Madras HC Rejects Bank Employees’ Challenge To Tax On Concessional-Loan Benefits, Applying Supreme Court Ruling Upholding Section 17(2)

The petitioner, the Catholic Syrian Bank Executive Forum, sought a declaration that the amendment to Section 17(2) of the Income-tax Act, 1961, made by the Finance Act, 2007, and the bank’s circular dated 2 January 2008 were unconstitutional and ultra vires.

The Court noted that a Division Bench had previously upheld the relevant provisions of Section 17(2) and Rule 3(7)(i) of the Income-tax Rules, 1962, and that the Supreme Court had upheld that decision.

The present petition was disposed of on the basis that the challenge was covered by those decisions.

1. Whether the amendment to Section 17(2) of the Income-tax Act, 1961, made by the Finance Act, 2007, was unconstitutional or ultra vires.

2. Whether the Catholic Syrian Bank’s circular dated 2 January 2008 was unconstitutional or ultra vires.

Section 17(2) of the Income-tax Act, 1961, read with Rule 3(7)(i) of the Income-tax Rules, 1962, permits the taxation of the value of interest-free or concessional loans provided as an employment perquisite.

In All India Bank Officers’ Confederation v. Regional Manager, Central Bank of India (2024 INSC 389; (2024) 464 ITR 286), the Supreme Court upheld Section 17(2)(viii) and Rule 3(7)(i), holding that the rule was within the delegated rule-making power and was not arbitrary or violative of Article 14.

The Court also relied on its earlier decision in All India Union Bank Officers & Others v. Union of India & Others (CDJ 2016 MHC 2413), which had upheld the relevant provisions.

The Court treated the constitutional challenge as covered by its earlier decision upholding the relevant provisions and by the Supreme Court’s subsequent affirmance.

Since the Supreme Court had upheld the statutory provision and the rule governing taxation of concessional or interest-free loans as perquisites, the Court concluded that the challenge in this petition could not succeed.

It did not separately analyse the bank circular on its merits.

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