Karur Vysya Bank Officers’ Challenge To Tax On Concessional-Loan Benefits Fails In Madras HC, Following Supreme Court’s Upholding Of The Rule

The petitioner association sought a declaration that Rule 3(7)(i) of the Income Tax Rules, 1962, and sub-para (a) of Part III of Circular No. 61/2005 were unconstitutional, ultra vires the Income Tax Act, and void.

The High Court noted that it had previously upheld the validity of Section 17(2)(viii) of the Act and Rule 3(7)(i), and that the Supreme Court had affirmed that decision.

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

2. Whether sub-para (a) of Part III of Circular No. 61/2005 was unconstitutional, ultra vires the Act, and void.

Section 17(2)(viii) of the Income Tax Act authorises rules concerning the valuation of perquisites; Rule 3(7)(i) values the benefit of interest-free or concessional loans by reference to the State Bank of India’s Prime Lending Rate.

In All India Union Bank Officers & Others v. Union of India & Others, the Madras High Court upheld the statutory provision and rule.

The Supreme Court affirmed that decision in All India Bank Officers’ Confederation v. The Regional Manager, Central Bank of India & Others, holding that Rule 3(7)(i) was within the rule-making power, did not involve excessive delegation, and was not arbitrary or violative of Article 14.

The Court treated the validity of Rule 3(7)(i) as already determined by the earlier Madras High Court judgment and the Supreme Court’s affirmance.

Since those decisions upheld the statutory basis for taxing the benefit of interest-free or concessional loans and sustained the SBI rate as a uniform benchmark, the petitioner’s challenge was covered by binding precedent.

The Court accordingly dismissed the petition without separately setting out a further analysis of the circular.

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