Uttarakhand High Court
National Federation Of Insurance Field ... vs Union Of India (Uoi) And Ors. on 17 November, 2003
Equivalent citations: (2004)187CTR(UTTRANCHAL)180, [2004]265ITR84(UTTARANCHAL)
Author: S.H. Kapadia
Bench: S.H. Kapadia, Rajesh Tandon
JUDGMENT S.H. Kapadia, C.J.
1. By this writ petition the petitioners, namely, National Federation of Insurance Field Workers of India have, challenged the Notification dated September 25, 2001 (see [2001] 251 ITR (St.) 81), issued by the Central Board of Direct Taxes (hereinafter referred to for the sake of brevity as the C. B. D. T.).
Facts :
2. The petitioners have challenged the Notification dated September 25, 2001 (see [2001] 251 ITR (St.) 81), issued by the Central Board of Direct Taxes. The petitioners have challenged the notification on four grounds. Firstly, on the ground that the impugned notification is issued in purported exercise of power conferred on the Central Board of Direct Taxes by Section 295 of the Income-tax Act, 1961, read with Section 17(2) and Section 192(2C) of the Income-tax Act ; that by virtue of the impugned notification, the Central Board of Direct Taxes has purported to supplement Section 17(2) of the Income-tax Act by incorporating amendments in the existing Income-tax Rules. Secondly, the impugned notification is challenged on the ground of violation of the petitioner's fundamental rights under article 14 of the Constitution. In this connection, it is contended that the impugned notification is vague and arbitrary having no nexus with the object sought to be achieved. That it gives excessive powers to the Income-tax Officer to tax every item under a sum as a benefit without any guidelines. The third ground of attack to the impugned notification is that by the impugned notification, Rule 3 of the existing Income-tax Rules has been substituted. That a new rule has been inserted. That the impugned rule was required to be placed before Parliament as mentioned in Section 295 read with Section 296 of the Income-tax Act and since the impugned rule has not been placed before Parliament for approval, the impugned rule violates Section 295 read with Section 296 of the Income-tax Act, and, therefore, the impugned rule is bad in law. The last ground of attack is that the impugned rule is brought into force with effect from April 1, 2001. That the liability cannot be imposed on the assessee retrospectively. That the notification is dated September 25, 2001 (see [2001] 251 ITR (St.) 81), and the rule is made effective from April 1, 2001, and therefore it is bad in law, arbitrary and violative of the petitioner's fundamental rights under article 14 of the Constitution.
3. Petitioner No. 1 is a union of employees of the Life Insurance Corporation. It was established in 1956. Petitioner No. 2 is a general secretary of the Hald-wani Division of the union. Petitioner No. 1 is recognised by the Life Insurance Corporation. Members of petitioner No. 1 and petitioner No. 2 are adversely affected by the impugned notification as it seeks to tax free/concessional educational facilities, leave travel concession, interest free loan/concessional loan given by the Life Insurance Corporation to its employees, free meals, club membership, club expenditure, etc. The members of petitioner No. 1 are the employees of the Life Insurance Corporation, which is a State within article 12 of the Constitution. In this petition, petitioner No. 1 has also challenged the Circular dated March 2, 2002, issued by the Life Insurance Corporation giving effect to the impugned notification dated September 25, 2001 (see [2001] 251 ITR (St.) 81 (hereinafter referred to for the sake of brevity as impugned notification)).
Arguments :
4. Mr. Prashant Chandra, learned senior counsel appearing for petitioner No. 1, association, submitted that petitioner No. 1 is a Federation of Development Officers of Life Insurance Corporation (Haldwani Unit). That the said Development Officers are public servants as they are employees of the Life Insurance Corporation, which is a State under article 12 of the Constitution. In his arguments, he has categorised his challenge on the first ground by dividing the category of benefits into two parts. The impugned notification seeks to tax numerous benefits provided to the employees of the Life Insurance Corporation by the Life Insurance Corporation. However, it has been argued by learned counsel that the main item covered by the impugned notification is interest free loan/concessional loan given to the Development Officers by the Life Insurance Corporation vis-a-vis other facilities like free education, leave travel concession, free meals, etc.
5. As stated above, the first ground of challenge is that the impugned notification issued by the Central Board of Direct Taxes exceeds the power vested in the Central Board of Direct Taxes under Section 295 read with Section 17(2) and Section 192(2C) of the Income-tax Act. In this connection, it is argued that the Development Officers of the Life Insurance Corporation gain business for the Life Insurance Corporation. They have an important role to perform. They are required to possess cars in order to go to places to canvass business for the Life Insurance Corporation. For this purpose, they are given, as and by way of conveyance facilities, certain benefits. They are given interest free loan/concessional loan so that they can buy cars by which they can travel quickly and gain business for the corporation. That essentially, the Life Insurance Corporation gives such loans to the Development Officers to facilitate their working. That earlier the cars stood in the name of the Corporation. But with the increase in the road tax liability, it was decided by the Corporation to permit the development officers to buy the cars in their own names by giving interest free loans to the development officers. That this was a business decision taken by the Life Insurance Corporation. That the cars were hypothecated to the Life Insurance Corporation. Hence, this facility was a part of service condition. Hence, it was a necessity. Hence, it could not be treated as a perquisite. It was further argued that interest free loan/concessional loan given by the Life Insurance Corporation had no co-relation with salary as defined under Section 17 of the Income-tax Act and further that such interest free loan/concessional loan had no co-relation with the computation of salary income under the scheme of Sections 15; 16 and 17 of the Income-tax Act. In this connection, reliance was placed by learned counsel for the assessee on the judgment of the Supreme Court in the case of V.M. Salgaocar and Bros. Pvt. Ltd. v. CIT [2000] 243 ITR 383. It was submitted, relying on the above judgment, that interest free loan/concessional loan was not a perquisite. That it was not a salary. That it had no co-relation with salary. That interest free loan/concessional loan had no co-relationship with Sections 15, 16 and 17 of the Act, That it has been so held by the above judgment and therefore, it was not open to the Central Board of Direct Taxes, which was a rule-making authority, to identify "interest free loan/concessional loan" as a fringe benefit under Section 17(2)(vi) (as inserted by the Finance Act, 2001) with effect from April 1, 2002. In this connection, it was further argued that under Section 17(2)(vi) the value of a fringe benefit/amenity had to be prescribed. It was argued that Parliament, in its wisdom, had delegated its authority to the Central Board of Direct Taxes to value a fringe benefit/amenity. That, however, Parliament had not authorised the Central Board of Direct Taxes to identify interest free loan/concessional loan as a fringe benefit. It was argued that in the above judgment of the apex court in the case of V. M. Salgaocar and Bros. Pvt. Ltd. [2000] 243 ITR 383, the apex court has ruled that interest free loan/concessional loan is not a perquisite and if so, it was not open to the Central Board of Direct Taxes to say that interest free loan/concessional loan is a fringe benefit. It was argued that the Central Board of Direct Taxes was a rule-making authority. That Central Board of Direct Taxes had to act within the parameters laid down by Parliament under Section 17(2)(vi). That under Section 17(2)(vi) the Central Board of Direct Taxes was not empowered to value the fringe benefit and the Central Board of Direct Taxes was not empowered to identify interest free loan/concessional loan as a fringe benefit. That under the circumstances, the Central Board of Direct Taxes had issued the notification, which was not only contrary to Section 17(2)(vi) of the Income-tax Act, but it was also contrary to the judgment of the apex court in Salgaocar's case [2000] 243 ITR 383. Hence, it was submitted that the impugned notification exceeds the authority vested in the Central Board of Direct Taxes under Section 295 of the Income-tax Act. It was argued that the Central Board of Direct Taxes was empowered to make rules for carrying out the purposes of the Income-tax Act subject to the control of the Central Government. That under Section 295(2)(c) the Central Board of Direct Taxes was entitled to make rules for determination of the value of any perquisite. However, the Central Board of Direct Taxes was not entitled to identify any item as a fringe benefit. He argued that identification of any item as a fringe benefit was for Parliament. Hence, the impugned notification issued by the Central Board of Direct Taxes enacting rule 3 was issued in excess of the authority vested in the Central Board of Direct Taxes under Section 17(2)(vi) read with Section 295(2)(c). In this regard, it was further argued that Section 192 of the Income-tax Act falls in Chapter XVII, which deals with collection and recovery of taxes. According to learned counsel, every employer is responsible for deducting tax at source from salary income and, on such deduction, such employer shall furnish a statement giving correct particulars of perquisite provided to the employee and the value thereof in such form as may be prescribed. That even under Section 192(2C) the Central Board of Direct Taxes was required to prescribe only the value of perquisites and the Central Board of Direct Taxes was not empowered to identify any item as a perquisite, which function was that of Parliament. It was, therefore, submitted that the impugned notification was issued by the Central Board of Direct Taxes in excess of its authority/without any authority and therefore, it was bad in law and it violated Section 17(2)(vi) read with Section 192(2C) and Section 295(2)(c). It was further pointed out that by the Taxation Laws (Amendment) Act, 1984, Section 17(2) and Section 40A of the Income-tax Act were amended. That by the Taxation Laws (Amendment) Act, 1984, Parliament amended the Income-tax Act and taxed interest free loan/concessional loan to employees for the purposes of building a house/motor car under Section 17(2)(vi) with effect from April 1, 1985. That by the same Taxation Laws (Amendment) Act, 1984, Section 40A was also amended so as to put a ceiling on allowable deduction claimed by the employers for giving interest free loan/concessional loan to employees. However, by the Finance Act, 1985, taxing of interest free loan/concessional loan as perquisites was deleted. That Clause (vi) of Section 17(2)(vi) was deleted. However, there was no deletion under Section 40A(5)(vi) and consequently, Section 40A(5)(vi) came before the Supreme Court in Salgaocar's case [2000] 243 ITR 383, where it has been held that giving of interest free loan/concessional loan was not a perquisite. Therefore, it was argued that if the apex court has declared a particular item not to be a perquisite, it is not open to the Central Board of Direct Taxes to overrule the judgment of the apex court by issuing the impugned notification. Hence, the impugned notification should be struck down.
6. As stated above, apart from interest free loan/concessional loan, the Central Board of Direct Taxes has purported to tax "other items" like free education, leave travel concession, free meals, etc. In this connection, it was submitted that Clause (8) of the impugned notification is all pervasive.. That under that clause, every conceivable benefit under the sun could be taxed by the Income-tax Officer as a perquisite. It is argued that Clause (8) confers excessive powers on the Income-tax Officer to treat any and every item as perquisite. That Clause (8) is vague, unjust and unfair. It is further argued that the rules are required to be framed by the Central Board of Direct Taxes under Section 295(1) of the Income-tax Act In this connection, it was submitted that under Section 291(2)(c), the Central Board of Direct Taxes was required to make rules, which were proper and reasonable. It was argued that by giving excessive powers to the Income-tax Officer under Clause (8) of the impugned notification, the Central Board of Direct Taxes has violated Section 295(2)(c). It is further argued that while computing the value to be given to interest free loan/concessional loan, the Central Board of Direct Taxes has standardised the rate of interest at 10 per cent, and 13 per cent., respectively, in respect of housing loans and other loans, which is unfair and unreasonable in the following interest market. It was submitted that the HDFC has been giving loans for housing purposes at 8.25 per cent, and for other loans the interest charged by the HDFC is 8.75 per cent, whereas the Income-tax Officer is empowered under the impugned notification to take into account interest at 10 per cent, and 13 per cent., respectively, and that too, on the reducing balance and therefore, the impugned notification is unjust, unreasonable and violative of Section 295(2)(c). It was further argued that while issuing notification, the Central Board of Direct Taxes was required to consider the hardship on the salaried assessees particularly when it seeks to impose interest at 10 per cent, and 13 per cent., respectively, on a reducing balance. Hence, on the second ground of attack, it was submitted that the impugned notification was bad in law, vague, arbitrary, unreasonable and contrary to the provisions of the Income-tax Act.
7. The third ground of challenge advanced on behalf of the petitioners is that by the impugned notification rule 3 has been inserted in the Income-tax Rules under the caption "Valuation of perquisites". The notification has been followed by the 22nd Amendment to the Rules (see [2001] 251 ITR (St.) 81). The said rule have come into force with effect from April 1, 2001. It was argued that under Section 296 of the Income-tax Act, such rules and notifications were required to be placed before Parliament. That Section 296 is a safeguard against the usurpation of legislative functions of Parliament by the rule-making authority, i.e., the Central Board of Direct Taxes. It was argued that in the petition, it has been alleged that the rules/impugned notification was not placed before Parliament. That there is no denial to this averment by the Revenue. It was, therefore, argued that Section 296 had been violated and consequently, the impugned notification/rule was non est and voild ab initio.
8. Lastly, it has been argued that the impugned notification is dated September 25, 2001 (see [2001] 251 ITR (St.) 81), but it has been brought into force with effect from April 1, 2001. In this connection, it was further submitted that Section 17(2)(vi) was inserted by the Finance Act, 2001, with effect from April 1, 2002, and, consequently, it was not open to the Central Board of Direct Taxes to issue the impugned notification dated September 25, 2001, with effect from April 1, 2001. It was further argued that Clause (vi) was inserted in section 17(2) by Parliament by the Finance Act, 2001, with effect from April 1, 2002, and yet the impugned rules, 2001, have been brought into force with effect from April 1, 2001, and, therefore, it is bad in law and contrary to Section 17(2)(vi). In this connection, it was argued that the liability cannot be imposed on the assessee retrospectively. That the impugned rules have been brought into force from April 1, 2001, when Clause (vi) of Section 17(2) of the Income-tax Act came into force by the Finance Act, 2001, with effect from April 1, 2002. Therefore, the rule was bad in law and liable to be struck down.
9. Per contra, Mr. Posti, learned counsel for the Department, contended that the word "salary" has been defined under Section 17(1) of the Income-tax Act. That it includes pension, gratuity, fees, etc. That the word "salary" is defined under Section 17(1). That it has an inclusive definition. That similarly Section 17(2) defines the word "perquisite" to include value of rent-free accommodation, value of any benefit or amenity given to the employee either free of cost or at concessional rate, the value of any other fringe benefit or amenity as may be prescribed. Mr. Posti, learned counsel for the Revenue, argued that under Section 17(2)(vi), the Central Board of Direct Taxes is authorised not only to prescribe the value of any other fringe benefit, but it is also authorised to identify any benefit or amenity as a fringe benefit/amenity. He emphasised the words "as may be prescribed" and he contended that this expression "as may be prescribed" is very relevant. It indicates that the Central Board of Direct Taxes is authorised not only to prescribe the value of a perquisite, but it is also authorised to identify any benefit or amenity as a fringe benefit. In this connection, he invited our attention to Section 2, which defines the word "prescribe" to mean as prescribed by the rules made under the Act. He also placed reliance on Section 2(12) which defines the word "Board" to mean the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963. He further contended that the Central Board of Direct Taxes is empowered to frame rules under Section 295(1). He also invited our attention to Section 15 and Section 16 of the Income-tax Act and he contended that Section 15, Section 16 and Section 17 should be read together and if they are read together, it is clear that interest free loans/concessional loans and other free benefits/amenities like free meals, free education, credit card facilities, etc., have co-relation with the word "salary". He further contended that salary is one of the heads of income. That under Chapter IV, one of the heads of income is salary. That Chapter IV covers Sections 15, 16 and 17. Hence, he argued that interest free loans/concessional loans do have co-relationship with salary. He also invited our attention to the speech delivered by the Finance Minister at the time of introduction of the Finance Bill, 2001, under which he proposed to insert Clause (vi) to Section 17(2) so as to give an authority to the Central Board of Direct Taxes to determine the value of interest free loan/concessional loan on the basis of its cost to the employer. He, therefore, contended that there is no merit in the argument advanced on behalf of the petitioners that no policy has been prescribed by Parliament while enacting/ inserting Clause (vi) in Section 17(2) of the Income-tax Act and that the Central Board of Direct Taxes has framed rules in excess of its authority. In this connection, he relied upon the judgment of the Karnataka High Court in the case of BHEL Employees' Association v. Union of India [2003] 261 ITR 15. He also relied upon the judgment of the Supreme Court in the case of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308. He, therefore, contended that there is no merit in the first ground of attack advanced on behalf of the petitioners to the validity of the rules/notification.
10. Mr. Posti, further contended that the Central Board of Direct Taxes was empowered to prescribe rules not only for interest free loan/concessional loan, but it was also empowered to enact rules for all other fringe benefits and therefore, the Central Board of Direct Taxes has valued each of the other benefits given to the employees like free meals, free education for children, free club membership, leave travel concession, etc. He contended that no factual basis is alleged by the petitioners to show that the interest on loans given by the H. D. F. C was 7.75 per cent, (for housing loans to salaried persons) and 8.25 per cent, for other loans. He argued that, in fact, the lending rates of nationalised banks is more than 10 per cent, and 13 per cent., respectively, and, therefore, the impugned notification is not arbitrary, unreasonable and unjust and it is in consonance with Section 295(2)(c). He further argued that the judgment of the Supreme Court in Salgaocar's case [2000] 243 ITR 383 has no application to the facts of the present case. He contended that when the apex court decided the matter in Salgaocar's case [2000] 243 ITR 383, there was no provision similar to Section 17(2)(vi) and therefore that judgment has no application to the present case.
11. Mr. Posti, next contended that the notification and the rules have been placed before Parliament before the amendment came to be made in the Income-tax Rules. In this connection, he relied upon the judgment of the Karnataka High Court in the above case of BHEL Employees' Association [2003] 261 ITR 15 and, therefore, there was no violation of the provision of Section 296 of the Income-tax Act.
12. Mr. Posti next contended that the Finance Act, 2001, came into force with effect from April 1, 2002. He contended that under the Income-tax Act, one has to go by the assessment year relevant to the previous accounting year. He argued that the Finance Act, 2001, specifically applied the amended law with effect from April 1, 2002, i.e, for the assessment year 2002-2003 relevant to the previous year ending March 31, 2002, and, therefore, there was no retrospective operation of the impugned rules/notification as alleged. In this connection, he relied upon the judgment of the Karnataka High Court in the case of BHEL Employees' Association [2003] 261 ITR 15, which has held that there was no retrospective effect given by the impugned rules/notification. Mr. Posti, therefore, contended that there is no merit in the writ petition.
Points for determination :
(i) Whether the Central Board of Direct Taxes exceeded its authority in issuing the impugned notification and whether the Central Board of Direct Taxes usurped the essential legislative functions of Parliament in issuing the impugned notification ?
(ii) Whether the impugned notification violated the provisions of Section 17(2)(vi) by identifying interest free loan, leave travel concession, free meals, club membership, etc., as fringe benefits under Section 17(2)(vi) ?
(iii) Whether Clause (8) of the impugned notification is arbitrary, unreasonable, vague and violative of article 14 and whether by the said notification excessive powers have been given to the Income-tax Officer to tax any and every benefit/amenity as fringe benefit under Section 17(2)(vi) ? Whether it is in breach of Section 295(2)(c) of the Income-tax Act ?
(iv) Whether the impugned notification/rule is bad in law for non-compliance with the provisions of Section 296 ?
(v) Whether the impugned notification/rule which came into force with effect from April 1, 2001, when the Finance (No. 2) Act of 2001 has come into force with effect from April 1, 2002, was retrospective and therefore bad in law ?
Findings :
Issue No. 1 :
13. At the outset, we may point out that the validity of Section 17(2)(vi) has not been challenged. Hence, we do not wish to go into the arguments advanced on behalf of the petitioners that no policy is stipulated by Parliament while enacting Section 17(2)(vi). Taxable salary, under the scheme of Sections 15 and 16, includes the value of any benefit or amenity granted or provided free of charge or at concessional rate by the employer. The word "salary" is defined under Section 17(1). It is an inclusive definition. Similarly, the word "perquisite" is defined under Section 17(2). It is also an inclusive definition. The word "perquisite" covers the value of rent-free accommodation, the value of any benefit or amenity granted or provided free of cost or at concessional rate in certain stipulated cases [see Section 17(2)(iii)]. Accordingly, free medical facility provided to the employees was required to be included in the taxable income. However, in view of the circulars of the Central Board of Direct Taxes, the value thereof to a certain extent was not taxable. This was the position at one point of time. Now even the section has been amended. But even here, the circulars have to be issued enlisting the diseases and hospitals for claiming exemption. The point is mentioned only to show that the function of the Central Board of Direct Taxes under Section 295(1) of the Income-tax Act is not only to frame rules evaluating the benefit or amenity, but also to itemise such benefits or amenities. In this connection, it may be noted that under Section 295(1) the Central Board of Direct Taxes is empowered to make rules to carry out the purposes of the Act. Further Sections 15, 16 and 17 all fall under Chapter IV, which deals with computation of total income. Under Section 14, all incomes have to be classified under various heads to charge and compute income-tax. That Section 15 is the charging section in respect of salary income, whereas Sections 16 and 17 help the Department in computing such income. Moreover, Section 17(2)(iii) refers to the value of any benefit or amenity provided free of cost by the employer. However, there were numerous disputes pending in various High Courts not only on valuation but also on identification of benefit or amenity. In some cases, it was argued that small benefits like club membership and credit card facilities did not constitute any substantial benefit. To put an end to such conflict, Parliament inserted Clause (vi) in Section 17(2) by the Finance Act No. 14 of 2001 with effect from April 1, 2002, by stating that even the value of any other fringe benefit as may be prescribed by the Central Board of Direct Taxes be included within "perquisite" as defined under Section 17(2). The words "as may be prescribed" not only refer to value, but also to itemisation/identification of a particular benefit or amenity. Hence, the entire policy of Parliament is to cover all types of benefits/ amenities, including substantial and fringe benefits within the word "perquisite". This policy is discernible from the scheme of Sections 14, 15, 16 and 17 of the Income-tax Act. Further, the Legislature has left it to the Central Board of Direct Taxes as the Central Board of Direct Taxes is an expert rule-making authority. The concept of perquisite, so as to include benefit, can be understood, but not defined. Hence, the Legislature has left it to the Central Board of Direct Taxes to define the benefit or amenity and to assign it a value so that the latter could form part of the total income (see judgment of Supreme Court in Lohia Machines ltd. v. Union of India [1985] 152 ITR 308). Hence, we do not find any merit in the argument advanced on behalf of the assessee that interest free loan/concessional loan has no co-relation with the word "salary" and that the Legislature has not indicated any policy while enacting Section 17(2)(vi) and that the Central Board of Direct Taxes had usurped the legislative function of Parliament in enacting the impugned rules.
Issue No. 2 :
14. It has been argued before us that interest free loan/concessional loan has no co-relationship with "salary" as defined under Section 17(1) read with Sections 15 and 16 of the Income-tax Act. We do not find any merit in this argument. Under Chapter IV of the Income-tax Act we have computation of total income under various heads, one such head being "salary". "Salary" is defined under Section 17(1). It is an inclusive definition. While computing taxable income under the head "Salary" the value of rent free accommodation and the value of any other benefit or amenity has to be taken into account [see section 7(2)(iii)]. However, in addition to Section 17(2)(iii) the Legislature has introduced Section 17(2)(vi) to cover fringe benefits vis-a-vis substantial benefits. The judgment of the Supreme Court in Salgaocar's case [2000] 243 ITR 383 has no application as it was not under Section 17(2)(vi). In fact, Section 17(2)(iii) read with Section 17(2)(vi) is meant to cover all types of benefits and amenities. The judgment of the Supreme Court in Salgaocar's case [2000] 243 ITR 383 is under Section 40A(5), the object of which is different, i.e., not to allow companies to claim deductions beyond the prescribed limit. Lastly, the purpose of the Central Board of Direct Taxes in issuing the impugned notification is to guide the concerned Assessing Officers, who have to calculate the value of such fringe benefits and amenities while computing the total income of the assessees. It may be mentioned that with globalisation new concepts are coming into the economy. That new terms and conditions of payment of salaries are introduced. That new benefits and amenities are being introduced by multinationals to attract younger talent. Hence, one cannot exhaustively define fringe benefits. Hence, the Legislature has left it to the Central Board of Direct Taxes to prescribe and identify these benefits. It is for the Central Board of Direct Taxes to issue circulars from time to time to carry out the purpose of the Act. Interest free loan/concessional loan is a benefit or amenity. In the ordinary course, an employee is required to borrow at market rates, but in the case of interest free loan/concessional loan, he is not to pay interest at market rate. Hence, to this extent, his liability is discharged by the employer. Hence, it is a perquisite. The same is the case with leave travel concession, club membership, free meals, etc. Hence, interest free loan/concessional loan has a nexus with the scheme of Sections 15, 16, and 17 of the Income-tax Act.
Issues Nos. 3 and 4 :
15. We do not find any merit in the argument of the petitioners that the impugned notification/rule is vague and arbitrary and that it gives excessive powers to Income-tax Officers. Firstly, a concept like fringe benefits is difficult to define. Secondly, they can never be exhaustively defined and therefore the Legislature has left it to the Central Board of Direct Taxes. Thirdly, Clause (8) of the impugned notification shows that the Central Board of Direct Taxes has not defined fringe benefits exhaustively. It has felt that even after covering various items of benefit some may be left out and therefore Clause (8) is a residuary clause, which empowers the Income-tax Officer to treat a benefit or amenity as a perquisite if not enlisted in earlier clauses. Hence, the impugned notification is not vague, unreasonable and arbitrary as alleged.
16. Here it may be further mentioned that according to the petitioners, rule 3(7) values the interest free loan/concessional loan borrowed for housing at 10 per cent, and for other purposes at 13 per cent., which is excessive in the falling interest market. It was argued that personal loans are given by the H. D. F. C. at rates lower than 10 per cent, and yet the Central Board of Direct Taxes has valued such loans at 10 per cent. However, by counter the Central Board of Direct Taxes has stated that they are considering this aspect Be that as it may, the Central Board of Direct Taxes can always be moved by associations/unions with appropriate representations in this regard as the Central Board of Direct Taxes is empowered under Section 295 to issue circulars as and when interest rates stand reduced. Lastly, the power of the Central Board of Direct Taxes under Section 295(1) to make rules is subject to further safeguard of the rules being placed before Parliament under Section 296 of the Income-tax Act. Hence, there is no merit in the above arguments. Hence, the impugned notification is in accordance with Section 295(2)(c) and Section 296(1) of the Income-tax Act. Lastly, it may be mentioned that rule 3 was placed before Parliament as indicated by the Income-tax (Twenty-second Amendment) Rules, 2001, with effect from April 1, 2001. In the counter affidavit filed by the Department, averment is made to the effect that the impugned notification amending rule 3 of the Income-tax Rules was placed before Parliament under Section 296 of the Income-tax Act on December 7, 2001, in the Lok Sabha and on December 18, 2001, in the Rajya Sabha. Therefore, there is no merit in the argument of the petitioners that the amended rule 3 was bad in law for non-compliance of Section 296(1) of the Income-tax Act. However, the Central Board of Direct Taxes is directed to consider lower rate of interest in valuing fringe benefits in line with market rates of interest.
Issue No. 5 :
17. It is argued on behalf of the petitioners that the impugned notification/rule is bad in law as it is retrospective, that no liability could be imposed retroactively. We do not find any merit in this argument. It is true that Section 17(2)(vi) was introduced by the Finance Act of 2001 with effect from April 1, 2002. Hence, it covers the assessment year 2002-2003 relevant to the accounting year ending on March 31, 2002. Hence, the impugned notification with effect from April 1, 2001, is not retrospective as alleged (see CIT v. H. E. H. Mir Osman Ali Bahadur [1966] 59 ITR 666 (SC)).
18. For the aforestated reasons, there is no merit in the writ petition. The writ petition is dismissed. No order as to costs.