Case: Arun Kumar  Vs. Union Of India

(5). We are, however, not inclined to enter into larger question as in our view, it is not necessary in the light of statutory provision relating to concession in the matter of rent respecting any accommodation in Section 17(2)(ii) of the Act. We are of the view that Rule 3 would apply only to those cases where concession has been shown by an employer in favour of an employee in the matter of rent respecting accommodation. Thus, whereas charging provision is found in the Act of Parliament [Section 17(2)(ii)], machinary component is in the subordinate legislation (Rule 3). The latter will apply only after liability is created under the former. Unless the liability arises under Section 17(2)(ii) of the Act, Rule 3 has no application and the method of valuation for calculating concessional benefits cannot be resorted to. Mr. Dhankar, who appeared for federation of employees, invited our attention to Report of the Pay Revision Committee for Public Sector Executives, published by the Government of India in October, 1998. Taking into account the crucial and pivotal role played by Public Sector Undertakings and considering their importance in the light of the fact that it is a limb of Government and State within the meaning of Article 12 of the Constitution, the Government of India had constituted a Committee headed by Honble Mr. Justice S. Mohan (Retd.). The Committee considered various issues including issues as to pay scales, perquisites etc., of employees of Public Sector Undertakings. The counsel referred to various recommendations made by the Committee and submitted that different treatment shown by the authorities to employees of Government and employees of Public Sector Undertakings is arbitrary, discriminatory and unreasonable being violative of Articles 14, 16 and 19 of the Constitution. He, therefore, submitted that the benefits extended to Government employees ought to have been extended to employees of Public Sector Undertakings as well. We are unable to uphold the argument. As already indicated earlier, the High Court of Calcutta in the impugned order considered the question and held classification between Government employees and employees of Companies, Corporations and other Public Undertakings as reasonable. Though the doctrine of equity has no place in taxing statutes, an attempt has been made by the rule making authority to introduce equity by keeping in view the ground reality. According to the High Court, it cannot be disputed that in the sphere of income, Government employees are far below to the employees of Companies, Corporations and other Undertakings. The benefits which have been provided to employees of Corporations, Companies and other Undertakings are much more than the benefits extended to Government employees. If on the basis of the factual scenario, a classification is made between two classes of employees, it cannot be struck down as ultra vires. 64. It is no doubt true that Article 14 guarantees equality before the law and confers equal protection of laws. It is also true that it prohibits the State from denying persons or class of persons equal treatment provided they are equals and are similarly situated. But, it is equally well established that Article 14 seeks to prevent or prohibit a person or class of persons from being singled out from others situated similarly. If two persons or two classes are not similarly situated or circumstanced, they cannot be treated similarly. To put it differently, Article 14 prohibits dissimilar treatment to similarly situated persons, but does not prohibit classification of persons not similarly situated, provided such classification is based on intelligible differentia and is otherwise legal, valid and permissible. Very recently in Confederation of Ex-Servicemen Associations & Ors. v. Union of India & Ors. decided on August 22, 2006, the Constitution Bench had an occasion to consider a similar question. Referring to State of West Bengal v. Anwar Ali Sarkar & Another, (1952 SCR 284 : AIR 1952 SC 75 ) and several other cases, one of us (C.K. Thakker, J.) observed that it is clear that every classification to be legal, valid and permissible, must fulfill the twin-test, namely;(i) the classification must be founded on an intelligible differentia which must distinguish persons or things that are grouped together from others leaving out or left out; and (ii) such a differentia must have rational nexus to the object sought to be achieved by the statute or legislation in question. In our opinion, distinction sought to be made by the rule making authority between employees of the Central Government as well as State Governments and other employees i.e., employees of Companies, Corporations and other Undertakings is reasonable classification based on intelligible differentia. It has also rational nexus to the object sought to be achieved. Rule 3 takes into account service conditions of employees of Government vis-Ã -vis employees of Corporations, Companies and other Undertakings and prescribes method of calculating value of all perquisites. Such a provision, in our considered opinion, cannot be held ultra vires Article 14 of the Constitution. Even under the Constitution, such a distinction has been upheld in several cases by this Court. Article 311 of the Constitution confers certain benefits which are not available to employees of Corporations, Companies and other Undertakings. It was contended on behalf of those employees that such Corporations, Companies and Undertakings were covered by the definition State within the meaning of Article 12 of the Constitution and they also must be granted all the benefits which had been granted to employees of the Government. The contention was, however, negatived by this Court holding that application of Part XIV of the Constitution would be limited to Services under the Union and the States and not to other employees [vide S.L. Agarwal v. General Manager, Hindustan Steel Ltd; (1970) 1 SCC 177 : (1970) 3 SCR 363 ; Ajit Kumar Nag v. General Manager, Indian Oil Corporation Ltd., (2005) 7 SCC 764] . We, therefore, see no substance in the argument that the impugned provision differentiating employees of Government and employees of Companies, Corporations and other Undertakings is arbitrary and objectionable. 65.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]As we have already indicated earlier, Rule 3 prior to its amendment in 2001 was totally different. It dealt with the method of calculation of concession keeping in view the concept of fair rental value. In the light of the principle and phraseology in Rule 3, the rule making authority provided an opportunity to the assessee to satisfy the Assessing Officer that the rent sought to be recovered from the employee could not be said to be concession as it was fair rent, reasonable rent, market rent or standard rent. When the rule is amended and the concept of fair rental value has been done away with and the only method which has been adopted is to calculate the rent on the basis of population of the city in question, it cannot be successfully contended that the intention of the rule making authority was to afford an opportunity to the assessee to convince the Assessing Officer that the rent recovered by the employer from his employee was not in the nature of concession. Nor a court of law would, by interpretative process, grant such opportunity to the assessee so as to enable him to convince the Assessing Officer that the rent fixed was not covered by Section 17(2)(ii) of the Act and therefore was not a perquisite. We are, therefore, unable to accept the argument of Mr. Salve and allow import of the principles of natural justice in Rule 3Considering several cases on the point, the Court held that Section 295 of the Act conferred power to frame Rules on a high functionary i.e. Central Board of Direct Taxes (CBDT), subject to the control of Central Government. It was also observed that the Board consisted of very high functionaries of the Government of India who were expected to have deep knowledge about the policy as envisaged for imposition of tax in the country. When power was conferred on such Expert Body and after considering the relevant aspects, it took a decision, it could not be said to be unlawful or unwarranted. The legislative policy had been reflected in Section 17 of the Act and the Rule Making Authority, merely implemented the said policy on the basis of essential legislative functions performed by Parliament. The Court, therefore, negatived the contention of excessive delegation. Any difficulty or hardship in an individual case or to a particular person would not make the Rule ultra vires or unconstitutionalIn our opinion, the submission of Mr. Parasaran, learned Additional Solicitor General deserves to be accepted that when the concept of fair rent, market rent, reasonable rent or standard rent is no more relevant or germane in deciding the question, it was open to the Legislature to empower the rule making authority to provide the method for calculation of concession. We are further of the view that the criterion which was adopted by the rule making authority in treating cities having population of less than four lakhs and more than four lakhs cannot be said to be arbitrary or unreasonable and fixation of rent on the basis of population of city cannot be interfered with in exercise of power of judicial review. The said argument, therefore, has no substance and cannot be upheld. But in our opinion, the fundamental question of applicability of Section 17 (2) of the Act still remains. It cannot be gainsaid that Section 17 (2) would apply only if there is perquisite. Indisputably, the definition of perquisite is inclusive in nature and takes within its sweep several matters enumerated in clauses (i) to (vii). Section 17 (2) (ii) declares that the value of any concession in the matter of rent respecting any accommodation provided to the employee by his employer would be perquisite. Nevertheless it must be a concession in the matter of rent respecting any accommodation provided by the employer to his employeeFrom the above decisions, it is clear that existence of jurisdictional fact is sine qua non for the exercise of power. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. Once the authority has jurisdiction in the matter on existence of jurisdictional fact, it can decide the fact in issue or adjudicatory fact. A wrong decision on fact in issue or on adjudicatory fact would not make the decision of the authority without jurisdiction or vulnerable provided essential or fundamental fact as to existence of jurisdiction is presentIn our opinion, the submission of Mr. Salve is well founded and deserves to be accepted that concession under clause (ii) of sub-section (2) of Section 17 of the Act is a jurisdictional fact. It is only when there is a concession in the matter of rent respecting any accommodation provided by an employer to his employee that the mode, method or manner as to how such concession can be computed arises. In other words, concession is a jurisdictional fact; method of fixation of amount is fact in issue or adjudicatory fact. If the assessee contends that there is no concession, the authority has to decide the said question and record a finding as to whether there is concession and the case is covered by Section 17 (2) (ii) of the Act. Only thereafter the authority may proceed to calculate the liability of the assessee under the Rules. In our considered opinion, therefore, in spite of the legal position that Rule 3 is intra vires, valid and is not inconsistent with the provisions of the parent Act under Section 17 (2) (ii) of the Act, it is still open to the assessee to contend that there is no concession in the matter of accommodation provided by the employer to the employee and hence the case did not fall within the mischief of Section 17 (2) (ii) of the Act. There is yet another aspect of the matter which is important and having a bearing on the question. We have extracted Section 17(2)(ii) in the earlier part of the judgment. It does not contain any deeming clause that once it is established that an employee is paying rent less than 10 per cent of his salary in cities having population of four lakhs or 7.5 per cent in other cities, it should be deemed to be a concession within the meaning of the Act and such employee must be deemed to receive a concession in the form of perquisite in the payment of rent. An employer may provide residential accommodation to his employees for several reasons. It is also possible that for making available staff quarters/ colonies/accommodations, State Governments or Central Government may provide land to Public Sector Undertakings/ Companies/ Corporations at a concessional rate imposing appropriate conditions including amount of rent, if any, to be recovered by the employer. Mr. Salve also invited our attention to certain decisions wherein it had been held that residential facility provided by the employer to the employee was not held perquisite within the meaning of Income Tax laws. Mr. Salve placed reliance on a decision in Alexander Tenant v. Robert Smith, 1892 AC 150 (HL). There, the appellant who was an agent for the Bank of Scotland at Montrose, had been granted accommodation by his employer as part and parcel of his duty. The House of Lords held that he was bound as part of his duty as agent to live in the bank house as the nature of the employment required that he should live in his masters dwelling house or business-premises instead of occupying a separate residence of his own. According to the Court, such an occupation could not be regarded as part of appellants income. He occupied the bank house as a part of his duty. It was observed that the situation could not be distinguished from that of the Master of a Ship who was spared the cost of house rent while afloat. His cabin, does not, on that account become a part of his incomeThe counsel also submitted that the object of Rule 3 is to extend relief to employees and keeping in view the said purpose, it has to be interpreted liberally. In support of the submission, reliance was placed on a three Judge Bench decision of this Court in CIT, Bombay v. British Bank of Middle East, (2001) 8 SCC 36. The question for determination of this Court related to expenditure incurred by an employer on facility of car provided to an employee for private use.Interpreting Section 40-A (5) of the Act and Rule 3 of the Rules and highlighting the object underlying in enacting both the provisions, one of us (Y.K. Sabharwal, J. as His Lordship then was) stated that Section 40-A (5) and Rule 3 operate in different fields and apply to different set of assessees. The provision of the Act was enacted to provide for ceiling on expenditure on employees. The object of the Rule is to give relief to the employees. Applying Rule 3 for the purpose of determining the deduction in relation to the assessment of the employer would be doing violence to and ignoring the legislative intent evident in Section 40-A (5). We are, however, not inclined to enter into larger question as in our view, it is not necessary in the light of statutory provision relating to concession in the matter of rent respecting any accommodation in Section 17(2)(ii) of the Act. We are of the view that Rule 3 would apply only to those cases where concession has been shown by an employer in favour of an employee in the matter of rent respecting accommodation. Thus, whereas charging provision is found in the Act of Parliament [Section 17(2)(ii)], machinary component is in the subordinate legislation (Rule 3). The latter will apply only after liability is created under the former. Unless the liability arises under Section 17(2)(ii) of the Act, Rule 3 has no application and the method of valuation for calculating concessional benefits cannot be resorted to. Mr. Dhankar, who appeared for federation of employees, invited our attention to Report of the Pay Revision Committee for Public Sector Executives, published by the Government of India in October, 1998. Taking into account the crucial and pivotal role played by Public Sector Undertakings and considering their importance in the light of the fact that it is a limb of Government and State within the meaning of Article 12 of the Constitution, the Government of India had constituted a Committee headed by Honble Mr. Justice S. Mohan (Retd.). The Committee considered various issues including issues as to pay scales, perquisites etc., of employees of Public Sector Undertakings. The counsel referred to various recommendations made by the Committee and submitted that different treatment shown by the authorities to employees of Government and employees of Public Sector Undertakings is arbitrary, discriminatory and unreasonable being violative of Articles 14, 16 and 19 of the Constitution. He, therefore, submitted that the benefits extended to Government employees ought to have been extended to employees of Public Sector Undertakings as well. We are unable to uphold the argument. As already indicated earlier, the High Court of Calcutta in the impugned order considered the question and held classification between Government employees and employees of Companies, Corporations and other Public Undertakings as reasonable. Though the doctrine of equity has no place in taxing statutes, an attempt has been made by the rule making authority to introduce equity by keeping in view the ground reality. According to the High Court, it cannot be disputed that in the sphere of income, Government employees are far below to the employees of Companies, Corporations and other Undertakings. The benefits which have been provided to employees of Corporations, Companies and other Undertakings are much more than the benefits extended to Government employees. If on the basis of the factual scenario, a classification is made between two classes of employees, it cannot be struck down as ultra viresIt is no doubt true that Article 14 guarantees equality before the law and confers equal protection of laws. It is also true that it prohibits the State from denying persons or class of persons equal treatment provided they are equals and are similarly situated. But, it is equally well established that Article 14 seeks to prevent or prohibit a person or class of persons from being singled out from others situated similarly. If two persons or two classes are not similarly situated or circumstanced, they cannot be treated similarly. To put it differently, Article 14 prohibits dissimilar treatment to similarly situated persons, but does not prohibit classification of persons not similarly situated, provided such classification is based on intelligible differentia and is otherwise legal, valid and permissibleIn our opinion, distinction sought to be made by the rule making authority between employees of the Central Government as well as State Governments and other employees i.e., employees of Companies, Corporations and other Undertakings is reasonable classification based on intelligible differentia. It has also rational nexus to the object sought to be achieved. Rule 3 takes into account service conditions of employees of Government vis-Ã -vis employees of Corporations, Companies and other Undertakings and prescribes method of calculating value of all perquisites. Such a provision, in our considered opinion, cannot be held ultra vires Article 14 of the Constitution. Even under the Constitution, such a distinction has been upheld in several cases by this Court. Article 311 of the Constitution confers certain benefits which are not available to employees of Corporations, Companies and other Undertakings. It was contended on behalf of those employees that such Corporations, Companies and Undertakings were covered by the definition State within the meaning of Article 12 of the Constitution and they also must be granted all the benefits which had been granted to employees of the GovernmentWe, therefore, see no substance in the argument that the impugned provision differentiating employees of Government and employees of Companies, Corporations and other Undertakings is arbitrary and objectionable.