Itxa/1380/2008 Of Shri Harit Nagpal, Mumbai v. The Income-Tax Officer, Mumbai

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1380 OF 2008 Shri Harit Nagpal )..Appellant V/s. The ITO Circle 26 (2) (2) Mumbai )..Respondents ---- Mr.Murlidharan i/by M/s.Rajesh Shah & Co. for the appellant. Mr.P.S.Sahadevan for the respondents. ---- Coram : F.I.Rebello & R.S.Mohite,JJ Date : 10.2.2009. PC 1. The substantial questions of law as framed in this appeal are as follows :- (1) Whether on the facts and in the circumstances of the case and in law, the amount paid by the employer of the Appellant towards maintenance of the premises taken by it on leave and license and provided to the Appellant for his residential accomodation constituted a perquisite in the hands of the Appellant and if so whether such perquisite was chargeable to tax only under Rule 3(1) of the Income-tax Rules and not under Rule 3(8) thereof ? (2) Whether on the facts and in the circumstances of the case and in law, the finding of the Tribunal that the said service charges was not for lease of the premises is perverse and liable to be set aside in as much as it is contrary to the material on record and based on irrelevant considerations and in as much as it is contrary to the material on record and based on irrelevant considerations and such that no reasonable person properly instructed as to the law would have come to ? : 2 : 2. The brief facts of the case are that the appellant Harit Nagpal was the Vice-president of the Company by name Hutchison Max Telecom Pvt.Ltd., He was entitled to company accomodation and for the purpose of providing such an accomodation, by a leave and license agreement dated 5.5.2003 entered into by Hutchison Max Telecom Pvt.Ltd., and one Sterling & Wilson Property Developers Pvt.Ltd., the employer took a property being Flat no.1101 admeasuring 2150 sq.ft. on leave and license basis on a license fees of Rs.15,000/-. Clauses-3 & 8 of the said agreement were as follows :- (3) The Licensee shall pay to the Licensors a license fee of Rs.15,000/- (Rupees Fifteen Thousand Only) per month (less TDS) in advance on or before the 5th day of every month, save and except the licence fee for the first month which shall be paid on or before the commencement of the said licence period. (8) The Licensee shall at its own costs and charges be entitled to carry out all renovation, repair and interior work in the said premises without damaging any walls and ceilings and floors but it shall not carry out any structural alterations without the prior written consent of the Licensors. The Licensee shall however at his own costs and charges be at liberty to paint the internal walls of the said premises and also to install in the said premises domestic or electric appliances, other household fittings and fixtures including screens, racks, shelves or partitions of a non-permanent and non-structural nature, water, gas, telephone, electric, sanitary and other equipments, cables, fixtures, fitting, lights, fans and such conveniences reasonably required by the Licensee for or in connection with the proper and full use, occupation and enjoyment of the said premises for residential purposes. The Licensee shall be : 3 : entitled at any time during the continuance of the licence and upon its expiry to remove at his cost and expense all or any of the foregoing installed at its cost and expense, provided it makes good any damage which may be caused to the said premises by such removal. If any approval from the Mumbai Municipal Corporation is required for the changes in the said premises by the Licensee, it shall be the non-structural nature, water, gas, telephone, electric, sanitary and other equipments, cables, fixtures, fitting, lights, fans and such conveniences reasonably required by the Licensee for or in connection with the proper and full use, occupation and enjoyment of the said premises for residential purposes. The Licensee shall be : 3 : entitled at any time during the continuance of the licence and upon its expiry to remove at his cost and expense all or any of the foregoing installed at its cost and expense, provided it makes good any damage which may be caused to the said premises by such removal. If any approval from the Mumbai Municipal Corporation is required for the changes in the said premises by the Licensee, it shall be the day of the Licensee to obtain the same at its cost and expense and the Licensors shall extend all possible assistance for applying and obtaining such approvals. 3. On the same day i.e. on 5.5.2003 a separate agreement styled as "Amenities Agreement" was executed by the employer Hutchison Max Telecom Private Limited with the sister Company of the Sterling & Wilson Property by name Shapoorji Pallonji & Company Ltd. Under clause-3 of this Amenities Agreement, Shapoorji Pallonji & Co. Ltd., who was the service provider, agreed to render several services to Hutchison Max Telecom Pvt.Ltd. Clause-3 of the said agreement reads as under :- (3) The Service Provider shall render the following services periodically or otherwise in the said premises :- (a) The Users hereby confirm, that the Service Provider has provided to the Users in the said premises, at his own costs and expenses, the amenities and facilities in the nature of fans/fan points, electric points/ connections, water supply, window frames, pavements etc. In addition to the aforesaid, the Service Provider has at his own cost agreed to carry out and carried out these following repairs/civil work in the said premises :- (i) Plastering etc. : 4 : (ii) Painting of good quality (iii) Keep the said premises in tenantable condition (iv) Housekeeping (v) Providing and maintaining granamite or equivalent flooring in the said premises (vi) Maintaining the car parking space allotted to the User (b) The Service Provider shall all times provide adequate security arrangement in respect of the said premises (c) The Service Provider at his own cost shall provide at all times during the tenure of this Agreement, the Service of competent electricians and plumbers to repair the electric system as also the plumbing system in the said premises. (d) The Service Provider shall provide a covered car parking space in the compound of the building to the executive of User, staying in said premises. 4. In respect of the assessment year 2004-2005, the appellant filed a return on 28.7.2004 declaring a total income of Rs.33,43,180/- including an amount of Rs.2,71,747/- towards perquisites. The perquisities were calculated after adding the value of the license fees i.e. Rs.15,000/- under the agreement of leave license to the compensation of Rs.80,000/- per month paid to the service provider under the Amenities Agreement dated 5.5.2003. The A.O. took the view that the service charges for the flat constituted a separate perquisite over and above the rent for the property. He held that the : 5 : perquisite in view of the rent calculated under rule 3(1) of the Income-tax Rules could be valued only at the rate of Rs.15,000/- per month and that the service charges would have to be separately assessed under Rule 3(1). This finding was confirmed by the CIT as well as ITAT and in such circumstances, the assessee filed the present appeal. 5. In order to appreciate the contention, it would be convenient to reproduce rule 3(1) and rule 3(8) agreement of leave license to the compensation of Rs.80,000/- per month paid to the service provider under the Amenities Agreement dated 5.5.2003. The A.O. took the view that the service charges for the flat constituted a separate perquisite over and above the rent for the property. He held that the : 5 : perquisite in view of the rent calculated under rule 3(1) of the Income-tax Rules could be valued only at the rate of Rs.15,000/- per month and that the service charges would have to be separately assessed under Rule 3(1). This finding was confirmed by the CIT as well as ITAT and in such circumstances, the assessee filed the present appeal. 5. In order to appreciate the contention, it would be convenient to reproduce rule 3(1) and rule 3(8) as it then stood. The relevant portions of rule 3(1) read with the table and rule 3(8) were as follows :- 3. 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-rules, namely- (1) The value of residential accomodation provided by the employer during the previous year shall be determined on the basis provided in the Table below :- TABLE I ---------------------------------------------------- Sl. Circumstances Where the where the accomodation accomodation is unfurnished is furnished ---------------------------------------------------- (1) (2) (3) (4) ---------------------------------------------------- (2) (a)...................................... (b) where the Actual amount of accomodation is lease rental paid taken on lease or payable by the or rent by the employer or 10% of : 6 : employer salary whichever is lower as reduced by the rent, if any, actually paid by the employee. ---------------------------------------------------- 3(8) The value of any other benefit or amenity, service, right or privilege provided by the employer shall be determined on the basis of cost of the employer under an arm’s length transaction as reduced by the employee’s contribution, if any : 6. Counsel for the appellant contended that the leave and license agreement must be read together with the amenities agreement for determining the amount of lease rental paid or payable within the meaning of rule 3(1) read with item 2(b) of Table-I as reproduced hereinabove. He contended that under clause-8 of the leave and license agreement the licensee was enjoined with the duties of carrying out repairs, renovations, interior work and was at liberty to paint the internal walls. We fail to understand how clause-8 helps the assessee in any way. The amenities agreement clearly pertain to certain civil work such as plastering, painting and flooring already done by the service provider. In view of this, the compensation was fixed at Rs.15,000/- per month. Other services such as keeping the premises in condition, house keeping, maintaining the car parking space, providing : 7 : services of electricians, plumbers and providing security arrangements were not activities relatable to the premises themselves though they would provide further comfort to the assessee while he was living in the premises. That however, would not bring it within the ambit of the term lease rent paid. 7. Counsel sought to place reliance upon the CIT V/s.Panipat Woolen & General Mills Co.Ltd. reported in66 ITR 103, and in particular relied upon the judgment of the Apex Court in the case of CIT V/s. Panipat Woolen & General Mills Co.Ltd. reported in 66 ITR 103 following observations of the Apex Court. keeping the premises in condition, house keeping, maintaining the car parking space, providing : 7 : services of electricians, plumbers and providing security arrangements were not activities relatable to the premises themselves though they would provide further comfort to the assessee while he was living in the premises. That however, would not bring it within the ambit of the term lease rent paid. 7. Counsel sought to place reliance upon the CIT V/s.Panipat Woolen & General Mills Co.Ltd. reported in66 ITR 103, and in particular relied upon the judgment of the Apex Court in the case of CIT V/s. Panipat Woolen & General Mills Co.Ltd. reported in 66 ITR 103 following observations of the Apex Court. . " It is well settled that the court in order to construe an agreement one has to look to the substance or the essence of it rather than to its form. A party cannot escape the consequences of law merely by describing an agreement in a particular form though in essence and in substance it may be a different transaction." . These observations in our view, do not help the appellant as they only pertain to the interpretation of the single agreement. In our view, the amenities agreement clearly pertain to the benefits and amenities provided to the assessee within the meaning of rule 3(8) of the Income-tax Rules. The three concurrent findings of the lower authorities are therefore, correct and warrant no interference. Appeal is therefore, dismissed. : 8 : (R.S.Mohite,J) (F.I.Rebello,J)