Income-tax---

----Salary---Perquisite---Circular of employer-company stating that interest subsidies paid to employees or on their behalf to L.I.C./H.D.F.C. on House Building Loans constitute perquisites-- Circular is valid-- -Interest subsidy granted in respect of house building loans of employees taken from L. I. C./H.D.F. C.---Taxable perquisites---Indian Income Tax Act, 1961, S.17(2)(iv).

Section 17(1) of the Income Tax Act, 1961, speaks about salary. As per section 17(1)(iv), any perquisite provided/paid to the employee would amount to salary. Section 17(2) speaks about perquisite. As per section 17(2)(iv), perquisite includes any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee. Circular, dated February 12, 1990, issued by the B.H.E.L. makes it clear that the payment of interest subsidy either to the employees or paid to the agencies on their behalf is a taxable perquisite under section 17(2)(iv) of the Income Tax Act and tax is to be recovered on such amount as per the provisions of the Act: The circular is in accord with the statutory provisions of the Income-tax Act.

The petitioners were permanent employees of B.H.E.L. The said company had a House Building Advance (H.B.A.) Scheme for purchase of house or flat. Every employee who had not less than 5 years of continuous service was entitled to avail of this house building advance. The interest to be charged on the loan was at the rate at which the Government charges for such class of loans. Option was given to the employee to approach the L.I.C./H.D.F.C. to raise loan, in which case the company would grant a subsidy to the employee to meet the difference between the company's and the L.I.C./H.D.F.C. rate of interest. Such option was left to the concerned employee. The petitioners had availed of house building advance loans. They were paid interest subsidies. They filed a writ petition challenging the validity of the Circular, dated February 12, 1990 and for refund of tax deducted in respect of interest subsidy:

Held, dismissing the writ petition, that the payment of interest subsidy by the employer either to the employees or to the agencies like L.I.C./H.D.F.C. on their behalf on the House Building Loans taken by the employees from L.I.C./H.D.F.C. was a taxable perquisite under section 17(2)(iv) of the Act. Tax was to be recovered on such amount.

Mrs. Reeta Chandrasekar for Messrs Aiyar and Dolia for Petitioners.

S. V. Subramaniam for Respondents Nos.1 and 2.

JUDGMENT

The petitioners numbering 16 who are employees of Bharat Heavy Electricals Limited, Ranipet, aggrieved by the Circular, dated February 12, 1990, of the third respondent have approached this Court for quashing the same and for a direction directing the respondents to refund the tax if any deducted from the salary of the petitioners herein on the amount of interest paid to the H.D.F.C. on behalf of the petitioners by way of subsidy between the rate actually chargeable under the House Building Advance Scheme framed by the third respondent-company and the actual interest paid to the H.D.F.C. on the House Building Loan arranged by the third respondent-company for the petitioners.

According to the petitioners, they are all permanent employees of Baharat Heavy Electricals Limited. The said company has got House Building Advance (H.B.A.) Scheme for purchase of house or flat. Every employee who has not less than five years of continuous service is entitled to avail of this House Building Advance. The interest to be charged on the loan is at the rate at which the Government charges for such class of loans. Option is given to the employee to approach the L.I.C./H.D.F.C. to raise loan, in which case the company will grant subsidy to the employee to meet the difference in the company and the L.I.C./H.D.F.C. rate of interest. Such option is left to the concerned employee. The petitioners have availed of House Building Advance loans and they are bound to pay the interest to the company at the rate which the company is charging for house building advance. The third respondent company due to lack of funds for granting the advance under the Scheme has asked the employees to approach and avail of the loan from the L.I.C./H.D.F.C. The employee is liable to pay a sum of Rs.528 per month by way of interest but really he pays Rs. 1,357 from his salary every month to the H.D.F.C/L.I.C. Thus the company sub-sidises every month the payment of interest to the extent of Rs.528. It is the obligation of the company to provide House Building Advance under prescribed rate of interest and it is not the obligation of the employee to pay a higher rate of interest than the prescribed rate of interest under the House Building Advance Scheme. At the time of payment of salary to the petitioners, the company deducts the amount equivalent to the installment along with the interest calculated at the company rate, as prescribed under the House Building Advance Scheme. By the impugned circular issued by the Deputy Manager/Finance of the third respondent, Ranipet, it is made clear that the payment of interest subsidy either to the employees or paid to the agencies on their behalf is a taxable perquisite under section 17(2)(iv) of the Income-tax Act and tax is to be recovered on such amount as per the provisions of the Act. The circular is said to have been passed after due consideration with the Commissioner of Income-tax and the concerned Income-tax Officer. The petitioners have no other alternative appropriate forum to seek redressal of their grievance as tax is likely to be deducted at source on the amount of interest subsidy paid directly by the company to the H.D.F.C. in regard to the loan availed of by the petitioners under the House Building Advance Scheme. The said subsidy is not a "perquisite" within the meaning of section 17(2)(iv) of the Income Tax Act, 1961, and such deduction is wholly without jurisdiction.

The contesting respondent, namely, Bharat Heavy Electricals Limited/third respondent, has not filed any counter-affidavit.

In the light of the above factual position, I have heard learned counsel for the petitioners as well as the respondents.

Mrs. Reeta Chandrasekar, learned counsel appearing for the petitioners, after taking me through the House Building Advance Scheme as well as the relevant provisions of the Income-tax Act, has contended that subsidy granted by the third respondent-company is not a perquisite within the meaning of section 17(2)(iv) of the Income-tax Act. She also contended that even otherwise there is no obligation cast on the petitioners to avail of loans from the H.D.F.C. and pay such higher rate prescribed under the House Building Advance Scheme and hence any subsidy by way of interest paid by the company to the H.D.F.C. between the rate chargeable for the housing loan under the House Building Advance Scheme and the rate actually paid to the H.D.F.C. is not in discharge of any obligation on the part of the employees within the meaning of section 17(2)(iv) of the Income-tax Act. None appeared for the third respondent-company. However, Mr. S.V. Subramaniam, learned senior counsel for the income-tax (respondents Nos.1 and 2) by placing the relevant provisions of sections 17(2)(iv), 192, 199, 200 and 203, has contended that the impugned circular issued by the third respondent is in accordance with the statutory provisions and no prejudice has been caused to the employees by deducting tax at source. In other words, according to him, the third respondent has only performed the statutory obligation.

I have carefully considered the rival submissions. There is no dispute that the third respondent-company is having a Scheme called House Building Advance Scheme for purchase of house or flat. The said Scheme is intended only for the employees of the third respondent company and several employees who had completed five years of continuous service are entitled to avail of the said House Building Advance Scheme. No doubt, if the company itself provides the entire amount for the purchase of the house or flat, the rate of interest is less compared to the interest rate in respect of the loans being sanctioned by the L.I.C./H.D.F.C. However, if any employee prefers to approach the L.I.C./H.D.F.C. to raise loan, the third respondent-company will grant a subsidy to the employee to meet the difference between the company and the L.I.C./H.D.F.C. rate of interest. It is contended that since the company has to provide the said facility and there is no obligation on the part of the employees to avail of the loan from the L.I.C. or H.D.F.C. and whatever subsidy the company gives, the same cannot be deducted from the gross income of the employees concerned.

The relevant provision under the Income Tax Act, 1961, is section 17. Section 17(1) speaks about salary. As per section 17(1)(iv), any perquisites provided/paid to the employee would amount to salary. Section 17(2) speaks about perquisite. As, per section 17(2)(iv), perquisite includes any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee.

On a perusal of the Scheme of the third respondent-company as well as the relevant provisions of the Income-tax Act referred to above, it is clear that payment of interest subsidy either to the employees or paid to the agencies like L.I.C./H.D.F.C. on their behalf is a taxable perquisite under section 17(2)(iv) of the Income-tax Act. The tax is to be recovered on such amount as per the said Act.

In other words, the payment of interest to other financial institutions on behalf of the employees by the employer is a taxable perquisite; accordingly, such payment of interest is not exempted under section 10 of the Income-tax Act. In such circumstances, the contention of the petitioners that tile same cannot be deducted from the gross income of the employees concerned cannot be accepted. Hence, the impugned circular issued by the third respondent-company is in accordance with the statutory provisions of the Income-tax Act referred to above and I am unable to accept the argument of learned counsel for the petitioners.

Net result, the writ petition fails and the same is dismissed. No costs.

M.B.A./686/FC

Petition dismissed.