COMMISSIONER OF INCOME TAX Vs. K S SUNDARAM

JUDGEMENT

(1.) AN interesting question of law on the interpretation of Rule 3(a)(iii) of the Income-tax Rules, 1962 (hereinafter to be referred to as the Income-tax Rules), arises on the facts of the case. The assessee is an individual. He is the director of Addison paints and Chemicals Ltd., Madras. Previously he was an employee of Amalgamations Ltd. and while he was in employment under Amalgamations Ltd., he was allotted a house at Alwarpet, Chennai, as rent-free quarters. Addison Paints and Chemicals Ltd. is a subsidiary of another company which again is a subsidiary of Amalgamations Ltd. After the assessee became an employee of Addision Paints and Chemicals Ltd., Amalgamations Ltd. charged Rs. 500 per month by way of rent for the abovesaid Alwarpet property to the Addison Paints and Chemicals Ltd. which in turn allowed the assesse to reside in the same building free of rent having agreed to provide him with rent-free quarters. During the previous year ended on March 31, 1980, relevant to the assessment year 1980-81, the assessee occupied the house at Alwarpet, Madras, as an employee of Addison Paints and Chemi-cals Ltd. The assessee in the assessment proceedings for the assessmen year 1980-81, admitted the value of the perquisites from the rent-free quar-ters at Rs. 6,000 which was the rent actually paid by Addision Paints and Chemicals Ltd. to Amalgamations Ltd. The Income-tax Officer, however, invoked the provisions of Rule 3 of the Income-tax Rules and determined the perquisite value of the rent-free accommodation as under :

(2.) THE value of the perquisites, was, however, restricted to 100 per cent, of salary of Rs. 54,000. In other words, the Income-tax Officer determined the perquisite value in respect of the rent-free accommodation at Rs. 54,000 being 100 per cent, of the assessee's basic salary on the ground that the annual value of the property was estimated at Rs. 60,000 in the assessment proceedings of Amalgamations Ltd.

(3.) MR. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the provisions of Rule 3 are only directory in nature and the expression, "ordinarily" occurring in Rule 3 of the Income-tax Rules clearly shows that the provisions are directory in nature. He further submitted that the provisions of Section 17 of the Act do not suggest that the value of perquisite should be determined as per the Income-tax Rules and in the absence of such an indication in Section 17 of the Act, the provisions of the said rule must be held to be directory. He also submitted that the fair rental value in the case of Amalgamations Ltd. for the assessment year 1979-80 was determined by the Appellate Tribunal in I. T. A. No. 571(Mds.) of 1983, dated October 17, 1983, at Rs. 42,000 and the Tribunal had noticed the fact that the Madras Corporation, had fixed the net annual value of the property at Rs. 5,460. He, therefore, submitted that the Tribunal has come to a correct conclusion that Rs. 6,000 which is nearer to the value determined by the corporation authorities should be adopted as the value of perquisite on the facts of the case.