Bank Employees’ Challenge to Tax on Concessional Loan Benefits Fails as Madras HC Applies Supreme Court Ruling Upholding the Rule

The South Indian Bank Employees Association filed a writ petition under Article 226 seeking a declaration that Rule 3(7)(i) of the Income-tax Rules, 1962, and sub-paragraph (c) of Paragraph B of the bank’s circular dated 26 October 2009 were unconstitutional and ultra vires the Income-tax Act, 1961

The challenge to Section 17(2)(viii) of the Act and Rule 3(7)(i) had previously been rejected by a Division Bench of the Madras High Court in All India Union Bank Officers v. Union of India (20 April 2016)

The Supreme Court subsequently dismissed appeals and upheld the relevant provisions

1. Whether Rule 3(7)(i) of the Income-tax Rules, 1962, was unconstitutional or ultra vires the Income-tax Act, 1961

2. Whether sub-paragraph (c) of Paragraph B of the bank’s circular dated 26 October 2009 was liable to be declared unconstitutional or invalid in light of the prior decisions upholding Rule 3(7)(i)

Section 17(2)(viii) of the Income-tax Act authorises the treatment of prescribed benefits or perquisites as taxable, and Rule 3(7)(i) prescribes the method for valuing the benefit from interest-free or concessional loans by reference to SBI’s rate of interest

In All India Union Bank Officers v. Union of India (Madras High Court, 20 April 2016), the Court upheld the constitutional validity of Section 17(2)(viii) and Rule 3(7)(i)

In All India Bank Officers’ Confederation v. Regional Manager, Central Bank of India, 2024 INSC 389, (2024) 464 ITR 284, the Supreme Court upheld the rule-making power and held that using SBI’s rate as a uniform benchmark was not arbitrary or violative of Article 14

The Court considered the challenge to Rule 3(7)(i) to be squarely governed by the earlier Madras High Court decision and the Supreme Court’s subsequent affirmance of that decision

Since those decisions had upheld the validity of the statutory provision and the rule, the Court found no basis to grant the declaration sought in the present petition

It made no order as to costs and closed the interim application