While calculating the value of the perquisite in respect of the aforesaid rent free accommodation, the Assessing Officer adopted the rent of Rs. 6,000/- per month and increased it by notional interest at the rate of 15% on the interest free deposit of Rs. 80,00,000/-. Against this order the assessee went in appeal which was decided by the learned Commissioner of Income-tax (Appeals)-XXXV, Mumbai, vide his order dated 23rd May 1997 and the learned CIT(A) upheld the AO's order on this issue.
Subsequently, on 19^th November, 1999 the assessee filed an application for rectification of the said appellate order. The rectification application under Section 154 was filed on the ground that subsequent to the passing of the order by the learned CIT(A), the Hon'ble Bombay High Court has settled the controversy in the case of M.A.E. Paes v.CIT 230 ITR 60. It was pointed out in this application that in the above case the Hon'ble Bombay High Court categorically held that for the purpose of determining the value of the perquisite, the standard rent or municipal rateable value whichever is higher should be adopted for working out the fair rental value of the residential accommodation provided by the employer to the employee. It was contended that in view of the binding decision of the jurisdictional High Court, the order passed by the learned CIT(A) gives rise to a mistake apparent from record rectifiable Under Section 154 of the I-T Act. It was also pointed out in the application that the standard rent in respect of the relevant residential accommodation has been determined at Rs. 23,000/- by the Registered Valuer and the same should be adopted.
4. The learned CIT(A) considered the claim made on behalf of the assessee and he held that the Hon'ble Bombay High Court decision in the case of M.A.E. Paes v. CIT (supra) was squarely applicable to the facts of the present case and therefore, there was a mistake apparent from record and he directed the Assessing Officer to compute the value of the perquisite in respect of the rent free accommodation as per the mandate of the Hon'ble Bombay High Court in the above case. The learned CIT(A) has also considered the legal position to the effect that a subsequent decision of the jurisdictional High Court gives rise to the mistake apparent from record. The relevant part of the order of the learned CIT(A) may be reproduced below.
The contention of the learned Counsel is correct. A subsequent judgement of the jurisdictional High Court may reveal a mistake in an order passed by the Assessing Officer or the CIT(A) and this mistake has to be rectified in accordance with the law explained by the subsequent judgment of the jurisdictional High Court. It has been held in the case of Bhagirath Engineering Ltd., 227 ITR 504, Kerala that the effect of a subsequent decision of the Supreme Court is retrospective. In this case tribunal has allowed investment allowance to assessee who was engaged in the business of construction. In view of the subsequent judgement of Supreme Court in CIT v. N.C. Buddhiraja & Co. 204 ITR 412 the ITAT recalled its order in so far as it related to the ground of investment allowance and rectified the same. The Kerala High Court at page No. 508 of the report held that it did not see any error in the order passed by the Tribunal in rectifying the earlier order and withdrawing the investment allowance. At page 511 of the report the Court has further held that the law applicable to an issue is the one which the Supreme Court declares subsequently. In Poothondu Plantations Pvt. Ltd. 134 CTR 593 Supreme Court have held that it is well settle that if the Supreme Court has construed the meaning of a section then any decision to the contrary given by any authority must be held to be erroneous and such error must be treated as mistake apparent from the record. Similar views has been expressed by Hon'ble Bombay High Court in the case of Blue Star Engg. Co. v. CIT 73 ITR 283, Bombay. In A.S. Gauraya v. S.N. Thakur, , the Hon'ble Supreme Court has observe that there is nothing like any prospective operation alone of the law laid down by the Court. The effect of the judgement is that the judgements passed subsequently to the passing of an order brings about a mistake in the assessment order which was apparent from record and amenable to rectification. In the case of Parshuram Pottery Works Co. Ltd. 100 ITR 651 the Gujarat High Court have held that the decision of High Court or Supreme Court do not enact or make the law but merely interpret the law, which was on the statue book at the time when the assessment was made. The decisions merely state what the law had always been and must always be understood to have been.
Accordingly, the appellate order dated 23.5.1997 passed in appeal No. CIT(A)XXV/AC.Cir.23(2) /131/94-95 on the issue of perquisite value of rent free accommodation provided to the appellant is rectified and the ground of appeal is upheld and allowed. The Assessing Officer is hereby directed to compute the perquisite value of the rent free accommodation as per decision of the Bombay High Court in M.A.E. Paes 230 ITR 60 where it has been further held at page 69 of the report that fair rental value of the premises can not be more than standard rent payable under the rent control act. If no standard rent is fixed for whatever reasons and the Assessing Officer wants to adopt a figure other than the municipal valuation he will himself have to determine the standard rent by applying the principles laid down in the rent control act and if that figure is higher than the municipal valuation it will be within his powers to accept the same to determine the value of perquisites at such higher rates.
5. In the backdrop of the above mentioned facts, the learned Departmental Representative, Shri Rajiv Kumar, forcefully contended that the learned CIT(A) vide his original order dated 23^rd May, 1997 had decided this issue after an elaborate discussion and after full application of mind and in consonance with the legal position as emerging from various judicial pronouncements referred to by him in his order. He invited our attention to paragraphs' 1 to 29 of the order of the learned CIT(A). The learned CIT(A) had also relied on the Hon'ble Bombay High Court decision in the case of CIT v. Ashraf-ur-Rehman Azimullah 209 ITR 341 and he recorded a finding that for determining the fair rental value for the purpose of determining perquisite the interest element on the deposit should also be considered. After considering the entire facts and circumstances and the legal position, the learned CIT(A) confirmed the order of the Assessing Officer on this point. The learned Departmental Representative submitted that the learned CIT(A) had adopted a view after thoroughly analyzing the facts and after considering the various judicial pronouncements available at that point of time and he decided the issue, which is a highly debatable issue. It is argued that in these circumstances, a subsequent decision of the Hon'ble Bombay High Court cannot give rise to any mistake apparent from record. The learned Departmental Representative also invited our attention to the Hon'ble Bombay High Court decision in the case of CIT v. J.K. Investors (Bombay) Ltd. 248 ITR 723. In that case the High Court held that notional interest on deposit cannot form part of the actual rent as contemplated by Section 23(l)(b) of the Income-tax Act. However, at the end of this order, the High Court observed as under: ...We once again repeat that whether such notional interest could form part of the fair rent under Section 23(1)(a), is expressly left open.
6. The learned Departmental Representative pointed out that in the above case the question as to whether notional interest can be considered while determining fair rental value of a property under Section 23(l)(a) was left open by the High Court. The learned Departmental Representative relied on the Hon'ble Supreme Court decision in the case of Poothundu Plantations Pvt. Ltd. v. Agricultural Income Tax Officer and Ors. 221 ITR 557, wherein it was held that only an apparent error of fact or law can be rectified. If the mistake of law has to be established by construing the words of a section to find its proper meaning, than such an error cannot normally be a rectifiable error. It was also held by the Supreme Court that if the Supreme Court has construe, the meaning of section, then any decision to the contrary given by any other authority must be held to be erroneous and such error must be treated as an error apparent on the record. The learned Departmental Representative placed strong reliance on the Hon'ble Delhi High Court judgment in the case of Murlidhar Dalmia v. CIT 129 ITR 67.
The learned Departmental Representative invited our attention to the facts and the ratio of this case which may be reproduced below from the head-note: The assessee was an officer of a company. In 1936 when he was appointed he was provided a residential accommodation owned by it and situated within the precincts of its mills, at a rent of Rs. 25 per month by virtue of his being in its employment Since then he continued to be in the employment of the company and continued to occupy the residential accommodation till his retirement in 1976 at the same rent. The assessee occupied the house only by virtue of his being an employee and had to vacate it when he ceased to be in its employment. For the assessment years 1968-69 to 1972-73, the ITO found that the accommodation provided to the assessee was on a concessional rent and charged to tax the sum of Rs. 7,200 being the aggregate value of the perquisite at 12-1/2 per cent, of his salary and after deducting the rent paid by him. The AAC took the view that the assessee was a tenant and his case was governed by the rent control law and that the rent control law did not permit increase of the rent and deleted the addition of Rs. 7,200. On further appeal, the Tribunal restored the addition holding that this was a case of concessional rent, and the assessee's case was governed by Section 17(2)(a)(ii) of the I.T. Act, 1961, that the rent law was not applicable and that the value of the perquisite had to be determined in accordance with Section 17(2) and Rule 3(b) of the I. T. Rules, 1962. On a reference: Held, affirming the decision of the Tribunal (i) that the assessee was not a tenant but was a service occupier or a licensee; (ii) that the rent law did not apply to the case of the assessee and the Tribunal was justified in disregarding it; (iii) that the assessee was enjoying the accommodation at a concessional rent and the value of the residential accommodation was correctly determined by the Tribunal as the provisions of Section 17(2) and Rule 3 fully applied to the case of the assessee.
Section 17(2) of the I. T. Act, 1961, and r.3 of the I. T. Rules, 1962, do not require the ITO to have any regard to the Rent Act.
These provisions lay down their own measure, their own yardstick, their own formula, to determine the value of a perquisite once it is held that the premises were given at a concessional rent.
7. The learned Departmental Representative pointed out that in the present case also the assessee is an employee and by determining the value of the perquisite, the Rent Control Act has no relevance. The learned Departmental Representative also drew support from the judgment of the Hon'ble Madras High Court in the case of CIT v. K.S. Sundaram 239 ITR 851, wherein it was held that the rule prescribing the mode of computation of perquisite value of rent free accommodation is mandatory, irrespective of the fact whether accommodation is owned by the employer or taken on lease. In this case the Hon'ble Madras High Court observed that the relevant rule cannot be construed in such a manner which prevents its application. Irrespective of the hardship the provisions of rule should be applied and if its application results in undue hardship, it is for the Board to intervene by suitable modification in the rule. In this case the High Court directed the Tribunal to determine the fair rental value of the accommodation in accordance with Explanation 2 to Rule 3(a)(iii) of the Income-tax Rules. The learned Departmental Representative pointed out that the Madras High Court decision has been affirmed by the Supreme Court (251 ITR 781). The learned Departmental Representative, therefore, urged that the learned CIT(A) in his order dated 23^rd May 1997 had rightly decided the issue and there is no mistake apparent from record in his order. It is, therefore, submitted that the rectification order passed by the learned CIT(A) is wholly unjustifiable.
8. The learned Counsel, Shri S.E. Dastur, assisted by Shri Hitesh Joshi, appearing on behalf of the assessee contended that the Bombay High Court decision in the case of M.A.E. Paes (supra) is directly on the issue and is, therefore, squarely applicable to the facts of the assessee's case. It is argued that the jurisdictional High Court judgment is a binding precedent within the State of Maharashtra and it gives rise to a mistake apparent from record in the original order passed by the learned CIT(A) in so far as the said order is not in consonance with the Bombay High Court decision. The learned Counsel for the assessee invited our attention to the ratio of the case of M.A.E.Paes (supra), the relevant part of which is reproduced below from the head-note: On a perusal of Rule 3(a)(iii) of the Income-tax Rules, 1962, in computing the value of the perquisite of rent-free residential accommodation provided by an employer to his employee, the fair rental value of the accommodation has always to be determined with reference to the standard rent payable under the Rent Control Act applicable to the area where the accommodation is situated. The fair rental value for the purpose of perquisite can in no case exceed the standard rent determinable on the principles laid down under the Rent Control Act. The assessing authority would have to arrive at its own figure of standard rent by applying the principles laid down under the Rent Control Act for determination of the standard rent and determine the fair rental value of the accommodation on the basis of such figure of standard rent. The expression "rent which a similar accommodation would realize in the same locality" appearing in Explanation 2 to Rule 3(a)(iii) of the Rules has to be construed only to mean the "standard rent", because no property can be expected to realize any rent higher than the standard rent as that would be in breach of the provisions of the Rent Control Act.
Moreover, the expression used in Rule 3(a)(iii) is "fair rental value". The use of the word "fair" is a dear indicator that it is not the prevailing market rent but the "fair rent" which can never be more than the "standard rent".
If no standard rent has been fixed in respect of the particular premises either because it is in the occupation of the owner or his employees or for any other reason and the Assessing Officer wants to adopt a figure other than the municipal valuation, he will have to determine the standard rent himself by applying the principles laid down in the Rent Control Act and if that figure is higher than the municipal valuation, it will be within his powers to accept the same and to determine the value of the perquisite under Rule 3(a)(iii) of the Rules at such higher rate.
9. For the proposition that a subsequent decision of the jurisdictional High Court gives rise to a mistake apparent from record, the learned Counsel for the assessee relied on the Supreme Court decision in the case of S.A.L. Narayana Row, CIT v. Model Mills Nagpur Ltd. 64 ITR 67.
The ratio of this case may be reproduced below: In assessing the respondent-company to tax for the assessment year 1952-53, the Income-tax Officer levied an additional tax on the excess dividend declared by it. When, later, the levy of tax on the excess dividend was declared by the Bombay High Court in Khatau Makanji Spinning and Weaving Co. Ltd., v. Commissioner of income-tax to be illegal, the respondent applied to the Income-tax Officer for refund of the additional tax. The officer rejected the application and the Commissioner rejected its application under Section 33A of the Income-tax Act to revise the officer's order, on the ground that, treated as an application for cancellation of levy of tax, it was barred by limitation, and treated as an application against refusal of rectification, it was not maintainable, since the error was not apparent from the record.
The respondent thereupon moved the Bombay High Court under Article 226 of the Constitution of India and the High Court made an order directing the Commissioner to refund the amount of tax illegally collected.
Held, that, though it was not expressly stated in the respondent's application to the Income-tax Officer that the assessment order be rectified under Section 35, the request in substance was that the tax should be declared to be unlawfully collected and on that account refunded, and that could only mean a request for rectification; and that the High Court was right in making its order.
10. For the same proposition, the learned Counsel for the assessee also relied on the Punjab & Haryana High Court (Full Bench) decision in the case of CIT v. Smt. Aruna Luthra 252 ITR 76. In this case, it was held that if the AO allows a deduction and by a subsequent decision of the jurisdictional High Court it is held that such deduction is not allowable, the AO's order can be rectified Under Section 154.
11. The learned Counsel for the assessee submitted that even if on a particular issue there are contradictory decisions of different High Courts, the decision of the jurisdictional High Court is binding on the Income-tax authorities and such decision gives rise to a mistake rectifiable Under Section 154, despite there being divergence of judicial opinion on that point between some High Courts. If the issue has been decided by the jurisdictional High Court, it cannot be said that there is still scope for a debate on that particular point. For this proposition, the learned Counsel for the assessee placed reliance on the following cases:Omega Sports & Radio Works v. CIT 12. The learned Counsel for the assessee summed up his arguments by reiterating that in view of the clear and established legal position, the learned CIT(A) was justified in passing the rectification order Under Section 154 of the Act.
13. We have given a careful consideration to the rival submissions vis-a-vis the facts of the case and in the light of the precedents relied upon by both the sides. The first point which is required to be considered and adjudicated is whether a subsequent decision of the jurisdictional High Court, if it is squarely applicable to the relevant issue, gives rise to a mistake apparent from record in the order of an income-tax authority, if in that order a view has been taken which is not in consonance with the view expressed by the jurisdictional High Court in the subsequent decision. In this connection, the observations made by the Hon'ble Punjab & Haryana High Court in the case of Smt.
Aruna Luthra (supra) may be reproduced below from page 80 of the Report: There is another aspect of the matter. In a given case, on an interpretation of a provision, an authority can take a view in favour of one of the parties. Subsequent to the order, the jurisdictional High Court or their Lordships of the Supreme Court interpret the same provision and take a contrary view. The apparent effect of the judgment interpreting the provision is that the view taken by the authority is rendered erroneous. It is not in conformity with the provision of the statute. Thus, there is a mistake. Should it still be perpetuated? If the contention raised on behalf of the assessee were accepted, the result would be that even though the order of the authority is contrary to the law declared by the highest court in the State or the country, still the mistake could not be rectified for the reason that the decision is subsequent to the date of he order.
Only the dead make no mistake. Exemption from error is not the privilege of mortals. It would be a folly not to correct it. Section 154 appears to have been enacted to enable the authority to rectify the mistake. The legislative intent is not to allow it to continue.
This purpose has to be promoted. The Legislature's will has to be carried out. By placing a narrow construction, the object of the legislation shall be defeated. Such a consequence should not be countenanced.
14. In the above case the Full Bench of the High Court has categorically held that a subsequent decision of the jurisdictional High Court or of the Supreme Court gives rise to a mistake apparent from record rectifiable Under Section 154. This view is substantiated by the Supreme Court decision in the case of Model Mills Nagpur Ltd. (supra). In some of he cases already referred to above, the High Courts have gone to the extent of holding that even if there is divergence of opinion between the High Courts, the decision of the jurisdictional High Court would give rise to a mistake apparent from record. In our view the legal position in this regard is established and, therefore, we hold that a subsequent decision of the jurisdictional High Court gives rise to a mistake apparent from record.
15. The second point which is to be decided is as to whether the Bombay High Court decision in the case of M.A.E. Paes (supra) is squarely applicable to the facts of the present case and, therefore, the law laid down in this case is binding and therefore, there is a mistake apparent from record in the original order of the learned CIT(A) in view of the fact that the issue was decided in that order in a different way. The question involved in the present case pertains to determination of the value of the perquisite Under Section 17 of the Income-tax Act in respect of rent free accommodation provided to the assessee by his employer. The value of the perquisite is required to be determined as per Rule 3 of he Income-tax Rules. We accept the proposition of the learned Departmental Representative that these Rules are mandatory and therefore, the value of the perquisite has to be determined in consonance with the rules. It would be appropriate to reproduce below Rule 3, in so far as it is relevant for our purpose: 3. Valuation of perquisites, - 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:...
(A) the value of rent-free residential accommodation which is not furnished shall ordinarily be a sum equal to 10 per cent, of the salary due to the assessee in respect of the period during which the said accommodation was occupied by him during the previous year: (1) where the fair rental value of the accommodation is in excess of 20 per cent of the assessee's salary, the value of the perquisite shall be taken to be 10 per cent of the salary increased by a sum equal to the amount by which the fair rental value exceeds 20% of the salary; so, however, that the Income-tax Officer may, having regard to the nature of the accommodation, determine the sum by which 10 per cent, of the salary is to be increased, as a percentage (not exceeding 100 per cent) of the amount by which the fair rental value exceeds 20 per cent. of the salary; (2) where the assessee Claims, and the Income-tax Officer is satisfied that the sum arrived at on the basis provided above exceeds the fair rental value of the accommodation, the value of the perquisite to the assessee shall be limited to such fair rental value; (B) where the accommodation is furnished, the value of rent free residential accommodation shall be the aggregate of the following sums, namely: (1) the fair rental value of the accommodation arrived at in accordance with the provisions of Sub-clause (iii)(A) as if the accommodation were not furnished; and (2) the fair rent for the furniture (including television sets, radio sets, refrigerators, other household appliances and air conditioning plant or equipment) calculated a 15 per cent per annum of the original cost of such furniture is hired from a third party the actual hire charges payable therefore- Explanation 2 - For the purposes of Sub-clause (iii), the fair rental value of accommodation which is not furnished shall be the rent which a similar accommodation would realize in the same locality or the municipal valuation in respect of the accommodation, whichever is higher.
(b) The value of residential accommodation provided at a concessional rent shall be determined as a 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.
16. The Bombay High Court in the case of M.A.E. Paes (supra) has considered the above mentioned rule elaborately. They have taken note of the fact that ordinarily the value of rent free unfurnished residential accommodation should be to the extent of 10% of the salary due to the assessee. However, if the rental value of the accommodation exceeds 20 per cent of the salary, the value of the perquisite has to be fixed in the manner set out in the proviso to Rule 3(a)(iii). The Explanation gives an option to the Assessing Officer to determine the fair rental value as the rent which a similar accommodation would realize in the locality or the municipal valuation, whichever is higher. The High Court categorically held that the rent which similar property would realize in the same locality cannot be more than the standard rent that can be realized by a Landlord under the Rent Control Act. The High Court drew support from the Supreme Court decision in the case of Dewan Daulat Rai Kapur v. New Delhi Municipal Committee, 122 ITR 700, where it was held that the annual value of the building must be held to be limited by the measure of the standard rent determinable on the principles laid down in the Delhi Rent Control Act. The High Court also referred to the Supreme Court decision in the case of Mrs.
Sheila Kaushik v. CIT 131 ITR 435, wherein, while interpreting the expression "the sum for which the property might reasonably be expected to let from year to year" appearing in Section 23(1) of the IT. Act, it was held that even if the standard rent of a building has not been fixed under the Rent Control Act, the annual value of the building must be held to be the standard rent determined under the provisions of the Rent Control Act and not the actual rent received by the Landlord from the tenant.
17. The High Court also considered another Supreme Court decision in the case of Balbir Singh v. M.C.D. 152 ITR 388, where the Supreme Court followed the ratio of the decision in Diwan Daulat Rai Kapur's case and held that the standard rent determined under the Rent Control Act would fix the upper limit of the rateable value of the premises.
18. Drawing support from the above mentioned three Supreme Court decisions, the Bombay High Court held that the fair rental value of the premises for the purposes of Rule 3 cannot be more than the standard rent payable under Rent Control Act. Thus, the fair rental value referred to in the proviso to Rule 3 cannot in any case exceed the standard rent. In our view the binding decision of the Bombay High Court in the case of MAE. Paes (supra) is clearly and squarely applicable to the facts of the present case. The cases cited by the learned Departmental Representative are distinguishable on facts. We, therefore, respectfully following the Bombay High Court decision in MAE. Paes (supra) hold that the learned CIT(A) was justified in coming to the conclusion that there was a mistake apparent from record in the earlier order of the learned CIT(A). He has rightly rectified the mistake and has rightly directed the AO to determine the value of the perquisite in the hands of the assessee following the principles laid down by the Bombay High Court in the above case. Accordingly, we uphold the order of the learned CIT(A).
19. The facts and circumstances are identical as for the assessment year 1991-92 and the Department has raised similar grounds of appeal, for the reasons already discussed by us above, we uphold the order of the learned CIT(A) for this year.
20. This is assessee's appeal against the order dated 23^rd May, 1997 of the learned Commissioner of Income-tax (Appeals)-XXXV, Mumbai.
Ground of appeal Nos. 1, 2 and 3 pertain to the same issue, i.e.
confirmation by the learned CIT(A) the value of perquisite determined by the Assessing Officer in respect of rent free accommodation provided to the assessee by his employer. The arguments submitted by both Me sides are the same as in the departmental appeal in ITA No.1517/Mum/02, which has been decided by us above. We have already upheld the rectificatory order of the learned CIT(A) passed under Section 154 directing the AO to determine the value of the perquisite in consonance with the decision of the Hon'ble Bombay High Court in the case of M.A.E. Paes (supra). In view of this, the grounds of appeal raised by the assessee on this issue are rendered infructuous as the order of the learned CIT(A) on this issue has already been rectified Under Section 154 and that order has been upheld by us.
21. Ground No. 4 pertains to rejection by the learned CIT(A) of the assessee's claim that the residential flat provided to the assessee by the employer was partly used for office purposes and therefore, the value of the perquisite should be proportionately reduced.
22. We have heard both the sides on this issue and have gone through the relevant facts. The assessee claimed before the AO that the total area of the residential flat was 2405 sq. ft., out of which 500 sq. ft.
was used for office purposes. The AO has recorded a finding that no evidence to support this claim was adduced. The AO has also referred to the Service Agreement dated 26.7.1988 wherein it was provided that until the assessee finds a permanent accommodation, a three bed room service flat may be taken on rent and one of the rooms may be used as a temporary office. The AO has recorded a finding at page 7 of his order that the BHF Bank has its own office located at 107, Maker Chambers, Mumbai and therefore, it was clear that the residential accommodation was not used for office purposes. We find that the learned CIT(A) at para 33 of his order has recorded a finding that as per the Leave and Licence Agreement dated 20^th July, 1989, the flat cannot be used for any purpose except the assessee's residence. The learned CIT(A) therefore rejected the assessee's claim. No material has been placed before us to controvert the findings recorded by the revenue authorities. There is no evidence that part of the flat was used by the assessee for office purposes. Further, such office use is prohibited under the leave and licence agreement in respect of the flat. We, therefore, confirm the order of the learned CIT(A) on this issue.
23. Ground No. 5 pertains to rejection by the learned CIT(A) of the assessee's claim that part of the furniture was used for office purposes and therefore, the value of the perquisite in respect of such furniture should be proportionately reduced. This ground is only consequential to ground No. 4 and therefore, for the same reasons, we confirm the findings of the learned CIT(A) on this issue.
On the facts and in he circumstances of the case, the learned CIT(A) was not justified in upholding the view of the AO treating the entire amount of Rs. 48,000/- being reimbursed to your appellant for domestic servants as taxable and in not restricting the perquisite value to an amount at the rate of Rs. 60/- per month per servant as claimed by your appellant.
25. We have heard both the sides on this issue and have gone through the facts. The AO at para 18 of his order has stated that the assessee vide his letter dated 22^nd March, 1990 informed that the BHF Bank paid in cash to the assessee Rs. 4,000/- per month for domestic servants employed by the assessee. The AO has referred to clause 4(h) of the Service agreements wherein it is provided that BHF Bank will reimburse the cost of servants engaged by the assessee for the maintenance and up keep of the flat provided by the Bank. The AO treated the sum of Rs. 48,000/- as perquisite chargeable to tax. The learned CIT(A) confirmed the addition with the following observations: The A.O. added Rs. 48,000/- as the perquisite value of servants. The C.A. claimed that the perquisite value should be taken at Rs. 60 p.m. per servant, only as per CBDT's Circular. This concessional treatment is admissible only where servants are employed by the employer. But where the employee is himself the employer of the servants, only the actuals should be added. I confirm the A.O.'s action.
26. Shri S.E. Dastur, the leaned counsel appearing for the assessee has relied on the Board's Circular No. 122 dated 19^th October, 1973, which is reproduced below: It has been decided by the Board that the taxable perquisite in the hands of the employee on account of services of gardeners, night watchmen and sweepers, provided by the employer should be calculated on the following ad hoc basis: Sweeper: 75 per cent of actual wages or Rs. 60 per month, whichever is less Gardener] : 50 per cent of actual wages or Rs. 60 per month, whichever is less. Watchman] 27. We have considered the rival submissions and we see no reason to interfere with the order of the learned CIT(A) on this issue. The Board's Circular is clearly applicable where gardeners, night watchmen and sweepers have been provided by the employer. In the present case the assessee himself has employed domestic servants and the BHF Bank are reimbursing to the assessee a sum of Rs. 4,000/- per month. In our view the Board's Circular is not applicable in the present case and the revenue authorities have rightly brought to the charge of tax perquisite of Rs. 48,000/-. On this issue the order of the learned CIT(A) is confirmed.
On the facts and in the circumstances of the case, the learned CIT(A) was not justified in upholding the view of the Assessing Officer treating the entire amount of Rs. 15,827.75 on electricity bills for the flat as a perquisite in the hands of your appellant and in not directing him to exclude the proportionate amount for the portion of the flat being used for official purposes.
29. The issue is also consequential to our findings that no part of the flat was used for office purposes. Therefore, on this issue the order of the learned CIT(A) is confirmed.
On the facts and in the circumstances of the case, the learned CIT(A) was not justified in holding that one-half of the bills on telephone number 493 82 76, being the telephone of the employer installed at the flat should be assessed as a perquisite value in the hands of your appellant.
31. We have heard both the sides and have gone through the facts. The assessee has two telephones at his residence bearing Nos. 4928276 and 4932086. The telephone No. 428276 has been provided by the employer and the other telephone was assessee's personal telephone. It was claimed that the calls made from the telephone provided by the employer are for office purposes only and expenditure on any personal calls from this telephone has been reimbursed by the assessee to the Bank. The assessee also furnished details of some petty amounts reimbursed to the Bank.
The AO did not accept this submission and disallowed 2/3^rd of the telephone expenses. The disallowance has been reduced to one-half by the learned CIT(A).
32. In our view the disallowance is not justified. The assessee has separate telephones; one provided by the company for office use and the second personal telephone. As per clause 4(f) of the appointment letter dated 26^th July, 1988, the assessee will be entitled to reimbursement of telephone charges in respect of one telephone installed at residence other than for personal calls. The assessee claimed that personal calls have been made from other telephone. Having regard to these facts, the disallowance sustained by the CIT(A) is deleted.
33. Ground No. 10 pertains to charging of interest under Section 234B and 234C of the Act. The learned Counsel appearing for the assessee contended that the assessee's income from salary was liable to tax deducted at source. It was submitted that such incomes on which tax is deductible at source, are not liable for payment of advance-tax. For this proposition reliance is placed on the ITAT Delhi Special Bench decision in the case of Motorola Inc. v. DCIT 95 ITD 269 (SB). The Special Bench of the Tribunal held that where income received by the assessee is such from which tax was deductible at source, the assessee could not be held to have committed default in payment of advance-tax and consequently the assessee was not liable to pay interest Under Section 234B.34. The learned Departmental Representative supported the orders of the revenue authorities and submitted that the assessee, being head of the office, was himself responsible for deduction of tax at source from his salary income and therefore, he is at fault if tax is not deducted from salary or is short deducted. In our view the assessee must succeed on this issue. The assessee may have a dual capacity as deductor of TDS and as an assessee liable for payment of advance-tax. If the assessee has committed any default in his capacity as deductor, the AO is free to take any action permissible under the Income-tax Act for the default of non-deduction or short deduction. In so far as the liability for payment of advance-tax is concerned, in our view, the issue is covered by the ITAT Delhi Special Bench decision. We find that in addition to salary income for the present assessment year the assessee has income from other sources amounting to Rs. 1,46,124/-. He also has some other incomes. The AO is directed to recalculate interest chargeable under Section 234B and 234C, if any, after excluding the salary income.
35. Ground of appeal Nos. 1, 2 and 3 are the same as per assessment year 1991-92 and they pertain to the determination of value of perquisite in respect of rent free residential accommodation. As held by us for the assessment 1991-92, these grounds have been rendered infructuous.
36. Ground Nos. 4,5 and 6 pertain to the determination of the value of perquisites in respect of flat, furniture and reimbursement of electricity bills having regard to the assessee's claim of part use for office purposes. Similar grounds raised for the assessment year 1991-92 have been rejected by us and therefore, for similar reasons on these issues the findings of the learned CIT(A) is confirmed.
37. Ground No. 7 is in respect of perquisite of Rs. 48,000/- for domestic servants. Ground No. 8 is also on the same issue. For the reasons already discussed by us for the assessment year 1991-92 on this issue, the findings of the learned CIT(A) is confirmed.
38. Ground No. 9 pertains to addition of one-half of the reimbursement of telephone bills treating the same to be perquisite. Similar addition has been deleted by us for the assessment year 1991-92 and, therefore, for the same reasons, the addition made for this year is also deleted.
On the facts and in the circumstances of the case, the learned CIT(A) was not justified in upholding the view of the Assessing Officer that your appellant was not entitled to a deduction of Rs. 5,71,250/- under the provisions of Section 80-O of the Income-tax Act, 1961.
40. The facts with regard to this issue are that for the first time in respect of the present assessment year the assessee claimed deduction Under Section 180-0 in respect of the salary income received from BHF Bank in Convertible Foreign Exchange. The AO called upon the assessee to justify this claim and it was stated before him that the assessee was the Chief Representative of the Liaison office in India of BHF Bank, Germany. Under the Reserve Bank of India approval, the office and the representative of BHF Bank in India cannot carry on any business or provide any services in India, nor can earn any remuneration in India in any form whatsoever. It was pointed out that the Indian Office can operate solely for the purpose of assisting the head office and its branches overseas. It was claimed that the Chief Representative through the Liaison office sends necessary information and feed back to the Head office and other overseas branches of BHF Bank for their use outside India. It was also pointed out before us that the benefit of Section 80-0 has been extended to an individual who is resident in India with effect from the assessment year 1992-93. The Assessing Officer rejected the claim on the ground that the assessee was only an employee and was receiving salary which is not covered under Section 80-O.41. The learned CIT(A) concurred with the view of the Assessing Officer with the following short discussion at para 19 of his order: The A.O. has discussed the reasons for doing so in detail in his assessment order. I have gone through them very carefully and I do not find any reasons for not concurring with him. This ground is also dismissed. Further, it is not the appellant who is rendering professional services in India in his personal capacity. It is only the employer bank who is rendering such services.
42. From the above, it appears that the assessee's claim was rejected on the basis that salary income earned by an employee from the employer would not qualify for deduction Under Section 80-0.
43. The learned Counsel appearing on behalf of the assessee contended before us that the assessee's claim has been rejected by the revenue authorities solely on the basis that the salary income earned by the assessee is in his capacity as an employee and therefore, the same is outside the purview of Section 80-0. The learned Counsel for the assessee contended that Section 80-0 does not exclude salary income and if all other conditions of Section 80-0 are fulfilled the assessee would be entitled to deduction under that section. The learned Counsel for the assessee has relied on the order of Authority for Advance Rulings (AAR) in the case of A.S. Mani v. CIT 227 ITR 380. The learned Counsel for the assessee invited our attention to the following observations made by the AAR at page 386 of the report: The authority is of the opinion that the applicant is entitled to the exemption claimed, on the assumption that the services are rendered by him to Mabanaft outside India. The section confers exemption in two situations: (a) the remuneration is paid by the foreign enterprise in consideration for its use outside India of the industrial or commercial information provided by the applicant; or (b) the payment is received in consideration of technical or professional services rendered outside India.
The applicant does not claim that situation (a) prevails in the present case. The only question is whether situation (b) does.
The controversy whether the applicant is an independent consultant, or just an employee of Mabanaft is not strictly relevant as the section only talks of services rendered or information provided by a person to a foreign enterprise. It may have some relevance if the applicant wants to claim (and he seems to from the arguments addressed and cases cited by him) that he is rendering "professional" services. But the Authority is of the view that it is unnecessary to go into the question whether the applicant can be said to carry on a profession, as the services rendered by the applicant can be clearly described as "technical" services.
The learned Counsel for the assessee argued that the assessee has rendered such services which are covered under Section 80-0 and therefore, the assessee is entitled to deduction Under Section 80-0 in respect of salary income.
44. The learned Departmental Representative forcefully supported the orders of the revenue authorities and contended that Section 80-0 does not visualize deduction on salary income. It is pointed out that deduction is admissible on income by way of royalty, commission, fees or any similar payments received by the assessee, if all the conditions of Section 80-0 are fulfilled. It is argued that the salary income cannot be said to be in the nature of any similar payment as royalty, commission or fees.
45. We have given a careful consideration to the rival submissions and have gone through the facts as also the relevant provisions of law in this regard. Section 80-0 as applicable to the assessment year under appeal, reads as under: Where the gross total income of an assessee, being an India Company or a person other than a company who is resident in India includes any income by way of royalty, commission, fees or any similar payment received by assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India or any patent, invention, mode, design, secret formula or process, or similar property right, or information concerning industrial commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessee, or in consideration of technical or professional services rendered or agree to be rendered outside India to such Government or enterprise by the assessee and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of an amount equal to fifty per cent of the income so received in, or brought into India in computing the total income of the assessee....
(iii) services rendered or agreed to be rendered outside India shall include services rendered from India but shall not include services rendered in India.
The Revenue authorities have not examined the claim of the assessee on merits. There is no finding as to whether he salary received by the assessee is in consideration of technical or professional services rendered outside India to the foreign enterprises. There is also no finding as to whether the salary has been paid to the assessee in convertible foreign exchange. The claim of the assessee has been rejected on the short ground that the salary income is not entitled to deduction Under Section 80-0. In the case of A.S. Mani v. CIT 227 ITR 380, the MR have held that whether the assessee is an independent consultant or just an employee is not strictly relevant while deciding the admissibility of deduction Under Section 80-0. We agree with the view taken by the MR that the Revenue authorities should not be carried away by the nomenclature of the payment received and the claim of the assessee must be considered on merits. It may be that the salary or part of it received by an assessee may be attributable to the services rendered by such assessee which are covered Under Section 80-O. In this connection, a reference may be made to the decision of the Hon'ble Supreme Court in the case of Continental Construction Ltd. v. CIT 195 ITR 81. In this case, the Supreme Court has explained the term "any similar payment" occurring in Section 80-0. The relevant part of the ratio of this case may be reproduced below from the head-note: The true clue to the interpretation of the expression "any similar payment" in Section 80-O lies not in the preceding three words but really in the second part of the section. The essence of the exemption lies, not in consigning the receipt to one of these pigeon-holes but in examining whether the receipt is a payment in consideration of one of the two situations envisaged in the section.
To illustrate: where the assessee is the owner of a patent or invention, he may generally permit another to make uses of the patent or the invention in consideration of a "royalty" payment. Or, again, where the assessee is in possession of technical know-how, he may be prepared to allow another to make use thereof in consideration of a "fee" to the assessee. He may also stipulate a consideration in the form of a commission based on the sales of the products the other party is able to manufacture with the aid of such invention or know-how. Again, an assessee may have achieved some speciality and he may agree to lend his services to some other person and stipulate a consideration therefore which may be variously described. The nature of the asset, right, information or services which can be brought under this provision may be varied and the consideration stipulated for allowing another to avail of the assessee's asset, knowledge or services can likewise assume multifarious forms. The word "similar" connotes that the payment made to the assessee need not be in the nature of royalty, commission or fees only; it could be any payment of like nature, i.e. made in consideration of the use or supply of such an asst, knowledge or services in the same manner as royalty, fees or consideration could be. Therefore, any type of payment received by an assessee will qualify for deduction under the section so long only as it is a payment made in consideration of one of the two types of transactions referred to in the section.
46. Following from the discussion given above, we are of the view that the assessee's claim is required to be considered on merits having regard to the various requirements and conditions of Section 80-0. This issue is, therefore, restored back to the AO for fresh consideration after allowing adequate opportunity of being heard to the assessee. The AO shall examine the issue in accordance with the provisions of law and shall record a finding as to whether the assessee fulfils all the conditions of Section 80-0. The assessee shall be free to produce any evidence before the AO to substantiate his claim. Ground No. 10 is allowed for statistical purposes.
47. Ground No. 11 pertains to charging of interest Under Section 234B and 234C of the Income-tax Act. We restore this issue to the AO to be considered in the light of the direction given by us while deciding similar grounds of appeal for the assessment year 1991-92.
48. Ground No. 12 pertains to charging of additional tax of Rs. 51,184/- under Section 143(1A) of the Income-tax Act.
49. We have heard both the sides and have gone through the facts. We find that the additional tax was levied by the AO while processing the return of income under Section 143(1) of the Act. No additional tax has been levied by the AO in the present assessment order which the subject matter of this appeal. No ground has been raised by the assessee on this issue before the learned CIT(A) and there is no discussion in the order of the learned CIT(A) on this issue. An intimation Under Section 143(1) is independently appealable Under Section 246A of the Income-tax Act. Considering the facts and the provisions of law, we are of the view that this issue does not arise from the present proceedings and therefore, this ground of appeal stands rejected.
50. The last ground of appeal pertains to charging of interest Under Section 220(2) of the Income-tax Act. Charging of interest is only consequential as per the first proviso to Section 220(2) and therefore, the AO is directed to recalculate such interest.
51. In the result, the Departmental appeals in ITA Nos. 1517 & 1518/M/02 are dismissed and the assessee's appeals in ITA Nos. 4398 & 4399 Mum/97 are partly allowed.