Scott R. Bayman vs Commissioner of Income Tax

Judgment of the above noted case bearing ITA No. 285 of 2003 directed against an order of Income Tax Appeallate Tribunal in ITA No. 1617/Del/1997 was delivered by bench of Hon'ble High Court of Delhi comprising of Mr. Justice S. Ravindra Bhat and Mr. Justice R. V. Easwar on 17th August, 2012.

Question in issue in above said matter was “whether the amount spent by the employer towards the repair of building would be covered by clauses (iii) & (iv) of Sub-Section 2 of Section 17 of the Income Tax Act, 1961?” 

After careful study of complete case details, it was held that provision of section 17(2)(iv) cannot be made applicable for the reason:

1. THAT in this particular case, it was not the obligation of the employee to carry out repairs and renovations because as per his Service Contract, the employer had to provide the assessee with furnished accommodation including maintenance, security and services.

2. THAT in law there is a maxim “expressio unis est exclusion atlerius”, which means that the express mention of one thing implies the exclusion of another. AND Rule 3 of the Income Tax Rules as it existed for non governemnt companies at the relevant time expressly provided for valuation of Rent Free Accomodation as follows:

The value of rent-free residential accommodation which is not furnished shall ordinarily be a sum equal to 10 per cent of the salary due to the assessee in respect of the period during which the said accommodation was occupied by him during the previous year.

Provided that (1) where the fair rental value of the accommodation is in excess of 20 per cent of the assessee’s salary, the value of the perquisite shall be taken to be 10 per cent of the salary increased by a sum equal to the amount by which the fair rental value exceeds 20 per cent of the salary; so, however, that the Assessing Officer may, having regard to the nature of the accommodation, determine the sum by which 10 per cent of the salary is to be increased, as a percentage (not exceeding 100 per cent) of the amount by which the fair rental value exceeds 20 per cent of the salary;

where the assessee claims, and the Assessing Officer is satisfied that the sum arrived at on the basis provided above exceeds the fair rental value of the accommodation, the value of the perquisite to the assessee shall be limited to such fair rental value.

where the accommodation is furnished one, the value of rent free residential accommodation shall be the aggregate of the following sums, namely: -

(1) the fair rental value of the accommodation arrived at as above considering the same were not furnished; and

(2) the fair rent for the furniture (including television sets, radio sets, refrigerators, other household appliances and air-conditioning plant or equipment) calculated at 10 percent per annum, of the original cost of such furniture or if such furniture is hired from a third party, the actual hire charges payable therefore.

Thus express provision of Rule 3 of the Valuation Rules elaborates various contingencies in relation to the perquisite of rent free accommodation and rules out the intention of law makers to treat expense in relation to improvement, repairs or renovations, as falling within the meaning of “perquisite”. BECAUSE If the premises were to be valued at market value of the rental, in case it increased as a result of the renovations, the only prescribed mode was to apply the method indicated by Rule 3(a)(iii) of the Valuation Rules.

In view of above said facts and legal position, the appeal was allowed and order of ITAT was set aside making way for deletion of cost of repairs and renovation from the taxable income of the assessee.