COMMISSIONER OF INCOME TAX Vs. MOHANLAL JALAN

JUDGEMENT

(1.) THE only question of law raised in this reference at the instance of the Revenue is:

(2.) THE assessee, an individual, inter alia, earns remuneration from two concerns, Prakash Cotton Mills Ltd. and Bharat Barrel & Drum Manufacturing Co. Ltd. The former has also provided him free residence. The question is regarding computation of the perquisite value of the free residence in his hands. The ITO computed it at Rs. 16,200. This was done by deducting Rs. 3,600 being exempt under S. 10(14) of the IT Act from Rs. 19,800 being the rent paid by the employer for the flat. The AAC found that the rent paid by Prakash Cotton Mills Ltd. was Rs. 15,900 and not Rs. 19,800. He also found that 1/3rd portion of the premises was utilised by the assessee company as its guest house. In view of the fact that the residence was provided by Prakash Cotton Mills Ltd. only, the AAC computed the perquisite value of the free residence at Rs. 9,100. Thus, he worked out by taking the amount of rent payable by the employer in respect of the premises occupied by the assessee at Rs. 10,600 (2/3rds of Rs. 15,900) and deducting therefrom a sum of Rs. 1,500 arrived at by holding the value of perquisite in the hands of the assessee would be 12 1/2 per cent of the salary from the particular employer and the excess over 37 1/2 per cent of the said salary holding in other words, that only 25 per cent of the salary was exempt. The Tribunal accepted the assessee's contention that the value of perquisite in respect of the rent free residence was required to be computed in accordance with r. 3 of the IT Rules, 1962, and that the said rule provided for determination of the value of the perquisite in the manner prescribed therein with reference to the "salary" of the employee which meant the salary received by the employee from any number of employers and not merely the employer who provided the free residence. In this manner, the Tribunal held the perquisite value of the free residence as nil.

(3.) RULE 3 of the IT Rules, 1962, prescribes the method of valuation of perquisites. Sub rr. (a) and (b) thereof provide for valuation of perquisites in the form of rent free furnished or unfurnished residence. We are concerned herein with sub r. (a) and the relevant extract of the rule is given as under :