Notional interest Perquisite on Security deposit paid to landlord. Notional Interest on amount paid by employer for employee’s accommodation not perquisite

Notional interest Perquisite on Security deposit paid to landlord. Notional Interest on amount paid by employer for employee’s accommodation not perquisite-ITAT

ABCAUS Case Law Citation:
934 2016 (06) ITAT

Brief Facts of the Case:
The assessee was an employee having income from salary and other sources. His return of income was taken up for scrutiny and the assessment was concluded under section 143(3) of the Income Tax Act, 1961 wherein the income of the assessee was determined by addition of Rs. 2,40,000/- made by the AO. The AO, on perusal of the Form No. 12BA of the employer, was of the view that while the perquisite value of rent paid amounting to `20,00,000/- was considered in the hands of the assessee, the security deposit of Rs. 20,00,000/- was not considered as a perquisite and worked out the perquisite value thereof at Rs. 2,40,000/- as per Income Tax Rule 3(A)III @12% of the deposit of the deposit and added the same to the assessee’s income. 

On appeal, the CIT(A)dismissed the assessee’s appeal holding that the action of the AO in considering 12% of the amount of deposit of Rs. 2,40,000/- as perquisite value, in addition to the perquisite value offered to tax towards the rent free accommodation provided by the employer, was correct.

Aggrieved by the order of the CIT(A)the assessee had preferred this appeal before ITAT.

Contentions of the Assessee:
The assessee contended that the addition was not sustainable in law since the  very issue, on similar facts, had been considered and held in favour of the assessee by the Hon’ble Bombay High Court in the case of CIT vs. Shankar Krishnan in ITA NO. 356 of 2010 dated 06.09.2011 wherein the Hon’ble High Court had held that notional interest on deposit given by employer for securing rented premises for use of employee should not be treated as perquisite value. 

Important Excerpts from ITAT Judgment:

In this regard, we have perused the decision of the Hon’ble Bombay High Court in the case of Shankar Krishnan in ITA No. 3516 of 2010 dated 06.09.2011 and find that the same is rendered on the very same issue on similar facts. The question for consideration by their Lordships therein was as under: –

“1. Where an employer takes residential premises on rent by giving security deposit for the benefit of employees, whether the notional interest on such security deposit is liable to be included in the perquisite value of the accommodation given to the assessee employee is the question raised in this appeal?”

At para 9 thereof the Hon’ble High Court has held that: –

“on a plain reading of Rule 3, it is seen that the perquisite value of the residential accommodation provided by the employer shall be the actual amount of lease rent paid or payable by the employer and not on notional basis. Therefore, in our opinion, the contention of the Revenue that the notional interest or 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. 01.04.2001.”