Rule 3 of the Income-tax Rules, 1962 read with section 88 of the Income-tax Act, 1961 - Valuation of perquisites

Court :
IN THE ITAT DELHI BENCH ‘G’

Brief :
Rule 3 of the Income-tax Rules, 1962 read with section 88 of the Income-tax Act, 1961 - Valuation of perquisites - Assessment years 2004-05 and 2005-06 - Assessee, a public school was providing free educational facilities to children of its employee - Assessee filed its return for relevant assessment years - While framing assessment Assessing Officer noticed that assessee had recovered nothing from its employees in respect of free educational facilities provided to members of their house-hold and, therefore, he concluded that wherever value of benefit exceeded Rs. 1,000 per month per child, whole of value of benefit to employees resulting from free educational facilities had to be taken as value of perquisite without allowing any deduction therefrom - However, Commissioner (Appeals) in view of proviso to rule 3(5) held that where perquisite value exceeded Rs. 1000 deduction to extent of Rs. 1,000 per month per child would be allowed while computing taxable perquisite in respect of free educational facilities and accordingly, directed Assessing Officer to allow deduction to that extent - Whether order of Commissioner (Appeals) was justified - Held, yes FACTS The assessee, a public school, was providing free educational facilities to children of its employee. It filed its returns for the assessment years 2004-05 and 2005-06. During course of assessment proceedings the Assessing Officer noticed that the assessee had recovered nothing from its employees in respect of free educational facilities provided to members of their house-hold. The Assessing Officer based on the proviso to rule 3(5) held that wherever the value of benefit exceeded Rs. 1,000 per month per child, the whole of the value of the benefit to the employees resulting from free educational facilities had to be taken as the value of the perquisite without allowing any deduction therefrom. He further held that while calculating the perquisite value, the assessee wrongly allowed a deduction of Rs. 1,000 per month per child leading to lesser deduction of tax at source from the salary than what ought to have been made. The Assessing Officer, therefore, raised demand for tax and interest thereon under section 201(1) and section 201(1A) respectively on the assessee. On appeals, the Commissioner (Appeals) held that purposive interpretation of rule 3(5) required that the word ‘cost’ should be distinguished from the word ‘price’ and, therefore, deduction of Rs. 1,000 per month per child should be allowed while computing the perquisite in respect of free educational facilities. He, therefore, directed the Assessing Officer to allow deduction as above. On revenue’s appeals:

Citation :
Income-tax Officer, Ward 49(2), New Delhi v Bal Bharti Public School