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Case Name:  All India Bank Officers’ Confederation v. Regional Manager, Central Bank of India & Ors 

Case No.: CIVIL APPEAL NO. 7708 OF 2014 

Dated: May 07, 2024 

Quorum: Justice Sanjeev Khanna and Justice Dipankar Datta 

 

FACTS OF THE CASE: 

The definition of “perquisites” in Section 17(2)(viii) of the Act includes “any other fringe benefit or amenity” and “as may be prescribed.” In accordance with Section 17(2)(viii), Rule 3 of the Rules specifies extra “fringe benefits” or “amenities” that are taxable as perquisites. Additionally, it specifies how certain privileges should be valued for taxes purposes. As per Rule 3(7)(i) of the Rules, bank employees who receive interest-free or concessional loan benefits from banks may be subject to taxation as “fringe benefits” or “amenities” if the interest rate charged by the bank on these loans is lower than the interest rate determined by the State Bank of India’s Prime Lending Rate.  

The Central Board of Direct Taxes is accused of being given an excessive and unwise delegation of vital legislative functions, which is the basis for challenging Section 17(2)(viii) and Rule 3(7)(i). A further argument against Rule 3(7)(i) is that it is arbitrary and violates Article 14 of the Constitution since it regards the PLR of SBI as the reference point as opposed to the real interest rate that the bank charges a client for a loan. 

The validity of Section 17 (2) (viii) of the Income Tax Act, 1961 (IT Act) and Rule 3 (7) (i) of the Income Tax Rules, 1962 (IT Rules) was contested by Staff Unions and Officers’ Associations (Appellants) of several banks located throughout India. “Any other fringe benefit or amenity as may be prescribed” is included in the definition of perquisites found in Section 17(2) (viii). Interest-free or concessional loan benefits offered by banks to bank employees are taxable as “fringe benefits” or “amenities,” according to Rule 3 (7) (i) of the IT Rules, if the interest rate charged by the bank on such loans is less than the interest rate charged in accordance with the Prime Lending Rate (PLR) of the State Bank of India (SBI). 

 

ISSUES:  

• Does Section 17(2)(viii) and/or Rule 3(7)(i) lead to a delegation of the ‘essential legislative function’ to the CBDT 
• 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 

 

LEGAL PROVISION: 

• Section 15 of the IT Act. specifies the amounts of income that qualify as “salaries” for income tax purposes. 
• Section 17 (1) of the IT Act. Wages, annuities or pensions, gratuities, fees, commissions, perks, or profits in lieu of or in addition to salary or wages, advance salary payments, payments made to an employee for unutilized leave, yearly accumulation to the balance to the credit of the employee participating in a recognised provident fund, etc. are all included in the definition of “salary.”  
• Section 17 (2) of the IT Act. What is meant by “perquisite” is the amount of rent-free housing that the assessee’s employer provides for him, calculated in a way that may be specified; additionally, it includes the amount of any accommodations that his employer provides for him at a discounted cost.  
• Rule 3 (7) (i) of the IT Rules. stipulates that interest-free or concessional loan benefits given by banks to bank employees are subject to taxation as “fringe benefits” or “amenities” in the event that the interest rate on the loans is lower than the interest rate determined by the State Bank of India’s Prime Lending Rate (PLR) (SBI). 

 

CONTENTIONS OF THE APPELLANT: 

Section 17(2)(viii) of the IT Act was contested by the appellants. In Section 17(2) (viii), “any other fringe benefit or amenity as may be prescribed” is included in the definition of perquisites. In their argument, the appellants claimed that this clause was overly delegated and that any additional amenity or fringe benefit should be subject to a rule imposed by the relevant body. 

The IT Rules’ Rule 3 (7) (i) was also contested by the appellants. As per Rule 3 (7) (i), bank employees who receive interest-free or concessional loan benefits from their banks may be subject to taxation as “fringe benefits” or “amenities” if the interest rate charged by the bank on these loans is lower than the interest rate determined by the State Bank of India’s Prime Lending Rate (PLR). Because the SBI PLR was used as the benchmark rather than the actual interest rate that the relevant bank paid a customer on a loan, the appellants claimed that this practice violated Article 14 of the Constitution. 

The appellants contested Section 17(2)(viii) of the IT Act. “Any other fringe benefit or amenity as may be prescribed” is included in the definition of perquisites in Section 17(2)(viii). The appellants argued that this clause was unduly delegated and that any further amenity or fringe benefit need to be governed by a regulation enforced by the appropriate agency. 

 

CONTENTIONS OF THE RESPONDENTS: 

According to the responders, the purpose of the disputed circular was to neutralise and deter bank officers from joining a trade union. The circular, they argued, was intended to promote a “management culture” by elevating directorship over union affiliation. 

The learned counsel for the respondents argued that the Income Tax Rules’ Rule 3 (7) (i), which considered interest-free or concessional loans as taxable perquisites, was endorsed by the respondents. They contended that “any other fringe benefit or amenity as may be prescribed” might be included in accordance with IT Act Section 17(2)(viii). They interpreted the rule as a lawful use of power that had been assigned to them. 

It was also argued that according to Section 41(2) of the Companies Act, 1956, the petitioner, the All India Bank Officers’ Confederation, was not regarded as a “person,” according to the respondents. Citing the petitioner’s registration under the Trade Unions Act of 1926, they argued that this status precluded them from invoking the Companies Act’s provisions for the correction of the member register. 

According to the respondents, the bank had good cause to reject the share transfer. The bank claimed that the petitioner’s trade union membership was a pertinent element, even though they did not state which specific provisions of the Companies Act they believed to have been violated. 

 

COURT’S ANALYSIS AND JUDGMENT: 

As per the court’s ruling, determining the legislative policy and formulating it as an obligatory code of behaviour constitutes the “important legislative function.” Lawmakers can therefore delegate the remaining tasks to subordinate legislation after they have established the legislative policy and standard through legislation. The subsidiary statute is supplemental to the main statute in these situations. As long as it is made consistent with the main legislation and stays within the bounds of the policies and standards set forth by it, it is in line with its framework.  

As long as it is made coherent with the main legislation and stays within the bounds of policy and standards established by it, it is in line with its framework. It is consequently up to subordinate authorities to decide whether the legislative policy and criteria that form the basis of the delegated legislation have been sufficiently specified in the main legislation. 

According to the court’s ruling, anything falls within the framework of the primary legislation so long as it is made consistent with it and adheres to the policies and standards it has established. Therefore, the decision as to whether the legislative policy and standards that serve as the foundation for the delegated law have been appropriately specified in the primary legislation rests with subordinate authorities conveyed as “fringe benefits or amenity.” It is our opinion that the clause provides explicit advice to the rule-making authority and clearly reflects the legislative policy.  

“Perquisites” is defined in a “inclusive” manner in Section 17(2). Certain specific categories of privileges are provided for in Section 17(2)(i) through (vii)/(viia). These are not the only kinds of prerequisites, though. A residuary clause is found in Section 17(2)(viii), and it defines “any other fringe benefits or amenities” as those that are periodically mandated and fall within the category of “perquisites.” 

It is also appropriate to point out that laws pertaining to tax or fiscal measures have more flexibility than other statutes in terms of universal application. In these kinds of cases, the Legislature ought to have some latitude, and this Court ought to be more willing to defer to the wisdom of the legislature. Because they address a variety of issues and are contingent, commercial and tax laws are frequently quite delicate and complicated. This Court would prefer not to meddle with the relevant legislation, which guards against abuse potential and fosters clarity.  

 It is neither unfair, onerous, or severe for the tax payers. A straitjacket formula has been used to solve a complex problem, and the solution has been accepted by the courts. A different ruling would negate the wisdom of the legislature and cause numerous other complications. In this instance, the universal criteria is reasonable, fair, and practical. As a result, it is decided that Rule 3(7) is unconstitutional vides Article 14 of the Indian Constitution.  

 

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Judgment reviewed by Riddhi S Bhora. 

Click to view judgment.