ATUL CHANDRAKANT KIRLOSKAR,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

The assessee has raised the following ground of appeal:-

The only issue raised in the present appeal is against addition of perquisite made being notional interest on interest free deposits kept with the landlord.

Briefly, in the facts of the case, the assessee is Managing Director of Kirloskar Oil Engines Ltd. The said company had purchased one bungalow for ₹ 2.46 crores in financial year 2002-03, which was sold to the wife of assessee Mrs. Arti Atul Kirloskar for ₹ 4.27 crores on 10.01.2006. The company had taken the bungalow on lease through Lease Deed dated 01.12.2007 for annual lease rental of ₹ 18 lakhs and interest free deposit of ₹ 1 crore. The leased bungalow was provided as rent free accommodation to the assessee. The perquisite value of the said bungalow at ₹ 18 lakhs was added in the hands of assessee. The Assessing Officer was of the view that the value of perquisite should be higher in view of the interest free deposit of ₹ 1 crore made to the wife of assessee. Hence, he re-computed the value of perquisite at ₹ 28 lakhs.

The CIT(A) noted that there was amendment in Rule 3 of the Income Tax Rules, 1962 (in short ‘the Rules’), which was applicable to assessment year 2007-08 i.e. captioned assessment year and he upheld the order of Assessing Officer, against which the assessee is in appeal.

The learned Authorized Representative for the assessee referred to the provisions of Rule 3 of the Rules and pointed out that perquisite value of residential accommodation provided by the employer was to be computed on actual amount of lease rental paid or payable by the employer and not on notional basis. He further placed reliance on the ratio laid down by the Hon’ble

The learned Departmental Representative for the Revenue on the other hand, pointed out that the amount of lease rental as provided in Rule 3 of the Rules is paid or payable. He further placed reliance on the order of CIT(A) in para 5.4.2. 8. We have heard the rival contentions and perused the record. The assessee was Managing Director of the concern M/s. Kirloskar Oil Engines Ltd. The assessee had received rent free accommodation from the said concern. On the other hand, the company had taken on lease a bungalow owned by the wife of assessee Mrs. Arti Atul Kirloskar and had paid annual rent of ₹ 18 lakhs in addition to the interest free security of ₹ 1 crore. The assessee had offered the perquisite value of rent free accommodation provided to him by the company, as taxable in its hands at ₹ 18 lakhs i.e. rent paid to the landlord. However, the authorities below were of the view that in addition to the rent paid, notional interest chargeable on interest free deposit of ₹ 1 crore was also to be added as perquisite in the hands of assessee. Hence, re-computation of perquisite value resulting in addition of ₹ 10 lakhs.

The computation of perquisite value of rent free accommodation is to be computed as per Rule 3 of the Rules as amended by the Income Tax (22nd Amendment) Rules, 2001, provided the formulae for computing the same. Plain reading of Rule 3 of the Rules at the relevant time laid down that perquisite value of rent free accommodation provided by the employer was to be computed on actual amount of lease rent paid or payable, by the employer and no notional income on account of interest due on security deposit is to be added in the hands of assessee. Such is the proposition laid down by the Hon’ble Bombay High Court in CIT Vs. Shankar Krishnan (supra). Where the issue before the Hon’ble Bombay High Court related to assessment year 2001- 02, in the facts of the said case, the assessee had computed perquisite value of accommodation at ₹ 1,20,000/- being the rent paid by the employer to the landlord. The Assessing Officer however, added the notional interest due on interest free deposit of ₹ 30 lakhs advanced to the landlord. The Hon’ble High Court took note of the provisions of Rule 3 of the Rules as amended with retrospective effect from 01.04.2001 and held as under:- “9. Thus, on a plain reading of Rule 3, it is seen that the perquisite value of the residential accommodation provided by the employer is to be computed on actual amount of lease rental paid or payable by the employer and not on notional basis. Therefore, in our opinion, the contention of the revenue that the notional interest on the deposits paid by the employer to the landlord has to be taken into consideration while computing the perquisite value of the residential accommodation cannot be accepted in view of the express words used in Rule 3 of the Income Tax Rules, 1962 as amended w.e.f. 1.4.01. 10. In the present case, admittedly, the actual amount of lease rent paid by the employer is less than 10% of the salary of the Assessee and therefore, the decision of the ITAT in holding that the actual amount of lease rent paid by the employer should be taken into consideration while computing the perquisite value of the residential accommodation cannot be faulted.”

The issue arising in the present appeal is similar to the issue before the Hon’ble Bombay High Court in CIT Vs. Shankar Krishnan (supra) and following the same parity of reasoning, we hold that there is no merit in re-working the perquisite value of rent free accommodation provided by the employer to the assessee and hence, we delete the addition made of ₹ 10 lakhs. The ground of appeal raised by the assessee is thus, allowed.

In the result, the appeal of assessee is allowed.

The Pr.CIT-6, Pune; ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे “ए” / DR 5. ‘A’, ITAT, Pune; 6. गार्ड पाईऱ / Guard file. आदेशािुसार/ BY ORDER, सत्यावऩत प्रतत //// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे / ITAT, Pune