THE SOUTH INDIAN BANK vs UNION OF INDIA,

W.P.No.2617 of 2011
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 14.10.2026
CORAM :
THE HONOURABLE MR. SUSHRUT ARVIND DHARMADHIKARI,
CHIEF JUSTICE
AND
THE HONOURABLE MR.JUSTICE G.ARUL MURUGAN
WP No. 2617 of 2011
CNR:{HCMA010223482011}
and M.P.No.1 of 2011
The South Indian Bank
Employees Association, Regn.No.1422/52,
Rep. by its Joint Secretary A.V.Bhaskar,
New Military Road, Avadi, Chennai.
Petitioner
Vs
1.Union of India,
Rep. by Secretary to Govt.,
Ministry of Finance, New Delhi.
2.The Central Board of Direct Taxes,
North Block, New Delhi.
3.The Chief Commissioner of Income Tax,
Ayakar Bhavan, Nungambakkam,
Chennai-600 034.
4.South Indian Bank,
Head Office: Mission Quarters,
Thrissur-688 001, Kerala State.
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W.P.No.2617 of 2011
5.South Indian Bank,
Regional Office: 1, Sterling Road,
Nungambakkam, Chennai-34.
Respondents
PRAYER : Petition filed under Article 226 of the Constitution of India
seeking issuance of a writ of declaration declaring that Rule 3(7)(i) of
the Income Tax Rules and also sub-para (c) of Para B of Circular dated
th
26.10.2009 issued by the 4 respondent are unconstitutional, ultra
vires the Income Tax Act, and therefore null and void.
For Petitioner: Ms.Akshayaa.M [thr'vc]
for Mr.Bhagawath Krishnan
For Respondents: Dr.B.Ramaswamy
Senior Standing Counsel
for R1 to R3 [thr'vc]
No appearance
for R4 & R5
ORDER
(Order of the Court was made by G.Arul Murugan, J. )
This writ petition is filed seeking to declare Rule 3(7)(i) of the
Income Tax Rules and sub-para (c) of Para B of Circular dated
th
26.10.2009 issued by the 4 respondent bank are unconstitutional and
ultra vires the Income-tax Act, 1961 and, therefore, null and void.
2. The provisions of Section 17(2), 17(2)(iii), 17(2)(vi), 17(2)
(viii) of the Act and Rule 3(7)(i) of the Income Tax Rules, 1962 (in
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W.P.No.2617 of 2011
short ‘the Rules’) were under challenge before this Court in separate
writ petitions and a Division Bench of this Court, heard the entire
batch of writ petitions analogously and by common judgment dated
20.04.2016 in the case of All India Union Bank Officers & Others
vs. Union of India, rep. by its Secretary to Government,
1
Ministry of Finance & others , dismissed the writ petitions and
upheld the constitutional validity of Section 17(2)(viii) of the Act and
Rule 3(7)(i) of the Rules. The relevant portion of the judgment dated
20.04.2016 reads as under:
“49. More than helping the petitioners, the said decision
helps the respondent – Department. If salary is taxable and
some perquisite or benefit forms part of a package, the
same should also be taxed. Therefore, we are of the
considered view that the challenge to Section 17(2)(viii) as
well as Rule 3(7)(i) has to fail.
50. As a consequence, all the above writ petitions are
dismissed as devoid of any merits. Consequently, all
connected pending MPs are also dismissed. There will be no
order as to costs.”
3. On appeal, the Hon’ble Supreme Court in All India Bank
Officers’ Confederation vs. The Regional Manager, Central Bank
2
of India and Others , upheld the aforesaid judgment of this Court
and dismissed the appeals upholding the constitutional validity of
1
CDJ 2016 MHC 2413
2
2024 INSC 389 : (2024) 464 ITR 284
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W.P.No.2617 of 2011
Section 17(2) of the Act and Rule 3(7) of the Rules.
3.1. The relevant portions of the Supreme Court judgment is
usefully reproduced hereunder:
“31. We are of the opinion that the enactment of
subordinate legislation for levying tax on interest
free/concessional loans as a fringe benefit is within
the rule- making power under Section 17(2)(viii) of
the Act. Section 17(2)(viii) itself, and the enactment
of Rule 3(7)(i) is not a case of excessive delegation
and falls within the parameters of permissible
delegation. Section 17(2) clearly delineates the
legislative policy and lays down standards for the
rule-making authority. Accordingly, Rule 3(7)(i) is
intra vires Section 17(2)(viii) of the Act. 26 AIR
(1967) SC 1895. Section 17(2)(viii) does not lead to
an excessive delegation of the ‘essential legislative
function’.
II. Is Rule 3(7)(i) arbitrary and violative of
Article 14 of the Constitution insofar as it treats
the PLR of SBI as the benchmark?
32. Rule 3(7)(i) posits SBI’s rate of interest, that is
the PLR, as the benchmark to determine the value of
benefit to the assessee in comparison to the rate of
interest charged by other individual banks. The
fixation of SBI’s rate of interest as the benchmark is
neither an arbitrary nor unequal exercise of power.
The rule-making authority has not treated unequal as
equals. The benefit enjoyed by bank employees from
interest-free loans or loans at a concessional rate is a
unique benefit/advantage enjoyed by them. It is in
the nature of a ‘perquisite’, and hence is liable to
taxation.
33. Rule 3(7)(i), it can be hardly argued, is arbitrary
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W.P.No.2617 of 2011
or irrational for the reason it benchmarks
computation of the perquisite with reference to the
SBI’s PLR. SBI is the largest bank in the country and
the interest rates fixed by them invariably impact and
affect the interest rates being charged by other
banks. By fixing a single clear benchmark for
computation of the perquisite or fringe benefit, the
rule prevents ascertainment of the interest rates
being charged by different banks from the customers
and, thus, checks unnecessary litigation. Rule 3(7)(i)
ensures consistency in application, provides clarity for
both the assessee and the revenue department, and
provides certainty as to the amount to be taxed.
When there is certainty and clarity, there is tax
efficiency which is beneficial to both the tax payer
and the tax authorities. These are all hallmarks of
good tax legislation. Rule 3(7)(i) is based on an
uniform approach and yet premised on a fair
determining principle which aligns with constitutional
values.
34. It is also apposite to note that when it comes to
uniform approach the laws relating to fiscal or tax
measures enjoy greater latitude than other statutes.
The Legislature should be allowed some flexibility in
such matters and this Court would be more inclined
to give judicial deference to legislative wisdom.
Commercial and tax legislations tend to be highly
sensitive and complex as they deal with multiple
problems and are contingent. This Court would not
like to interfere with the legislation in question, which
prevents possibilities of abuse and promotes
certainty. It is not iniquitous, draconian or harsh on
the taxpayers. A complex problem has been solved
through a straitjacket formula, meriting judicial
acceptance. To hold otherwise, would lead to multiple
problems/issues and override the legislative wisdom.
The universal test in the present case is pragmatic,
fair and just. Therefore, Rule 3(7) is held to be intra
vires Article 14 of the Constitution of India.
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W.P.No.2617 of 2011
35. We, accordingly, dismiss the appeals and uphold
the impugned judgments of the High Courts of
Madras and Madhya Pradesh. No order as to costs.”
4. In view of the fact that already the issue regarding the
constitutional validity of Rule 3(7)(i) of the Rules has been considered
by this Court and decided in favour of the Revenue and the said order
was upheld by the Supreme Court in the judgment referred supra, the
issue raised in this writ petition is squarely covered by the aforesaid
judgments of this Court and the Hon’ble Supreme Court.
In view of the above, the writ petition stands dismissed. There
shall be no order as to costs. Consequently, the interim application
stands closed.
(SUSHRUT ARVIND DHARMADHIKARI, CJ) (G.ARUL MURUGAN,J)
14.10.2026
Index : Yes/No
Neutral Citation : Yes/No
bbr
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W.P.No.2617 of 2011
To:
1.The Secretary to Govt.,
Union of India,
Ministry of Finance, New Delhi.
2.The Central Board of Direct Taxes,
North Block, New Delhi.
3.The Chief Commissioner of Income Tax,
Ayakar Bhavan, Nungambakkam,
Chennai-600 034.
4.South Indian Bank,
Head Office: Mission Quarters,
Thrissur-688 001, Kerala State.
5.South Indian Bank,
Regional Office: 1, Sterling Road,
Nungambakkam, Chennai-34.
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W.P.No.2617 of 2011
THE HON'BLE CHIEF JUSTICE
AND
G.ARUL MURUGAN, J.
bbr
W.P.No.2617 of 2011

14.10.2026
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