Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
2024 INSC 389
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 7708 OF 2014
ALL INDIA BANK OFFICERS’ CONFEDERATION ..... APPELLANT
VERSUS
THE REGIONAL MANAGER,
CENTRAL BANK OF INDIA, AND OTHERS
.....
RESPONDENTS
WITH
CIVIL APPEAL NO. 18459 OF 2017
CIVIL APPEAL NO. 18460 OF 2017
CIVIL APPEAL NO. 18462 OF 2017
CIVIL APPEAL NO. 18463 OF 2017
CIVIL APPEAL NO. 18461 OF 2017
CIVIL APPEAL NO. 18464 OF 2017
CIVIL APPEAL NOS. 18465-18466 OF 2017
CIVIL APPEAL NOS. 18457-18458 OF 2017
AND
CIVIL APPEAL NO. 18467 OF 2017
J U D G M E N T
SANJIV KHANNA, J.
This common judgment decides the appeals filed by staff unions and
Signature Not Verified
Digitally signed by
babita pandey
Date: 2024.05.07
17:37:15 IST
Reason:
officers’ associations of various banks, impugning judgments which dismiss
Civil Appeal No. 7708 of 2014 & Ors. Page 1 of 17
their writ petitions, where the vires of Section 17(2)(viii) of the Income Tax Act,
1 2
1961 or Rule 3(7)(i) of the Income Tax Rules, 1962 , or both, were challenged.
3
2. Section 17(2)(viii) of the Act includes in the definition of ‘perquisites’ , ‘any
4
other fringe benefit or amenity’, ‘as may be prescribed’. Rule 3 of the Rules
prescribes additional ‘fringe benefits’ or ‘amenities’, taxable as perquisites,
pursuant to Section 17(2)(viii). It also prescribes the method of valuation of
such perquisites for taxation purposes. Rule 3(7)(i) of the Rules stipulates that
interest-free/concessional loan benefits provided by banks to bank employees
shall be taxable as ‘fringe benefits’ or ‘amenities’ if the interest charged by the
bank on such loans is lesser than the interest charged according to the Prime
5 6
Lending Rate of the State Bank of India .
3. Section 17(2)(viii) and Rule 3(7)(i) are challenged on the grounds of excessive
and unguided delegation of essential legislative function to the Central Board
7
of Direct Taxes . Rule 3(7)(i) is also challenged as arbitrary and violative of
Article 14 of the Constitution insofar as it treats the PLR of SBI as the
1
For short, “Act”.
2
For short, “Rules”.
3
Section 17(2) of the Act defines perquisites. It specifies a list of benefits/advantages, incidental to
employment, and received in excess of salary, which are made taxable as perquisites. Section
17(2)(viii) is a residuary clause that authorizes a subordinate rule-making authority to prescribe ‘any
other fringe benefits or amenities’ that are liable to taxation as ‘perquisites’.
4
Before amendments brought in by Finance (No.2) Act, 2009, with effect from 01.04.2010, Section
17(2)(vi) of the Act read: “ (vi) the value of any other fringe benefit or amenity (excluding the fringe
benefits chargeable to tax under Chapter XIIH) as may be prescribed ”. Post the amendment, Section
17(2)(viii), in effect contains the same stipulations as erstwhile Section 17(2)(vi), with some
modifications. It states: “ (viii) the value of any other fringe benefit or amenity as may be prescribed. ”
Thus, the present Section 17(2)(viii) contains similar stipulations as erstwhile Section 17(2)(vi),
reference to Chapter XIIH only being deleted. To retain uniformity, we will be referring to it as Section
17(2)(viii).
5
For short, “PLR”.
6
For short, “SBI”.
7
For short, “CBDT”.
Civil Appeal No. 7708 of 2014 & Ors. Page 2 of 17
benchmark instead of the actual interest rate charged by the bank from a
customer on a loan.
4. Sections 15 to 17 of the Act relate to income tax chargeable on salaries.
Section 15 stipulates incomes that are chargeable to income tax as
‘salaries’.
Section 16 prescribes deductions allowable under ‘salaries’.
Section 17 defines the expressions ‘salary’, ‘perquisites’ and ‘profits in
lieu of salary’ for Sections 15 and 16.
5. Section 17(1) includes in the definition of ‘salary’: wages, annuity or pension,
gratuity, fee, commission, perquisites, or profits in lieu of or in addition to salary
or wages, advance of salary, payments received by an employee in respect of
leave not availed, annual accretion to the balance at the credit of the employee
participating in a recognised provident fund, etc.
8
6. Section 17(2) relates to ‘perquisites’ and reads:
“ (2) “Perquisite” includes—
(i) the value of rent-free accommodation provided to the
assessee by his employer computed in such manner
as may be prescribed;
(ii) the value of any accommodation provided to the
assessee by his employer at a concessional rate.
Explanation.— For the purposes of this sub-clause, it
is clarified that accommodation shall be deemed to
have been provided at a concessional rate, if the
value of accommodation computed in such manner
as may be prescribed, exceeds the rent recoverable
from, or payable by, the assessee;
(iii) the value of any benefit or amenity granted or provided
free of cost or at concessional rate in any of the
following cases—
8
Post 01.04.2010.
Civil Appeal No. 7708 of 2014 & Ors. Page 3 of 17
(a) by a company to an employee who is a director
thereof;
(b) by a company to an employee being a person who
has a substantial interest in the company;
(c) by any employer (including a company) to an
employee to whom the provisions of paragraphs (a)
and (b) of this sub-clause do not apply and whose
income under the head “Salaries” (whether due from,
or paid or allowed by, one or more employers),
exclusive of the value of all benefits or amenities not
provided for by way of monetary payment,
exceeds fifty thousand rupees:
Explanation.—For the removal of doubts, it is hereby
declared that the use of any vehicle provided by a
company or an employer for journey by the assessee
from his residence to his office or other place or work,
or from such office or place to his residence, shall not
be regarded as a benefit or amenity granted or
provided to him free of cost or at concessional rate for
the purposes of this sub-clause;
(iv) any sum paid by the employer in respect of any
obligation which, but for such payment, would have
been payable by the assessee; and
(v) any sum payable by the employer, whether directly or
through a fund, other than a recognised provident fund
or an approved superannuation fund or a Deposit-
linked Insurance Fund established under Section 3-
G of the Coal Mines Provident Fund and
Miscellaneous Provisions Act, 1948 (46 of 1948), or,
as the case may be, Section 6-C of the Employees'
Provident Funds and Miscellaneous Provisions Act,
1952 (19 of 1952), to effect an assurance on the life of
the assessee or to effect a contract for an annuity;
(vi) the value of any specified security or sweat equity
shares allotted or transferred, directly or indirectly, by
the employer, or former employer, free of cost or at
concessional rate to the assessee.
Explanation.— For the purposes of this sub-
clause,—
(a) “specified security” means the securities as
defined in clause (h) of Section 2 of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956) and,
where employees' stock option has been granted
under any plan or scheme therefor, includes the
securities offered under such plan or scheme;
(b) “sweat equity shares” means equity shares issued
by a company to its employees or directors at a
discount or for consideration other than cash for
providing know-how or making available rights in the
nature of intellectual property rights or value
additions, by whatever name called;
Civil Appeal No. 7708 of 2014 & Ors. Page 4 of 17
(c) the value of any specified security or sweat equity
shares shall be the fair market value of the specified
security or sweat equity shares, as the case may be,
on the date on which the option is exercised by the
assessee as reduced by the amount actually paid by,
or recovered from the assessee in respect of such
security or shares;
(d) “fair market value” means the value determined in
accordance with the method as may be prescribed;
(e) “option” means a right but not an obligation
granted to an employee to apply for the specified
security or sweat equity shares at a predetermined
price;
(vii) the amount or the aggregate of amounts of any
contribution made to the account of the assessee by
the employer—
(a) in a recognised provident fund;
(b) in the scheme referred to in sub-section (1) of
Section 80-CCD; and
(c) in an approved superannuation fund,
to the extent it exceeds seven lakh and fifty thousand
rupees in a previous year;
(viia) the annual accretion by way of interest, dividend or
any other amount of similar nature during the previous
year to the balance at the credit of the fund or scheme
referred to in sub-clause (vii) to the extent it relates to
the contribution referred to in the said sub-clause
which is included in total income under the said sub-
clause in any previous year computed in such manner
as may be prescribed; and
(viii) the value of any other fringe benefit or amenity as
may be prescribed:
xx xx xx”
(emphasis supplied)
9
7. Rule 3(7)(i) of the Rules reads:
“(7) In terms of provisions contained in Sub-Clause (vi) of
10
Sub-Section (2) of Section 17, the following other fringe
benefits or amenities are hereby prescribed and the value
thereof shall be determined in the manner provided
hereunder:
(i) the value of the benefit to the assessee resulting from
the provision of interest-free or concessional loan for any
purpose made available to the employee or any member of
9
As it stands after amendment vide Income Tax (First Amendment) Rules, 2004, with effect from
01.04.2004.
10
See supra note 4.
Civil Appeal No. 7708 of 2014 & Ors. Page 5 of 17
his household during the relevant previous year by the
employer or any person on his behalf shall be determined
as the sum equal to the simple interest computed at the rate
charged per annum by the State Bank of India Act, 1955
(23 of 1955), as on the 1st day of the relevant previous year
in respect of loans for the same purpose advanced by it on
the maximum outstanding monthly balance as reduced by
the interest, if any, actually paid by him or any such member
of his household.
However, no value would be charged if such loans are
made available for medical treatment in respect of diseases
specified in Rule 3A of these Rules or where the amount of
loans are petty not exceeding in the aggregate of
Rs.20,000:
Provided that where the benefits relates to the loans made
available for medical treatment referred to above, the
exemption so provided shall not apply to so much of the
loan as has been reimbursed to the employee under any
11
medical insurance scheme."
8. Section 17(1), provides a broad and inclusive definition of ‘salary’. It states that
salary, inter alia , includes wages as well as other payments paid to employees
like perquisites. Thus, perquisites paid by the employer to the employee are
taxable as ‘salary’.
9. ‘Perquisite’ has been defined in Section 17(2) for clarity, and also, to include
and widen its scope. Clauses (i) to (viiia) to Section 17(2) make the following
taxable as ‘perquisites’:
Clause (i) - rent-free accommodation by employer.
Clause (ii) - accommodation at a concessional rate by employer.
Clause (iii) - benefit of amenity provided free of cost/at a concessional
rate, in specified cases.
11
It is relevant to state here that the appellants have not challenged Rule 3(7)(i) as it existed for the
period 01.04.2001 to 31.03.2004, that is, prior to the amendment vide the Income Tax (First
Amendment) Rules, 2004, with effect from 01.04.2004. We are thus referring to the said Rule.
Civil Appeal No. 7708 of 2014 & Ors. Page 6 of 17
Clause (iv) - sum paid by the employer for an obligation.
Clause (v) – sum payable by the employer through a fund (barring
specified exceptions) to effect an assurance on the life of the assessee
or to effect a contract for annuity.
Clause (vi) – specified security or sweat equity shares
allotted/transferred by employer at concessional rate/free of cost.
Clause (vii) – specified amounts contributed to assessees’ account by
employer such as provident fund, superannuation fund etc.
Clause (viia) – annual accretion by way of interest, dividend or other
similar amounts with respect to clause (vii).
10. After specifically stipulating what is included and taxed as ‘perquisite’, clause
(viii) to Section 17(2), as a residuary clause, deliberately and intentionally
leaves it to the rule-making authority to tax ‘any other fringe benefit or amenity’
by promulgating a rule. The residuary clause is enacted to capture and tax any
other ‘fringe benefit or amenity’ within the ambit of ‘perquisites’, not already
covered by clauses (i) to (viia) to Section 17(2).
11. In terms of the power conferred under Section 17(2)(viii), CBDT has enacted
Rule 3(7)(i) of the Rules. Rule 3(7)(i) states that interest-free/concessional loan
made available to an employee or a member of his household by the employer
or any person on his behalf, for any purpose, shall be determined as the sum
equal to interest computed at the rate charged per annum by SBI, as on the
first date of the relevant previous year in respect of loans for the same purpose
advanced by it on the maximum outstanding monthly balance as reduced by
interest, if any, actually paid. However, the loans made available for medical
Civil Appeal No. 7708 of 2014 & Ors. Page 7 of 17
treatment in respect of diseases specified in Rule 3A or loans whose value in
aggregate does not exceed Rs.20,000/- , are not chargeable.
12. The effect of the rule is twofold. First, the value of interest-free or concessional
loans is to be treated as ‘other fringe benefit or amenity’ for the purpose of
Section 17(2)(viii) and, therefore, taxable as a ‘perquisite’. Secondly, it
prescribes the method of valuation of the interest-free/concessional loan for
the purposes of taxation.
13. While enacting laws, the legislature can and does delineate the meaning of
terms through explicit definitions. Specific meanings are assigned for
precision, to distinguish words/expressions from loose or popular meanings,
expand or restrict the scope of words or expressions, or to designate ‘terms of
art’, that is, words or phrases with specialized meanings. Explicit definitions
are useful, but it is wrong to state that all words or expressions must be
explicitly defined. Defining each word or expression that is part of normal or
commercial vocabulary is neither possible nor expedient. It would be a
superfluous exercise, and make statutes voluminous. Instead, popular
meaning makes the statute simpler and easier for the common people. After
all, it is the common person who is concerned with the ramifications of a
statute, and thus, the common man’s understanding is the definitive index of
the legislative intent. The reason is simple. The legislature is assumed to be
aware of the well-understood meaning attributed to the word/expression, and
by necessary implication the legislature by not prescribing a fixed and exact
definition, ascribes the prevalent meaning assigned to the word/expression in
common parlance or commercial usage. This would include meaning assigned
to technical words in a particular trade, business or profession, etc. when the
Civil Appeal No. 7708 of 2014 & Ors. Page 8 of 17
legislation is concerning a particular trade, business or transaction. This rule
equally applies to construing words or expressions in a taxation statute.
14. In the present case, Section 17(2(viii) is a residuary clause, enacted to provide
flexibility. Since it is enacted as an enabling catch-within-domain provision, the
residuary clause is not iron-cast and exacting. A more pragmatic and
commonsensical approach can be adopted by locating the prevalent meaning
of ‘perquisites’ in common parlance and commercial usage.
15. The expression ‘perquisite’ is well-understood by a common person who is
conversant with the subject matter of a taxing statute. New International
Webster’s Comprehensive Dictionary defines ‘perquisites’ as any incidental
profit from service beyond salary or wages; hence, any privilege or benefit
12
claimed due. ‘Fringe benefit’ is defined as any of the various benefits received
from an employer apart from salary, such as insurance, pension, vacation, etc.
Similarly, Black’s Law Dictionary defines ‘fringe benefit’ as a benefit (other than
direct salary or compensation) received by an employee from the employer,
13
such as insurance, a company car, or a tuition allowance. The Major Law
14
Lexicon has elaborately defined the words ‘perquisite’ and ‘fringe benefit’.
16. ‘Perquisites’ has also been interpreted as an expression of common parlance
in several decisions of this Court. For example, ‘perquisite’ was interpreted in
15
Arun Kumar v. Union of India , with respect to Section 17(2) of the Act. The
12
The New International Webster’s Comprehensive Dictionary, p.941.
13 th
Black’s Law Dictionary, p.188 (10 Edition).
14
Perquisite means something gained by a place or office beyond the regular salary or fee. It is a gain
or profit incidentally made from employment. P. Ramanatha Aiyar The Major Law Lexicon, Vol. 5, p.
th
5059-5069 (4 Edition).
Fringe benefit is a term embracing a variety of employees’ benefits, paid by the employers and
supplementing the workers’ basic wage or salary. P. Ramanatha Aiyarm The Major Law Lexicon, Vol.
th
3 (4 Edition).
15
(2007) 1 SCC 732.
Civil Appeal No. 7708 of 2014 & Ors. Page 9 of 17
Court referenced its dictionary meanings and held that ‘perquisites’ were a
privilege, gain or profit incidental to employment and in addition to regular
salary or wages. This decision refers to the observations of the House of Lords
16
in Owen v. Pook , where the House observed that ‘perquisite’ has a known
normal meaning, namely, a personal advantage. However, the perquisites do
not mean the mere reimbursement of a necessary disbursement. Reference
17
was also made to Rendell v. Went , wherein the House held that ‘perquisite’
would include any benefit or advantage, having a monetary value, which a
holder of an office derives from the employer’s spending on his behalf.
18
17. Similarly, in Additional Commissioner of Income Tax v. Bharat V. Patel ,
this Court held that ‘perquisite’, in the common parlance relates to any perk or
benefit attached to an employee or position besides salary or remuneration. It
usually includes non-cash benefits given by the employer to the employee in
addition to the entitled salary or remuneration.
18. Thus, ‘perquisite’ is a fringe benefit attached to the post held by the employee
unlike ‘profit in lieu of salary’, which is a reward or recompense for past or
future service. It is incidental to employment and in excess of or in addition to
the salary. It is an advantage or benefit given because of employment, which
otherwise would not be available.
19. From this perspective, the employer’s grant of interest-free loans or loans at a
concessional rate will certainly qualify as a ‘fringe benefit’ and ‘perquisite’, as
understood through its natural usage in common parlance.
16
(1969) 2 WLR 775 (HL).
17
(1964) 1 WLR 650 (HL).
18
(2018) 15 SCC 670.
Civil Appeal No. 7708 of 2014 & Ors. Page 10 of 17
20. Two issues arise for consideration now: (I) Does Section 17(2)(viii) and/or Rule
3(7)(i) lead to a delegation of the ‘essential legislative function’ to the CBDT?;
and (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?
I. Does Section 17(2)(viii) and/or Rule 3(7)(i) lead to a delegation of the
‘essential legislative function’ to the CBDT?
21. A Constitution Bench of Seven Judges of this Court in Municipal Corporation
19
of Delhi v. Birla Cotton, Spinning and Weaving Mills, Delhi and Another ,
has held that the legislature must retain with itself the essential legislative
function. ‘Essential legislative function’ means the determination of the
legislative policy and its formulation as a binding rule of conduct. Therefore,
once the legislature declares the legislative policy and lays down the standard
through legislation, it can leave the remainder of the task to subordinate
legislation. In such cases, the subordinate legislation is ancillary to the primary
statute. It aligns with the framework of the primary legislation as long as it is
made consistent with it, without exceeding the limits of policy and standards
stipulated by the primary legislation. The test, therefore, is whether the primary
legislation has stated with sufficient clarity, the legislative policy and the
standards that are binding on subordinate authorities who frame the delegated
legislation.
22. In our opinion, the subordinate authority’s power under Section 17(2)(viii), to
prescribe ‘any other fringe benefit or amenity’ as perquisite is not boundless. It
is demarcated by the language of Section 17 of the Act. Anything made taxable
by the rule-making authority under Section 17(2)(viii) should be a ‘perquisite’
19
(1968) SCC OnLine SC 13.
Civil Appeal No. 7708 of 2014 & Ors. Page 11 of 17
in the form of ‘fringe benefits or amenity’. In our opinion, the provision clearly
reflects the legislative policy and gives express guidance to the rule-making
authority.
23. Section 17(2) provides an ‘inclusive’ definition of ‘perquisites’. Section 17(2)(i)
to (vii)/(viia) provides for certain specific categories of perquisites. However,
these are not the only kind of perquisites. Section 17(2)(viii) provides a
residuary clause that includes ‘any other fringe benefits or amenities’ within the
definition of ‘perquisites’, as prescribed from time to time. The express
delineation does not take away the power of the legislature, as the plenary
body, to delegate the rule-making authority to subordinate authorities, to bring
within the ambit of ‘perquisites’ any other ‘fringe benefit’ or annuities’ as
‘perquisite’. The legislative intent, policy and guidance is drawn and defined.
Pursuant to such demarcated delegation, Rule 3(7)(i) prescribes interest-
free/loans at concessional rates as a ‘fringe benefit’ or ‘amenity’, taxable as
‘perquisites’. This becomes clear once we view the analysis undertaken in
Birla Cotton 7J (supra) viz . the ‘essential legislative function’ test.
20
24. Birla Cotton 7J (supra) refers to In Re.: The Delhi Laws Act 1912 , wherein
this Court held that an unlimited right of delegation is not inherent in the
legislative power itself. The legitimacy of delegation depends upon its usage
as an ancillary measure, which the legislature considers necessary for the
complete and effective exercise of legislative powers. Provided that the
legislative policy is enunciated with sufficient clearness or a standard is laid
down, the courts should not interfere with the discretion that undoubtedly rests
20
1951 SCC 568.
Civil Appeal No. 7708 of 2014 & Ors. Page 12 of 17
with the legislature itself in determining the extent of delegation necessary in a
particular case.
25. Birla Cotton 7J (supra) refers to Raj Narain Singh v. Chairman, Patna
21
Administration Committee , wherein this Court held that an executive
authority can be authorised by a statute to modify either existing or future laws
but not in any essential feature. What constitutes an essential feature cannot
be enunciated in exact terms. However, it was held that modification could not
include a change in policy, since the ‘essential legislative function’ consists of
the determination of legislative policy and its formulation as a binding rule of
conduct. In the context of Section 17(2)(viii) and Rule 3(7)(i), we are of the
opinion that main legislation does not fall foul of the essential feature test. They
do not modify an essential feature nor do they violate the condition of
determining legislative policy or a binding rule of conduct.
26. Birla Cotton 7J (supra) also refers to Hari Shankar Bagla v. State of Madhya
22
Pradesh , where the majority held that the legislature must declare the policy
of law and legal principles which are to control any given cases and thereby
provide a standard of guidance to the executive, empowered to execute laws.
27. In Western India Theatres Limited v. Municipal Corporation of the City of
23
Poona , referred by Birla Cotton 7J (supra), the issue related to the power
of the municipality to levy “ any other tax to the nature and object of which the
approval of the Governor-in-Council shall have been obtained prior to the
selection contemplated ”. The delegated legislation was upheld on the ground
21
(1955) 1 SCR 290.
22
(1955) 1 SCR 380.
23
AIR 1959 SC 586.
Civil Appeal No. 7708 of 2014 & Ors. Page 13 of 17
that municipality was authorised by the principal enactment to impose the tax.
The enactment defined the obligations and functions cast upon the
municipality. The taxes could only be levied for implementing those specific
purposes and not for any other purpose. Further, the section in the enactment
laid down the procedure that the municipality had to follow for imposing the tax.
Thus, the legislature had not abdicated its function in favour of the municipality.
Same is true in the present case.
28. In Birla Cotton 7J (supra), the assessee had challenged a resolution passed
by the municipal corporation to levy three taxes, including a levy of tax on
consumption or sale of electricity. The challenge was that the levy of tax by the
Corporation was by way of excessive delegation and was therefore ultra
vires . This Court relied upon the judgment in Pandit Banarsi Das Bhanot v.
24
State of Madhya Pradesh , to uphold the levy. In Pandit Banarsi (supra),
this Court had observed that a delegated legislation is not unconstitutional
when the legislature leaves it to the executive to determine details relating to
the working of taxation laws, such as selection of persons on whom the tax has
to be levied, the rates at which it is to be charged in respect of different classes
of goods and the like. The principal legislature, it was held, has not given
unqualified power to fix the rate of tax without guidance, control or safeguard.
29. Pandit Banarsi Das (supra) also refers to Powell v. Apollo Candle Company
25
Ltd. which had upheld the power of delegation to levy duties by observing
that there was complete guidance in the manner of fixing the rate of duty and
24
1959 SCR 427.
25
8 AC 282.
Civil Appeal No. 7708 of 2014 & Ors. Page 14 of 17
finally the order passed by the Governor had to be laid before both Houses of
the Parliament without unnecessary delay.
26
30. In Devidas Gopal Krishnan v. State of Punjab , this Court distinguished its
27
earlier decision in Corporation of Calcutta v. Liberty Cinema where the
majority upheld the fixation of tax on cinema shows, albeit the Calcutta
Municipal Act, 1951 had failed to prescribe a limit to which tax could go. The
majority in Liberty Cinema (supra) had referred to Pandit Banarsi Das
(supra) and held that there is no in-principle distinction between delegation of
power to fix rates of taxes to be charged on different classes of goods and
power to fix rates simpliciter; if power to fix rates in some cases can be
delegated then equally the power to fix rates generally can be delegated. The
Court held that if the power to decide who is to pay the tax is not an essential
part of legislation, neither would the power to decide the rate of tax be so. The
Court thus held that fixation of tax rate was not unqualified as the legislature
had stipulated the maximum rate. The guidance rule was held as satisfied.
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.
27
(1965) 2 SCR 477.
Civil Appeal No. 7708 of 2014 & Ors. Page 15 of 17
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 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
Civil Appeal No. 7708 of 2014 & Ors. Page 16 of 17
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
28
relating to fiscal or tax measures enjoy greater latitude than other statutes.
The Legislature should be allowed some flexibility in such matters and this
29
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.
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.
......................................J.
(SANJIV KHANNA)
......................................J.
(DIPANKAR DATTA)
NEW DELHI;
MAY 07, 2024.
28
Govt. of A.P. v. P. Laxmi Devi , (2008) 4 SCC 720.
29
Swiss Ribbons (P) Ltd. v. Union of India , (2019) 4 SCC 17.
Civil Appeal No. 7708 of 2014 & Ors. Page 17 of 17