IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH WEDNESDAY, THE 21ST JANUARY 2009 / 1ST MAGHA 1930 WP(C).No. 3894 of 2008(L) ------------------------- PETITIONER(S): --------------- 1. SURENDRAN V., AGED 43 YEARS S/O.LATE P.BHASKARAN NAIR, DGM (A & OP), BSNL ERNAKULAM, RESIDING AT EI TELECOM OFFICER'S QUARTERS, PERUMANOOR ERNAKULAM-15. 2. GEORGE MATHEW, AGED 47 YEARS S/O.LATE GEORGE K.M., DGM (STSR), BSNL ERNAKULAM, RESIDING AT V/2 BSNL MICROWAVE QUARTERS, DESHABHIMANI ROAD ERNAKULAM. 3. B.SRIRAMACHANDRA MURTY, AGED 38 YEARS S/O.B.V.G.KRISHNAMURTY, DGM (P & I), BSNL TRIVANDRUM, RESIDING AT EI, TELECOM QTRS. TELEPHONE EXCH. COMPOUND, MANACAUD, TRIVANDRUM-9. 4. C.RAJENDRAN, AGED 41 YEARS, S/O.LATE S.CHINNASWAMY, DGM (O & A), BSNL TRIVANDRUM, RESIDING AT E3, BSNL OFFICER'S QTRS. KESAVADASAPURAM, KAILSASNAGAR, TRIVANDRUM-4. 5. GEORGE T.MATHAI, AGED 48 YEARS S/O.T.S.MATHAI, PGMT TRIVANDRUM, BSNL, TRIVANDRUM RESIDING AT E1, BSNL QTRS. VELLAYAMBALAM TELE. EXCHANGE, ALTHARA JUNCTION, VELLAYAMBALAM, TRIVANDRUM-4. 6. SUKUMARAN N.K., AGED 36 YEARS S/O.LATE V.KRISHNA PILLAI, DGM (P&A), BSNL ALAPPUZHA, RESIDING AT QRATER NO.2 TYPE-VBSNL OFFICER'S QTRS. NEAR RLU EXCHANGE, ALLEPPEY-1. 7. SOBHANA V., AGED 42 YEARS PRINCIPAL RTTC,BSNL, TRIVANDRUM RESIDING AT E5, OFFICER'S QUARTERS TELEPHONE EXCHANGE, VELLAYAMBALAM, TVM-10. 8. TRILOKCHANDRA, AGED 34 YEARS DGM (ADMN.), BSNL, KANNUR RESIDING AT TYPE IV QUARTERS TELEPHONE BHAVAN, KANNUR-1. 9. P.T.MATHEW, AGED 45 YEARS S/O.P.M.THOMAS, GM (TELECOM), BSNL, KANNUR RESIDING AT OFFICER'S QUARTERS, THANA, KANNUR-2. 10. P.VENKATESHAM, AGED 37 YEARS S/O.KISTAIAH, DGM (O), BSNL, QUILON RESIDING AT BSNL OFFICER'S QUARTERS ASHRAMAM, QUILON. 11. ROY M.JACOB, AGED 42 YEARS S/O.THE LATE N.J.JACOB, DGM (P&A), BSNL, CALICUT RESIDING AT E3,BSNL QUARTERS, CHEVAYOOR CALICUT-17. 12. C.K.RADHAKRISHNAN, AGED 58 YEARS S/O.C.N.KRISHNAMURTHI., PGMT (BSNL), BSNL CALICUT, RESIDING AT PGM'S BUNGALOW, BSNL NEAR TELEPHONE EXCHAGNE WEST HILL, CALICUT-5. 13. N.HARI BABU, AGED 48 YEARS S/O.N.S.PRAKASA RAO, GM (O),BSNL, ERNAKULAM RESIDING AT E3, TELECOM OFFICER'S QTRS. GANDHINAGAR, ERNAKULAM-20. 14. P.SANJEEV, AGED 42 YEARS S/O.LATE DR.P.SUBHA RAO, DGM, MOBILE & BD, BSNL ERNAKULAM, RESIDING AT E6, TELECOM OFFICER'S QTRS PERUMANOOR, ERNAKULAM-15. 15. N.S.DEEPU, AGED 39 YEARS DGM, TP, LBSNL, ERNAKULAM, RESIDING AT TYPE V/1 QUARTERS, MICROWAVE STATION, DESHABHIMANI ROAD ERNAKULAM-682017. 16. C.SUNITHA, AGED 43 YEARS D/O.LATE M.NARAYANAN, DGMP, BSNL, PALAKKAD RESIDING AT TYPE 4 QUARTERS, 4TH FLOOR MAIN TELEPHONE EXCHANGE BLDG., TB ROAD PALAKKAD-14. 17. V.Y.AWALE, AGED 38 YEARS S/O.YASHWANT AWALE, DGM NSS,BSNL, TRICHUR RESIDING AT E1, BSNL QUARTERS, MISSION QUARTERS TRICHUR-1. 18. B.SUNILKUMAR, AGED 42 YEARS S/O.A.N.BHASKARA MENON, DGM BSS ERNAKULAM RESIDING AT AMRUTHAM, NEAR SREE GAYATHRI MARADU, ERNAKULAM, 682304. 19. SAJU GEORGE, AGED 42 YEARS S/O.K.V.GEORGE, DGM BSS, KOTTAYAM RESIDING AT KARUNNATTU- THAMARAPPALLIL P.K.ABRAHAM ROAD, KALLIASSERY, CHENGANNOOR. 20. THOMAS PHILIP, AGED 55 YEARS S/O.P.THOMAS, PGMT, BSNL, RESIDING AT SAIRA'S FARM HOUSE, BABY'S NAGAR ERAVIMANGALAM (PO), TRICHUR. 21. SATHISH RAM, AGED 43 YEARS, S/O.H.RAM DGM P&A, BSNL, KOTTAYAM, RESIDING AT E2 TELECOM QUARTERS,THAZHATHANGADY, KOTTAYAM. 22. R.SAJIKUMAR, AGED 40 YEARS S/O.LATE K.RAJAYYAN, DGM BB, BSNL, TRIVANDRUM RESIDING AT JOSH BHAVAN, ANCHALIKONAM AYIRA P.O. PARASSALA-TRIVANDRUM-695502. 23. ANILKUMAR R., AGED 39 YEARS S/O.RAVEENDRAN PILLAI G. DGM (BD & MKTG.), BSNL, TRIVANDRUM RESIDING AT TC 3/1924 (46) MARAPPALAM GARDENS, PATTOM-TRIVANDRUM. 24. B.V.RAMANA MURTY, AGED 52 YEARS S/O.B.PURUSHOTTAMAIAH, GM BB, BSNL, TRIVANDRUM RESIDING AT SNRA 75A, SREEPADMAM SUBHASH NAGAR EANCHAKKAL RD., VALLAKADAVU, TRIVANDRUM-8. 25. AMIT MISRA, AGED 46 YEARS GM(O) BSNL, TRIVANDRUM, RESIDING AT E2 TELECOM OFFICER'S COLONY, MANACAUD, TRIVANDRUM. 26. RITU RANJAN MITTAR, AGED 43 YEARS GM MOBILE, BSNL, TRIVANDRUM, RESIDING AT E1 BSNL, OFFICER'S QUARTERS, KAILASH NAGAR TRIVANDRUM-695104. 27. VINOD P.ABRAHAM, AGED 43 YEARS S/O.LATE P.I.ABRAHAM, GM MOBILE, BSNL TRIVANDRUM, RESIDING AT E2, BSNL OFFICERS QUARTERS KAILASH NAGAR, TRIVANDRUM-695104. 28. K.S.SREENIVASAN, AGED 55 YEARS S/O.K.SHAMANNA, CGMT BSNL, TRIVANDRUM RESIDING AT E6, TELECOM OFFICER'S QUARTERS BARTON HILL, LAW COLLEGE JUNCTION TRIVANDRUM-33. BY ADV. SRI.K.P.PRADEEP (PAYYANNUR) RESPONDENT(S): --------------- 1. CENTRAL BOARD OF DIRECT TAXES DEPARTMENT OF REVENUE MINISTRY OF FINANCE GOVERNMENT OF INDIA, NORTH BLOCK, NEW DELHI REPRESENTED BY ITS CHAIRMAN. 2. BHARAT SANCHAR NIGAM LTD. CORPORATE OFFICE (TAXATION), FIRST FLOOR BHARAT SANCHAR BHAVAN, JANPATH, NEW DELHI-110 001 REPRESENTED BY ITS CHAIRMAN. 3. DEPARTMENT OF TELECOMMUNICATIONS MINISTRY OF COMMUNICATIONS AND IT SANCHAR BHAWAN, ASHOKA ROAD, NEW DELHI-110 001 REPRESENTED BY ITS SECRETARY. 4. UNION O INDIA, REPRESENTED BY ITS SECRETARY, MINISTRY OF FINANCE NORTH BLOCK, NEW DELHI-110 001. ADV. SRI.V.R.KESAVAKAIMAL, SC, BSNL FOR R2 & 3 SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT SRI.JOSE JOSEPH, SC FOR IT SRI.MATHEWS K. PHILIP, SC FOR BSNL THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 21/01/2009, ALONG WITH WPC NO. 11807 OF 2008 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WPC.3894/08 APPENDIX PETITIONER'S EXHIBITS: P1 COPY OF COMMUNICATION DT 12.11.07. P2 COPY OF LETTER DT 9.10.07. P3 COPY OF PAY SLIP FOR NOVEMBER 2007 P3(A) COPY OF PAY SLIP FOR DECEMBER 2007 P4 COPY OF PAY SLIP FOR NOVEMBER 2007. P4(A) COPY OF PAY SLIP FOR DECEMBER 2007 P5 COPY OF RELEVANT PAGES FROM WEBSITE. P6 COPY OF ORDER DT 28.12.07. P7 COPY OF ORDER OF PROMOTION DT 23.5.08. P8 COPY OF COMMUNICATION DT 20.9.08. P9 COPY OF COMMUNICATION DT 26.8.08. // TRUE COPY // P.A. TO JUDGE 'C.R.' K.M. JOSEPH, J. ```````````````````````````````````````````````````` W.P.(C) Nos. 3894 and 11807 OF 2008 ```````````````````````````````````````````````````` Dated this the 21st day of January, 2009 J U D G M E N T In these writ petitions, what is under challenge is a clarification issued by the Central Board of Direct Taxes. The claim of the petitioners is that they are Central Government employees working on deemed deputation to BSNL. The question relates to the interpretation of Rule 3(1) of the Income Tax Rules, 1962. The provisions which are relevant are contained in Table I in relation of the value of residential accommodation provided in the Table. For the year effective up to 31.3.2005, the Table read as follows: WPC.3894&11807/08 : 2 : Sl. No. Circumstances Where the accommodation is unfurnished Where the accommodation is furnished ( 1) (2) (3) (4) (1) Where the accommodation is provided by Union or State Government to their employees either holding office or post in connection with the affairs of Union or State or serving with anybody or undertaking under the control of such Government on deputation. License fee determined by Union or State Government in respect of accommodation in accordance with the rules framed by that government as reduced by the rent actually paid by the employee. The value of perquisite as determined under col.(3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year. WPC.3894&11807/08 : 3 : Sl. No. Circumstances Where the accommodation is unfurnished Where the accommodation is furnished (2) Where the accommodation is provided by any other employer and (a) where the accommodation is owned by the employer; or (b) where the accommodation is taken on lease or rent by the employer. (i) 10% of salary in cities having population exceeding 4 lacs as per 1991 census; (ii) 7.5% of salary in other cities, in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee. Actual amount of lease rental paid or payable by the employer or 10% of salary whichever is lower as reduced by the rent, if any, actually paid by the employee. The value of perquisite as determined under col.(3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year. WPC.3894&11807/08 : 4 : 2. The Rule as it stands now also essentially runs on similar lines in regard to the classification. According to the petitioners, they are Central Government employees working on deemed deputation to BSNL. BSNL is an undertaking under the control of the Government. Therefore, it must be treated as they are under the first category, namely, it must be treated as a case where the accommodation is provided by the Central Government. In the writ petitions, they have also stated in Ground C as follows. “ C. Petitioners being the employees of central government on deemed deputation to the 2nd respondent, under the administrative control of DoT and being provided with housing accommodation owned by the 3rd respondent DoT, falls under serial No.1 of the Table provided for valuation of perquisites in Rule 3 of the Rules. The clarification given by the 1st respondent in Ext.P1 to the contrary is fallacious and illegal. Petitioners are/were paying rent as fixed by the government on the housing accommodation.” 3. A counter affidavit is filed on behalf of respondents 2 and 3. In the counter affidavit, it is stated as follows. WPC.3894&11807/08 : 5 : “ 5. BSNL became a company with effect from 1.10.2000 which is fully owned by the Government of India. All the assets and liabilities of DOT has been transferred to BSNL vide OM.No.2-30/2000 Restg. dated 30th September 2000. But the conveyance of deeds to BSNL are only under progress and yet to be completed. But BSNL is the custodian of all the assets of erstwhile DOT including the quarters and BSNL is allotting these quarters to all its staff irrespective of the fact whether they are BSNL absorbed staff or staff on deemed deputation. 6. As consequence of change of category of the employees after the BSNL became a company, the amendment made in relation to Sec.17(2)(ii) of the Income Tax Act in Finance Act of 2007 has operated retrospectively. The concession in the matter of rent of accommodation provided by the employer to the employees is deemed to have been provided by the employer himself and the same is chargeable to tax in the hands of the employees. Therefore, the petitioners cannot take a contention that the accommodation given to them cannot be subjected to Income Tax. Income Tax is chargeable because the BSNL is giving them the accommodation.” WPC.3894&11807/08 : 6 : 4. I heard learned counsel for the petitioners, learned counsel appearing for BSNL besides learned counsel appearing for the Income Tax department. Learned counsel for the petitioners would point out that in so far as the petitioners are Central Government employees and they are on deemed deputation to BSNL, the accommodation which is provided to them must be treated as accommodation provided under Clause 1. It is also pointed out that the ownership is not transferred from the Central Government to the BSNL. 5. Learned counsel for the petitioners also relies on the information downloaded from the website of the Income Tax department. Reliance is placed on Ext.P5 in WPC.No.3894/08. “ Under the old Rule 3 for purpose of valuation of the perquisite of unfurnished accommodation all employees are divided into three categories: Central & State Government Employees, employees of Public Sector undertaking and Semi-government organisation and others i.e, private sector employees. Under the new Rule 3, for purposes of valuation of perquisite of accommodation, employees are divided into just two categories instead (i) Govt. & State Govt. employees; (ii) Others. EXAMPLE - 1. Mrs.Kumar is a Central Government employee on deputation with a Public Sector Undertaking. WPC.3894&11807/08 : 7 : She is provided with rent free furnished accommodation. Her salary as per rule 3 - Rs.10,000 per month, licence fee for accommodation is Rs.300 per month, licence fee paid by her is Rs.300 per month. Furniture provide costs Rs.20,000. She is also provided with an Air conditioner hired at the rate of Rs.200 per month. What would be the value of perquisites of furnished accommodation. Licence fee as per Govt. rules Rs.300 x 12 = 3600 Less Rent paid Rs.300 x 12 = 3600 ----------------- --------- Value of perquisite Nil Nil Add.10% of cost furniture of Rs.20,000 Rs.2,000 2,000 Hire charge of A/c Rs.200 x 12 = 2,400 ----------------- --------- Total value of perquisite 4,400 per annum For all other, i.e., those salaried taxpayers not in employment of the Central Government and the State Government, the valuation of perquisite in respect of accommodation would be at prescribed rates. Employees of public sector units who are not on deputation from Central or State Governments would also fall in this category. The rate is 10% of 'salary' in cities having population exceeding four lakhs as per the 1991 census. For other places, ie., those with population upto 4 lakhs the perquisite value 7.5% of salary. EXAMPLE - 2. Mr. Sundaram is an employee in a WPC.3894&11807/08 : 8 : multinational bank. He is provided with rent-free furnished accommodation. His basic pay is Rs.15,000 per month.” 6. Therefore, it is contended that the clarification found as in paragraphs 3 and 4 of Ext.P1 which are extracted hereunder is bad in law. “ 3. As regards query in paragraph 4(4)(a) of your letter referred to above, it is to clarify that when a government employed works with a PSU on deemed deputation or deputation, his employer would be the PSU. 4. Coming to the situation mentioned in paragraph 4(4)(b)(i) of your letter, it is to clarify that when such an employee resides in an accommodation provided by the PSU, the perquisite value in his case would be similar to what is applicable to employees of all employees other than the Central Government and the State Government.” 7. Having heard both parties, I am of the view that there is no merit in the contention of the petitioners. The petitioners are Central Government employees on deputation to BSNL. BSNL may be a public sector company coming under the Government of India. It is also pointed out that it is owned by the Government of India. But, the issue that arises is the interpretation of the Rule as WPC.3894&11807/08 : 9 : pointed out by the learned counsel for the respondents and the question to be posed and answered is who provides the accommodation. Going by the pleadings, it would appear to be clear that the accommodation, as far as the petitioners are concerned, is provided not by the Central Government but by BSNL. In fact, going by the terms of the Rule, it may not even be strictly necessary to pose the question as to who owns the building. What is relevant is who provides the accommodation. For instance, even if a person is not the owner of the building, it may be open to him to take a building on lease or any other arrangement from the owner and to provide accommodation to his employees. In such a case also, it cannot be said that the employer has not provided the accommodation. Therefore, what is really relevant is who provides accommodation. In this case, going by the pleadings, in my view, it is clear that the accommodation is provided by the BSNL. The petitioners are at present working as employees of the BSNL. The clarification which is impugned in Ext.P1 also proceeds on the same lines. Having regard to the terms of paragraph 4 of Ext.P1, I would think that the view taken by the Central Board of Direct Taxes is in WPC.3894&11807/08 : 10 : keeping with the correct position obtaining in law and I see no reason to take a different view. There is no merit in the writ petitions and hence they are dismissed. Sd/- (K.M.JOSEPH, JUDGE) aks // TRUE COPY // P.A. TO JUDGE