Money saved due to low interest rate loans availed by bank employees taxable: SC
All India Bank Officers’ Confederation Vs Regional Manager (Supreme Court of India) Appeal Number : Civil Appeal No. 7708 of 2014
Introduction:
1. The case centered around the interpretation of Section 17(2)(viii) of the Income Tax Act and Rule 3(7)(i) of the Income Tax Rules. The petitioners, including staff unions and officers’ associations of various banks, challenged the vires of these provisions, arguing against the taxation of interest-free/concessional loans provided by banks to their employees.
2. Section 17(2)(viii) defines ‘perquisites’ to include ‘any other fringe benefit or amenity’, as prescribed.
3. Rule 3(7)(i) specifies that interest-free/concessional loan benefits provided by banks to employees are taxable as perquisites if the interest charged by the bank is lower than the Prime Lending Rate (PLR) of the State Bank of India.
4. The petitioners raised concerns about excessive delegation of legislative function to the Central Board of Direct Taxes (CBDT) and argued that Rule 3(7)(i) was arbitrary and violated Article 14 of the Constitution.
Important questions answered by the Hon SC:
1. Does Section 17(2)(viii) and/or Rule 3(7)(i) lead to a delegation of the ‘essential legislative function’ to the CBDT?
i. The enactment of subordinate legislation for levying tax on interest free/concessional loans as a fringe benefit is within the rule-making power under Section 17(2)(viii) of the Act.
ii. Section 17(2)(viii) itself, and the enactment of Rule 3(7)(i) is not a case of excessive delegation and falls within the parameters of permissible delegation.
2. 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?
i. Rule 3(7)(i) posits SBI’s rate of interest, that is the PLR, as the benchmark to determine the value of benefit to the assessee in comparison to the rate of interest charged by other individual banks.
ii. By fixing a single clear benchmark for computation of the perquisite or fringe benefit, the rule prevents ascertainment of the interest rates being charged by different banks from the customers and, thus, checks unnecessary litigation
iii. The fixation of SBI’s rate of interest as the benchmark is neither an arbitrary nor unequal exercise of power. The rule-making authority has not treated unequal as equals.
iv. The benefit enjoyed by bank employees from interest-free loans or loans at a concessional rate is a unique benefit/advantage enjoyed by them.
v. It is in the nature of a ‘perquisite’, and hence is liable to taxation.
The copy of the order is as under:
All-India-Bank-Officers-Confederation-Vs-Regional-Manager-Supreme-Court-of-India (1)
