Madras HC Dismisses Federal Bank Officers’ Challenge To Taxing Concessional-Loan Benefits, Citing Supreme Court Ruling Upholding The Rule

The Federal Bank Officers Association sought a declaration that Rule 3(7)(i) of the Income Tax Rules, 1962, and sub-paragraph A of paragraph 15 of a circular issued by Federal Bank on 18 February 2010 were unconstitutional, ultra vires the Income Tax Act, and void

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

Whether Rule 3(7)(i) of the Income Tax Rules is unconstitutional or ultra vires the Income Tax Act

Whether sub-paragraph A of paragraph 15 of Federal Bank’s circular dated 18 February 2010 is unconstitutional or ultra vires the Act

Section 17(2)(viii) of the Income Tax Act authorises rules prescribing the valuation of perquisites; Rule 3(7)(i), which uses the State Bank of India’s lending rate as a benchmark for valuing the benefit of interest-free or concessional loans, falls within that rule-making power and is not an excessive delegation of legislative authority.

The Supreme Court held that the benchmark is neither arbitrary nor violative of Article 14, as it promotes consistency, clarity, and certainty in valuation (*All India Bank Officers’ Confederation v. Regional Manager, Central Bank of India*, 2024 INSC 389; (2024) 464 ITR 286).

The High Court’s earlier decision upholding the provision was also relied upon.

The High Court treated the challenge as covered by its earlier ruling upholding Rule 3(7)(i), which the Supreme Court had subsequently affirmed.

In light of those decisions, it concluded that the constitutional challenge to the Rule raised in this petition had already been resolved against the petitioners.

It accordingly dismissed the petition without separately analysing the bank circular’s sub-paragraph A.

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