# ARUN KUMAR v. U.0.1 - **Citation:** [2006] Supp. 6 S.C.R. 290 - **Court:** Supreme Court of India - **Decided:** 2006 - **Case number:** Civil Appeal No. 3270 of2003 - **Bench:** Y.K. Sabharwal. Cj. C.K. Thakkerand P.K. Balasubramany An - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/arun-kumar-v-u-0-1-21661 - **Pages:** 39 ## Headnote Income· fox Rules, 196] --Rule 3-lncome Tax Act, 1961 -Section C 1-12, -- .\lethod fur computing valuation u( perquisites-Amendment of- ( ·1assifi<·a1ion made between employees uf Government and employees of ! -•lil[Janies. Corporal ions or other Undertakings regarding acco111111uda1io11 1wovided hy employers-Validity oF-Held: Classification is reasonable based 011 i/1/elligible differenlia, h(n·ing rational nexus to the object sought to he achieved-It is neither arbitrw~-. discriminato~v or ultra vires Article I./ nor D in.-onsiste/l/ with sulation less than four lakhs. With regard to Central and State Government I-I 290 ARUN KUMAR v. U.0.1. 291 employees, earlier system of valuation of perquisite was retained. Appellants- A employees of private sector challenged the validity of Rule 3 of the Rules. It was contended that the amended Rule 3 conferred arbitrary and unfettered powers on the Revenue; that it was inconsistent with the parent Act; and that the computation-method was neither based on intelligible differentia nor had any nexus with the object sought to be achieved, thus ultra i1ires Article 14 of B the Constitution. High Court,held that the classification between cities with regard to population was reasonable and rational, and thus, upheld the rnlid,ity · of Rule3. In a similar issue before another High Court, the validity of Rule 3 was upheld obsen'ing that the rule devised the method and the basis of ascertaining C the value of concession in the matter of rent which could not be held arbitrary or ultra vires; and that the classification between Government employees and employees of Companies, Corporations and other Public Undertakings was reasonable and not violative of Article 14 of the Constitution. Hence the present matters. Partly allowing the appeal and disposing of the transfer cases, the Court D HELD: I. In considering the validity of a statute the presumption is always in favour of constitutionality and the burden is upon the person who attacks it to show that there has been transgression of constitutional principles. For sustaining the constitutionality of an Act, a court may take E into consideration matters of common knowledge, reports, preamble, history of the times, object of the legislation and all other facts which are relevant. It must always be presumed that the Legislature understands and correctly appreciates the need of its own people and that discrimination, if any, is based on adequate grounds and considerations. It is also well-settled that courts will F be justified in giving a liberal interpretation in order to avoid .constitutional invalidit ## Text _Characters 0–39,915 of 98,799. This is a partial read: ask again with offset=39915 for what follows._ A B ARUN KUMAR AND ORS. i: UNION OF INDIA AND ORS. SEPTEMBER 15. 2006 [Y.K. SABHARWAL. CJ. C.K. THAKKERAND P.K. BALASUBRAMANY AN. JJ.] Income· fox Rules, 196] --Rule 3-lncome Tax Act, 1961 -Section C 1-12, -- .\lethod fur computing valuation u( perquisites-Amendment of- ( ·1assifi<·a1ion made between employees uf Government and employees of ! -•lil[Janies. Corporal ions or other Undertakings regarding acco111111uda1io11 1wovided hy employers-Validity oF-Held: Classification is reasonable based 011 i/1/elligible differenlia, h(n·ing rational nexus to the object sought to he achieved-It is neither arbitrw~-. discriminato~v or ultra vires Article I./ nor D in.-onsiste/l/ with sulation less than four lakhs. With regard to Central and State Government I-I 290 ARUN KUMAR v. U.0.1. 291 employees, earlier system of valuation of perquisite was retained. Appellants- A employees of private sector challenged the validity of Rule 3 of the Rules. It was contended that the amended Rule 3 conferred arbitrary and unfettered powers on the Revenue; that it was inconsistent with the parent Act; and that the computation-method was neither based on intelligible differentia nor had any nexus with the object sought to be achieved, thus ultra i1ires Article 14 of B the Constitution. High Court,held that the classification between cities with regard to population was reasonable and rational, and thus, upheld the rnlid,ity · of Rule3. In a similar issue before another High Court, the validity of Rule 3 was upheld obsen'ing that the rule devised the method and the basis of ascertaining C the value of concession in the matter of rent which could not be held arbitrary or ultra vires; and that the classification between Government employees and employees of Companies, Corporations and other Public Undertakings was reasonable and not violative of Article 14 of the Constitution. Hence the present matters. Partly allowing the appeal and disposing of the transfer cases, the Court D HELD: I. In considering the validity of a statute the presumption is always in favour of constitutionality and the burden is upon the person who attacks it to show that there has been transgression of constitutional principles. For sustaining the constitutionality of an Act, a court may take E into consideration matters of common knowledge, reports, preamble, history of the times, object of the legislation and all other facts which are relevant. It must always be presumed that the Legislature understands and correctly appreciates the need of its own people and that discrimination, if any, is based on adequate grounds and considerations. It is also well-settled that courts will F be justified in giving a liberal interpretation in order to avoid .constitutional invalidity. A provision conferring very wide and expansive powers on authority can be construed in conformity with legislative intent of exercise of power within constitutional limitations. Where a statute is silent or is inarticulate, the court would attempt to transmulate the inarticulate and adopt a construction which would lean towards constitutionality albeit without G departing from the material of which the law is woven. These principles have given rise to rule of 'reading down' the provisions if it becomes necessary to uphold the validity of the law. But if the provision of law is explicitly clear, language unambiguous and interpretation leaves no room for more than one construction, it has to be read as it is. In that case, the provision of law has to H 292 SUPREME COURT REPORTS (2006] SUPP. 6 S.C.R. A be tested on the touchstone of the relevant provisions of law or of the Constitution and it is not open to a Court to invoke the doctrine of "reading down" with a view to save the statute from declaring it ultra vires by carrying it to the point of 'perverting the purposes of the statute'. 1315-B-F; 316-G-H; 317-A-BI B Commissioner of Sales Tax, Madhya Pradesh & Ors. v. Radhakrishnan & Ors .. 119791 2 SCC 249; Olga Tellis v. Bombay Municipal Corporation. 1198513 SCC 545; Salem Advocate Bar Association v. Union of'fndiu, 120051 6 SCC 344; Minen1a Mills limited v. Union of India, 1198013 SCC 625 and Delhi Transport Corporation v. D. T.C. Mazdoor Congress and Ors., 11991 I C Supp I SCC 600, relied on. "Australian Federal Constitutional law" by Colin Howard, referred to. 2.1. Rule 3 of the Income Tax Rules, 1962 prior to its amendment dealt with the method of calculation of concession keeping in view the concept of D "fair rental value". The rule making authority provided an opportunity to the assessee to satisfy the Assessing Officer that the rent sought to be recovered from the employee could not be said to be 'concession' as it was 'fair rent', 'reasonable rent', 'market rent' or 'standard rent' and hence could not be said to be perquisite within the meaning of section 17(2)(ii) of the Income Tax E Act, 1961. In the amended Rule 3 of the Rules, the concept of "fair rental value" has been done away with. When the concept of"fair rent", "market rent", "reasonable rent" or "standard rent" is no more relevant or germane in deciding the question, it was open to the Legislature to empower the rule making authority to provide the method for calculation of"concession". The only method which has been adopted is to ci:lculate the rent on the basis of F population of the city in question which cannot be interfered with in exercise of power of judicial revie"'.1318-C-E; 319-F-HI 2.2. It cannot be acc~pted that the intention of the rule making authority was to afford an opportunity to the assessee to convince the Assessing Orticer that the rent recovered by the employer from his employee was not in the G nature of concession. Nor a court of law would, by interpretative process, grant such opportunity to the assessee so as to enable him to convince the Assessing Officer that the rent fixed was not covered by section 17(2)(ii) of the Act and therefore, was not a 'perquisite'.1318-E-Gl 2.3. It cannot be gainsaid that section 17 (2) wou Id apply only if there is H 'perquisite'. 'Perquisite' includes the value of rent-fr~e accommodation ARUN KUMAR v. U.0.1. 293 provided to the assessee by his employer; the value of any concession in the A matter of rent respecting any accommodation provided to the assessee by his employer. The definition of 'perquisite' is inclusive in nature and not exhaustive and takes within its sweep several matters enumerated in clauses (i) to (vii). 'Perquisite' is thus a privilege, gain or profit incidental to an employment in addition to regular salary or wages. Section 17(2) (ii) declares B that the value of any "concession" in the matter of rent respecting any accommodation provided to the employee by his employer would be "perquisite". Nevertheless it must be a "concession" in the matter of rent respecting any accommodation provided by the employer to his employee. The word "concession" has neither been defined in the Act nor in the Rules. Therefore, it is clear that before Section 17(2)(ii) can be invoked or pressed C ... into service and before calculation of concession as per Rule 3 is made, the authority exercising power must come to a positive conclusion that it is a concession. 1320-A-FI Officers· Association, Bhillai Steel Plant v. Union of India and Ors., (1983) 1 139 ITR 937; Indian Bank Offiw·s' Association and Ors. v. Indian D Bank and Ors., (1994) 209 ITR 72; Income Tax Officers v. All India Vijaya · Bank Officers' Association, (1997) 225 ITR 37; Steel Executives Associatioit v. Rashtrzva /spat Nigam ltd, (2000) 241 ITR 20; P. V. Rajgopal v. Union of India, (1998) 233 ITR ~78; BHEL Employees Association v. Union of India, (2003) 261 ITR IS (Kant); BHEl Executive/Officers Association and Anr. v. E Dy. Commissioner of Income Tax and Anr., (2004) 264 ITR 390; All India State Bank of Indore Officers' Co-ordination Committee and Ors. v. Central Board of Direct Taxes and Or~'., (2004) 186 CTR 649 (MP); Indian Aluminium Co. ltd. v. Thane Municipal Corporation, 119921 Supp I SCC 480 and V. Pechimethu v. Gowrammal, 120011 7 SCC 617, referred to. Owen v. Pook, (1969) 74 ITR 147 (HL); Rendell v. Went, (1964) 2 All ER 464 (HL), referred to. Bouvier's law DictionWJ'; Oxford English DictionalJ'; Webster's New International Dictio11G1y; Concise Oxford English Dictio11G1y; "Advanced law F Lexicon" by P.R. Aiyer (2005) Vol. I p. 944, referred to. G 3.1. A "jurisdictional fact" is a fact which must exist before a Court, Tribunal or an Authority assumes jurisdiction over a particular matter. The existence of jurisdictional fact is thus sine qua non or condition precedent for the exercise of power by a court of limited jurisdiction. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate H 294 SUPREME COURT REPORTS [2006J SUPP. 6 S.C.R. A decision in accordance with law. Once the authority has jurisdiction in the matter on existence of'jurisdictional fact', it can decide the 'fact in issue' or 'adjudicatory fact'. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a Court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of cerliorari. The underlying B principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise do not posses. Further a wrong decision on 'fact in issue' or on 'adjudicatory fact' would not make the decision of the authority without jurisdiction or vulnerable provided essential or fundamental fact as to existence of jurisdiction is present. 1320-F-H; 323-FI c Raja Anand Brahma Shah v. State of U.P. & Ors .. AIR (1967) SC 1081 : 1196711SCR362; State of M.P. & Ors. v. D.K. Jadav, AIR (1968) SC 1186 : 1196812 SCR 823 and Ra:a Textiles ltd v. lncome Tar Officer, Rampur, 119731 I SCC 633: AIR (1973) SC 1362, referred to. D While & Collins v. /\Iinisler af Heallh. (1939) 2 KB 838: 108 LJ KR 768, referred to. Ha!sblllJ' 's laws of England. referred to. 3.2. The "concession" under clause (ii) of sub-section (2) of Section 17 E of the Act is a 'jurisdictional fact'. It is only when there is a 'concession' in the matter of rent respecting any accommodation provided by an employer to his employee that the mode, method or manner as to how such concession can be computed arises. The method of fixation of amount is 'fact in issue' or 'adjudicatory fact'. If the assessee contends that there is no 'concession', the authority has to decide the said question and record a finding as to whether F there is 'concession' and the case is covered by Section 17 (2) (ii) of the Act. Only thereafter the authority may proceed to calculate the liability of the assessee under the Rules. Therefore, in spite of the legal position that Rule 3 is intra vires, valid and is not inconsistent with the pro\' is ions of the parent Act under Section 17 (2) (ii) of the Act, it is still open to the assessee to G contend that there is no 'concession' in the matter of accommodation provided by the employer to the employee and hence the case did not fall within the mischief of Section 17 (2) (ii) of the Ad. !323-G-H; 324-A-BI 3.3. Section 17(2)(ii) does not contain any 'deeming clause' that once it is established that an employee is paying rent less than 10 per cent of his H salary in cities having population of four lakhs or 7.5 per cent in other cities, ARUN KUMAR v. U.0.1. 295 it should be deemed to be a 'concession' within the meaning of the Act and A such employee must be deemed to receive a 'concession' in the form of 'perquisite' in the payment of rent. An employer may provide residential accommod<1tron to his employees for several reasons. It is also possible that for making available staff quarters/ colonies/accommodations, State Governments or Central Government may provide land to Public Sector Undertakings/ Companies/ Corporations at a concessional rate imposing appropriate conditions including amount of rent, if any, to be recovered by the employer. 1324-C-EI B 3.4. Rule 3 would apply only to those cases where 'concession' has been shown by an employer in favour of an employee in the matter of rent C respecting accommodation. Thus, whereas 'charging provision' is found in the Act of Parliament !Section I 7(2)(ii)I, 'machinery component' is in the subordinate legislation (Rule 3). The latter will apply only after liability is created under the former. Unless the liability arises under Section I 7(2)(ii) of the Act, Rule 3 has no application and the method of valuation for calculating concessional benefits cannot be resorted to. 1326-B-CI D CIT, Bombay v. British Bank of Middle East, 1200118 SCC 36, referred to. Alexander Tenant v. Robert Smith, (1892) AC 150 (HL); Tyrer v. Smart 1197811 All ER 1089: (1978) I WLR 415; Hochstrasser v. Mayes, (1960) AC 376 (HL), referred to. 4.1. Article 14 of the Constitution guarantees equality before the law and confers equal protection of laws. It is also true that it prohibits the State from denying persons or class of persons equal treatment provided they are equals and are similarly situated. But, it is equally well established that Article 14 seeks to prevent or prohibit a person or class of persons from being singled out from others situated similarly. If two persons or two classes E F are not similarly situated or circumstanced, they cannot be treated similarly. Article 14 prohibits dissimilar treatment to similarly situated persons, but does not prohibit classification of persons not similarly situated, provided G such classification is based on intelligible differentia and is otherwise legal, valid and permissible. 1327-B-DI 4.2. The distinction sought to be made by the rule making authority between employees of the Central Government as well as State Governments and other employees i.e., employees of Companies, Corporations and other H 296 SUPREME COURT REPORTS [2006] SUPP. 6 S.C.R. A Undertakings is reasonable classification based on intelligible differentia. It has also rational nexus to the object sought to be achieved. Rule 3 takes into account service conditions of employees of Government vis-a-1·is employees of Corporations, Companies and other Undertakings and prescribes method of calculating value of all perquisites. Such a provision, cannot be held to be B arbitrary, objectionable or ultra vires Article 14 of the Constitution. 1327-G-H; 328-AI Confederation of E.'C-Servicemen Associalions & Ors. v. Union of India & Ors., decided by S.C. on August 22, (2006), relied on. S.l. Agarwal v. General Manager, Hindustan Steel Ltd., I 19701 1 SCC C 177: (19701 3 SCR 363; Ajit Kumar Nag v. General Manager, Indian Oil Corporation Ltd., 120051 7 SCC 764; BHEL employees Assuciatioli v. Union of India, (2003) 261 ITR 15 (Kar) and Aditya Cement Staff Club v. Union of India, (2004) (266) ITR 70, referred to. 0 CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3270 of2003. From Final Judgment!Order dated 14.6.2002 of the High Court of Jharkhand at Ranchi in W.P. (T) No. 2835/2002. WITH E TC (C) Nos. 101and102 of2006. Jagdeep Dhankar, M.N. Krishnamani, Harish N. Salve, M.L. Venna, Barun K. Sinha, Pratibha Sinha, B.K. Satija, Satya Mitra, M.K. Dua, Yash Pal Dhingra, Anil Mittal and Kailash Chand for the Appellants. Mohan Parasaran, A.S.G., 1'javin Prakash, Gaurav Dhingra, Chidananda F D.L., Sulakshana Jayaram, Senthil V.elan, B.V. Balaram Das, Kirti Mishra and Rustom B. Hathikhanawala for the Respondent (Union of India). Rohit Singh. D.K. Sinha. Bharat Sangal, N.P. Midha. R.K. Kumar, S. Chatterji and L. Roshmani for MPSEB, G M.L. Venna and Punit Dutt Tyagi for TISCO. The Judgment of the Court was delivered by C.K. THAKKER, J. In Civil Appeal as well as in Transferred Cases, the appellants have challenged validity of Rule 3 of the Income Tax Rules, 1962, H as amended by the Income Tax (Twenty-second) Amendment Rules, 2001. ' . ARUN KUMAR v. U.0.1. [C.K. THAKKER. J.j 297 (hereinafter referred to as 'the Rules') which amended the method of computing A valuation of perquisites under Section I 7(2) of the Income Tax Act. 196 I (hereinafter referred to as 'the Act'). According to the appellants, amended Rule 3 is inconsistent with the parent Act and also ultra vires Article 14 of the Constitution. To understand the controversy raised in the present proceedings, B relevant factual background in Civil Appeal No. 3270 of 2003 may be stated; The appellants were employed as officers/ executives by Tata Iron & Steel Co. Ltd. ('TISCO' for short). According to the appellants, usually public sector undertakings provide housing facilities or grant house rent allowance in lieu of accommodation to their employees. Nom1ally, house rent allowance c is granted where public sector enterprises are unable to provide housing accommodation to their employees. Such situations arise when officers/ executives are posted in cities or metropolitan offices of the enterprises where company accommodation is either not available or available to a limited extent. For the purpose of accommodating its employees. TISCO has D constructed several residential bungalows/ flats/ quarters/ accommodations in the township of Jamshedpur and around its plants. They were allotted to its employees as also to other agencies including employees of the Central Government and State Government who were either transferred or posted in Jamshedpur. TISCO used to fix annual licence fees of each such ~ccommodation at the rate of 5% of the capital cost/expenditure of the bungalows/flats/quarters. On September 25, 2001, the Central Board of Direct Taxes (CBDT) issued Notification, No. S.O. 940 (E) in the exercise of power under Section 295 read with sub-section (2) of Section 17 and sub-section (2C) of Section I 92 of the Act by which Rule 3 ha\l been amended. The substituted rule revised the method of computing valuation of perquisites in the matter of rental accommodation provided by employers to their employees. It was stated that pursuant to the amendment in Rule 3, Respondent E F NO. 4 (TISCO) issued a letter dated October 25, 200 I informing all its G employees about amended Rule 3 in respect of valuation of perquisite which were to be added to the salary of the employees for taxing purposes. Aggrieved by the above action, the appellants herein filed Writ Petition No. 2835 of2002 in the High Court of Jharkhand at Ranchi for the following reliefs; H 298 SUPREME COURT REPORTS [2006] SUPP. 6 S.C.R. A (i) For issuance of an appropriate writ(s)/ order(s)/direction(s) in the B c nature of certiorari quashing the notification No. S.O. 940 (E) dated 25.09.2001 whereby and whereunder Rule 3 of the Income Tax Rules has been amended by the Government of India. Ministry of Finance. Department of Revenue (Central Board of Direct Taxes) and to hold and declare it as ultra vires the Income Tax Act. (ii) For issuance of a further appropriate writ/ order/ direction, including writ of mandamus directing the Respondents, particularly Respondent Nos. 3 and 4, not to implement the provisions of the aforesaid amended Rule during the pendency of the writ petition, AND/OR (iii) Pass any other order(s)/direction(s) as Your Lordship may deem fit and proper in the facts and circumstances of the case. It was contended by the employees before the High Court that Rule 3 D as amended in 200 I conferred arbitrary and unfettered powers on the Revenue and was ultra vires the Act. It was also urged that the computation-method was neither based on intelligible differentia nor had any nexus with the object sought to be achieved and thus ultra virr;s Article 14 of the Constitution. A counter-affidavit was filed by the Revenue stating that the Finance E Minister in his Budget Speech had outlined that "the value of perqui~ites, benefits or amenities shall be determined on the basis of their cost to the employer except in respect of house and cars where different criteria would be adopted for simplicity". It was stated that in adopting and applying Rule 3 as it existed prior to the impugned amendment, there being three classes of F employees, the Revenue was facing difficulties with respect to various matters including the determination of the fair market value of the property which was found very cumbersome. Moreover, it did not take into account high rent in the metro towns. It has been averred in the reply-affidavit that the estimation of fair rent had been the subject-matter of litigation at various levels mainly on account of the fact that legislation with respect to rents being State G subject differed from State to State. The value of fair rent could not be determined as the standard rent was not unifonn in all municipal areas. It was accordingly decided to simplify and rationalize the procedure for determining the perquisite value and accordingly as per the impugned rules, the employees have been divided only in two categories. H .. ARUN KUMAR v. U.0.1. [C.K. THAKKER. J.] 299 The Revenue had also explained in the counter the rationale for the A· distinction between Government employees and other employees. It has been stated that for purposes of the valuation of the perquisites relating to accommodation, the employees have been classified under the impugned amended rule into two categories, namely, (i) Government (Central and State) employees and (ii) others. To maintain continuity and equity with their B remuneration and a variety of other benefits available in other sectors, the earlier system of valuation of perquisites relating to accommodation on the basis of rent payable as per rules framed by the Government has been retained for Central and State Government employees. For others, that is, employees belonging to private as well as public sector undertakings, it has been decided that the valuation of the perquisites relating to accommodation C should be 10 per cent.or 7.5 per cent of the salary as the case may be. As per the assertion of the respondents, this was decided in keeping with the recommendation of the expert group constituted to rationalize and simplify income-tax laws. Observing that the classification between cities with population of less D than four lakhs and others with more than four lakhs as reasonable and rational, the High Courtupheld the validity of Rule 3. According to the Court "for rationalizing and simplifying the procedure, the Board brought about the impugned notification" which could not be held. unreasonable from any yardstick or parameter. The said decision is reported as Tata Workers' Union E & Anr. v. Union of India & Ors., (2002) 256 !TR 725. A similar question was raised before the High Court of Calcutta in Coal Mines Officers' Association of India & Anr. v. Union of India & Ors., (2004) 266 !TR 429. Taking note of the language of Rule 3 prior to amendment in 2001 and after the amendment, a single Judge held that after 2001, there was no F scope for determination. of 'fair rental value'. The concept of fair rental value on the basis of the normal rent or on the basis of market rent available in the locality or on the basis of the municipal valuation has been done away with. It was also held that the rnle devised the method and basis of ascertaining the value of concession in the matter of rent which could not be declared arbitrary or ultra vires. The Court was also of the view that the difference G between the Government employees and other employees was not violative of Article 14 of the Constitution. The correctness of the decisions of the High Courts of Jharkhand and . Calcutta has been questioned in the present matters. H 300 SUPREME COURT REPORTS [2006] SUPP. 6 S.C.R. A We have heard the learned counsel for the parties. Mr. Harish Salve, Senior Advocate appearing for the appellants raised several contentions. He urged that the condition precedent for exercise of power under Section 17 (2) of the Act read with Rule 3 of the Rules is that it must be a .. perquisite" within the meaning of the Act. Clause (ii) of subB section (2) of Section 17 can be attracted provided there is .. concession" in the matter of rent respecting any accommodation provided by the employer to his employee. If there is no ··concession'', sine qua non or condition precedent is absent and there is no 'perquisite' as well. Since there is no concession in the instant case, Section 17 (2) (ii) of the Act would not apply C nor Rule 3 of the Rules is attracted and no liability has arisen. It was alternatively urged that old Rule 3, prior to its amendment in 2001, made available a 'window' by providing that in cases where assessee claimed and the Assessing Officer was satisfied that there was no 'concession', the assessee was not liable to pay tax. The rule as amended in 200 I has taken away the right of the assessee to claim that there was no concession as D envisaged by Section 17 (2) (ii) and hence Rule 3 had no application. Similarly. it took away the power of the Assessing Officer to hold that there was no 'concession'. even if he is 'satisfied' about the absence of 'concession'. 'Concession· is the "jurisdictional fact" for the exercise of power under the Act and in absence thereof. the authority cannot impose taxing liability. It was E also submitted that in Rule 3, the Court may apply the concept of dudi alteram partem and observance of natural justice by a process of 'reading down'. By such process, Rule 3 can be saved from vice of arbitrariness and unreasonableness. If such a process is expressly or impliedly prohibited, the rule becomes arbitrary and ultra vires Articles 14 and 19 of the Constitution. According to Mr. Salve, the parent Act imposes an obligation on the assessee F to deduct tax at source from the salary of his ~mployee provided that the employer has extended accommodation to his employee at a concessional rate. Rule 3 mere I) provides mode, method or manner of calculation of liability and is thus a "machinery'' provision. The liability, according to the learned counsel, must be fixed by a competent Legislature under the statute i.e. under G Section 17(2)(ii) of the Act and only after such liability is fixed, the question of computation thereof will arise which can be done by machinery provision i.e. under Rule 3 of the Rules. Rule 3. which is a child legislation, delegated legislation or subordinate legislation cannot impose liability on the employer to deduct tax or on the employee to pay tax holding that the concessional rent was 'perquisite' within the meaning of Section 17 (2) (ii) of the Act. That H is the exclusive domain of the Legislature. Since there was no ·concession', ARUN KUMAR v. U.0.1. [C.K. THAKKER. J.J 301 Rule 3 has no application. A It was also submitted that the argument on behalf of the Revenue that such a course had been adopted b.Y fixing flat rates because of "practical difficulties" of the Revenue in calculating the amount of rent and in dealing with individual cases is not only irrelevant and immaterial but is illegal, unlawful and without power or authority of law. The counsel fairly stated that B as a rough and ready test, the procedure laid down in Rule 3 for fixing rent on the basis of population may not be objectionable but it is only when it is proved that there is a concession in the matter of rent respecting any accommodation provided by the employer to the employee that such method can be applied. He, however, contended that even in such cases, there must be a provision allowing or permitting the assessee to contend that there is C no concession. Mr. Dhankar, Senior Advocate appearing for one of the petitioners, adopted the arguments of Mr. Salve. He, however, additionally contended that a distinction sought to be made between employees of the Government on one hand and employees of Companies, Corporations or other Undertakings D on the other hand, is artificial and irrational, neither based on intelligible differentia nor has it any nexus to the object to be achieved. Difference of payment while considering 'perquisite' between the two classes would thus be arbitrary, discriminatory and ultra vires Article 14 of the Constitution. Mr. Parasaran, learned Additional Solicitor General appearing on behalf E of the Revenue supported the decisions impugned in the present proceedings. He submitted that the Rules prior to 200 I were based on "fair rental value of the accommodation". In view of the said concept, it provided an opportunity to the assessee, if he claimed to satisfy the Assessing Officer that the sum arrived at on the basis of Rule 3, as it then stood, did not exceed such 'fair F rental value of the accommodation' and hence could not be said to be 'perquisite' within the meaning of Section 17 (2) (ii) of the Act. The concept of fair rental value of the accommodation has been given the go by in view of practical difficulties realized by Revenue. Under the amended rule of 200 I, "fair rent", "market rent" "standard rent", "reasonable rent" etc., has no relevance at all. Keeping in view the ground reality and rent usually charged G in cities having population exceeding four lacs and in other ci~s. the rule has been amended. It is a relevant and germane consideration which can neither be termed arbitrary nor unreasonable, nor violative of the provisions of the Constitution. According to Mr. Parasaran, ultimately it was a policy decision taken by the authority as to how calculation of perquisite should be made. H 302 SUPREME COURT REPORTS [20061SUPP.6 S.C.R. A Prior to 200 I one policy was accepted by the Government. The said policy was subsequently changed and now, new policy has been deviced. In such policy matters, normally, a court of law would not interfere unless the policy is totally arbitrary or unreasonable. It was also submitted that the amended rule was challenged by employers and assessees and several High Courts upheld the validity thereof. According to Mr. Parasaran, considering all relevant B facts, it was decided by Revenue that providing accommodation at less than 10% of salary in cities having population exceeding four lakhs and 7.5% of salary in other cities would be deemed to be "'concession" in the matter of rent respecting such accommodation provided to the employees by the employer. In the light of such decision, Rule 3 cannot be held ultra vires C either the parent Act or the Constitution. He further submitted that if this Court comes to the conclusion that ''concession" in the matter of rent is a condition precedent for the exercise of power under Section 17 (2) (ii) of the Act and only thereafter the machinery provision of Rule 3 would apply, the Court may invoke the doctrine of 'reading down' holding it intra vires and constitutional by extending an opportunity to assessee to satisfy the Assessing D Officer that there was no 'concession'. Regarding discrimination between employees of Government and employees of Companies, Corporations and other Undertakings, he submitted that it is a valid classification and it has been based on intelligible differentia. It also seeks to achieve an object by considering the position of two sets of employees. Such a provision cannot be struck down as infringing Article 14 of the Constitution. E Before we proceed to consider the rival contentions of the parties, it may be appropriate if we refer to the relevant provisions of the Act, the Rules and important decisions on the point. Section 17 of the Act defines 'salary', ·perquisite' and ·profits in lieu of salary'. Relevant part of the said section F reads thus - G H 17. For the purposes of sections 15 and 16 and of this section. (I) ... ... (2) 'perquish." includes (i), the value 01 ~ent-free accommodation provided to the assessee by his employer; (ii) the value of any concession in the matter of rent respecting any accommodation provided to the asse:so·cf l1"' his employer. ARUN KUMAR v. U.0.1. [C.K. THAKKER. J.). 303 It is thus clear that the definition of the term 'perquisite' covers various· items mentioned therein. It is also clear that the definition is inclusive in nature and not exhaustive. A According to Bouvier's law DictionmJ', the expression 'perquisite' in B a most limited sense means "something gained by a place or office beyond the regular salary or fee". Oxford English Dictionary defines 'perquisite' as "any casual emolument, fee or profit attached to an office or position in addition to a salary or wages". According to Webster's New lnternalional Dictionary, 'perquisite' is "a gain or profit incidentally made from employment in addition to regular salary or wages, especially one of a kind expected or promised". 'Perquisite' is thus a privilege, gain or profit incidental to an emp_loyment in addition to regul1r salary or wages. As observed by the House of Lords in Owen v. Pook, (1969) 74 ITR c D 147 (HL), 'perquisite' has a known normal meaning, namely, a personal advantage. The word would not apply to a mere reimbursement of ii necessary disbursement. In Rende/Iv. IVent, [1964] 2 All ER 464 (HL). the House held· that any benefit or advantage, having a money value, which the holder of an E office under the company derives from the company's spending on his behalf will come under the tem1 'perquisite'. Indian Courts have also held that 'perquisite' is a benefit or an advantage received by the holder of an office over and above his salary. The benefit received by an employee is incidental to employment in excess of or in F addition to the salary. Section 295 of the Act enables the Board [as defined in clause ( 12) of Section 2 as 'Central Board of Direct Taxes' (CBDT) constituted under the Central Boards of Revenue Act, 1963] to make rules for carrying out the purposes of the Act. G The relevant part reads thus; "295. Power to make Rules. (I) The Board may subject to the control of the Central Government, by notification in the Gazette of India, make rules for the whole or any part of India for carrying out the H 304 SUPREME COURT REPORTS [2006) SUPP. 6 S.C.R. A purpos.:s of this Act. B c (2) In particular. and without prejudice to the generality of the foregoing power, such rules may provide all or any of the following matters: (a) ....... (b) (c) the determination of the value of any perquisite chargeable to tax under this Act in such manner and on such basis as appears to the Board to be proper and reasonable.'' Sub-section (2C) of Section 192 of the Act enacts that a person responsible for paying any income chargeable under t6e head ·'Salaries" shall furnish to the person to whom such payment is made a statement giving correct and complete particulars of perquisites or profits in lieu of salary D provided to him and the value thereof in such form and manner as may be pre;cr:bed. In exercise of the power conferred by Section 295 of the Act. the Board framed rules known as the Income Tax Rules, 1962. Rule 3 lays down the method for computing valuation of perquisite. Before the amendment in 2001. E relevant part of the said rule read as under - F Valuation of perquisites. 3. For the purpose of computing the income chargeable under the head "Salaries" the value of the perquisites (not provided for by way of monetary payment to the assessee) mentioned below shall be determined in accordance with the following clauses, namely: (a) The value of rent-free residential accommodation shall be determined on the basis provided hereunder. namely: (i) where the accommodation is provided - G (A) by Government to a person holding an office or post m H connection with tht: affairs of the Union or of a State; (B) by a body or undertaking under the control of Government to any officer of Government whose services have been lent to that body or undertaking (the accommodation itself having ARUN KUMAR'" U.0.1. (C.K. THAKKER. ll 305 been allotted to it by Government), A an amount equal to (I) if the accommodation is unfurnished. the rent which has been or would have been determined as payable by such person or officer in accordance with the rules framed by B Government for allotment of residences to its officers; (2) if the accommodation is furnished, an amount calculated in accordance with sub-clause (i)(l) plus [I 0 per cent] per annum, of the original cost of the fu\·niture (including television sets, radio sets, refrigerators, other household C appliances and air-conditioning plant or equipment) or if such furniture is hired from a third party, the actual h.ire charges payable therefore;] Provided that (I) where the fair rental value of the accommodation is in excess of 20 per cent of the assessee's salary, the value of perquisite shall be taken to be I 0 per cent of the salary increased by a sum equal to the amount by which the fair rental value exceeds 20 pt:r cent D of the salary; so, however, that the Assessing Officer may, having E regard to the nature of the accommodation, determine the sum by which I 0 per cent of the salary is to be increased, as a percentage (not exceeding I 00 per cent) of the amount by which the fair rental value exceeds 20 per cent of the salary; (2) where the assessee claims, and the Assessing Officer is satisfied F that the sum arrived at on the basis provided above exceeds the fair rental value of the accommodation, the value of the perquisite to the assessee shall be limited to such fair rental value; (b) The value of residential accommodation provided at a concessional rent shall be detennined as the sum by which the value computed in accordance with clause (a), as if the G accommodation were provided free of rent, exceeds the rent actually payable by the assessee for the period of his occupation during the relevant previous year. H 306 SUPREME COURT REPORTS [2006] SUPP. 6 S.C.R. A By the Income Tax (Twenty-second Amendment) Rules, 200 I, Rule 3 B was amended and the relevant part reads thus - "3. Valuation of perquisites: For the purpose of computing the income chargeable under the head 'salaries'. the value of perquisites provided by the employer directly or indirectly to the assessee (hereinafter referred to as 'employee') or to any member of his household by reason of his employment shall be determined in accordance with the following sub-rule, namely (I) The value of residential accommodation provided by the employer C during the previous year shall be determined on the basis provided in the Table below SI. Circumstam:es Where Where No. accommodation is accommodation unfurnished is furnished D (I) (2) (3) (4) I) \\!here the accommodation I.