P BHAVANI SHANKAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE petitioners numbering 16 who are employees of Bharat Heavy Electricals Limited, Ranipet, aggrieved by the circular dated February 12, 1990, of the third respondent have approached this court for quashing the same and for a direction directing the respondents to refund the tax if any deducted from the salary of the petitioners herein on the amount of interest paid to the H. D. F. C., on behalf of the petitioners by way of subsidy between the rate actually chargeable under the House Building Advance Scheme framed by the third respondent company and the actual interest paid to the H. D. F. C. on the house building loan arranged by the third respondent company for the petitioners.

(2.) ACCORDING to the petitioners, they are all permanent employees of Bharat Heavy Electricals Limited. The said company has got House Building Advance (H.B.A.) Scheme for purchase of house or flat. Every employee who has not less than five years of continuous service is entitled to avail of this house building advance. The interest to be charged on the loan is at the rate at which the Government charges for such class of loans. Option is given to the employee to approach the LIC/HDFC to raise loan, in which case the company will grant subsidy to the employee to meet the difference in the company and the LIC/HDFC rate of interest. Such option is left to the concerned employee. The petitioners have availed of house building advance loans and they are bound to pay the interest to the company at the rate which the company is charging for house building advance. The third respondent company due to lack of funds for granting the advance under the scheme has asked the employees to approach and avail of the loan from the LIC/HDFC. The employee is liable to pay a sum of Rs. 528 per month by way of interest but really he pays Rs. 1,357 from his salary every month to the HDFC/LIC. Thus the company subsidises every month the payment of interest to the extent of Rs. 528. It is the obligation of the company to provide house building advance under prescribed rate of interest and it is not the obligation of the employee to pay a higher rate of interest than the prescribed rate of interest under the House Building Advance Scheme. At the time of payment of salary to the petitioners, the company deducts the amount equivalent to the instalment along with the interest calculated at the company rate, as prescribed under the House Building Advance Scheme. By the impugned circular issued by the Deputy Manager/Finance of the third respondent, Ranipet, it is made clear that the payment of interest subsidy either to the employees or paid to the agencies on their behalf is a taxable perquisite under Section 17(2)(iv) of the Income-tax Act and tax is to be recovered on such amount as per the provisions of the Act. The circular is said to have been passed after due consideration with the Commissioner of Income-tax and the concerned Income tax Officer. The petitioners have no other alternative appropriate forum to seek redressal of their grievance as tax is likely to be deducted at source on the amount of interest subsidy paid directly by the company to the HDFC in regard to the loan availed of by the petitioners under the House Building Advance Scheme. The said subsidy is not a "perquisite" within the meaning of Section 17(2)(iv) of the Income-tax Act, 1961, and such deduction is wholly without jurisdiction.

(3.) THE relevant provision under the Income-tax Act, 1961, is Section 17. Section 17(1) speaks about salary. As per Section 17(1)(iv), any perquisites provided/paid to the employee would amount to salary. Section 17(2) speaks about perquisite. As per Section 17(2)(iv), perquisite includes any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee.