P V RAJGOPAL Vs. UNION OF INDIA

JUDGEMENT

(1.) This batch of writ petitions relate to the question of deduction of tax at source with reference to the income chargeable under the head 'Salaries'.Pleadings :

(2.) Writ Petition No.27804/1995 has been filed by the Officers in the Research and Development Division of Bharat Heavy Electricals Limited. (A Government of India Undertaking). They obtained House Building Advance from H.D.F.C., L.I.C., and other Financial Institutions in respect of which monthly instalments are deducted from their salary. The difference between the rate of interest charged by the Financial Institutions and the rate of interest at which the House Building loans are generally sanctioned by the Company was reimbursed to the petitioners. On 23-3-1995, the Central Board of Direct Taxes (for short 'C.B.D.T.') informed the Chief Commissioner of Income-tax, Hyderabad that where the employer directly bears a part of the interest burden of the employees by reimbursing a portion of the interest payable by the employee in respect of building loans, such reimbursement is taxable as income from 'Salaries' under Section 17(2)(iii) of the Income-tax Act. This was forwarded to the Deputy Commissioner of Income-tax of each zone and circulated to the Company. This writ petition challenges that letter by claiming that the interest on reimbursement is not a perquisite and prays for a declaration that the said letter is illegal and ultra vires the provisions of the Income-tax Act.

(3.) Writ Petition No.26797/1997 has been filed by the trade union of the workers of Bharat Heavy Electricals Limited. It is stated that an order under Section 201 was passed on 21-3-1995 against the Company for the assessment years 1989-90 to 1993-94 raising a demand of Rs.1,61,16,601.00with penalty of Rs.72,94,881.00. Consequently, the Company issued a Circular on 5-7-1995 intimating the employees that the interest subsidy will be treated as a perquisite for deducting the tax at source. It is stated that a similar order for earlier year was set aside in revision and yet the Income-tax Department was persisting and for that reason it is prayed that there should be a direction not to treat the interest subsidy as a perquisite while deducting the tax at source.