The officer has valued my company flat under Rule 3 and added the difference to my salary. I pay the licence fee my employer charges everybody. Must he first prove I actually got a concession in rent?
On the law as the Supreme Court found it in 2006, yes: 'concession' in s.17(2)(ii) is a jurisdictional fact, and Rule 3 is only a machinery provision that cannot be reached until the officer has first found as a fact that a concession was given. That space was closed almost at once — the Finance Act 2007 inserted the very deeming provision the Court said the Act did not contain, with retrospective effect from 1 April 2002, so from AY 2002-03 a concession is deemed wherever the value computed under Rule 3 exceeds the rent recovered.
Decided by the Supreme Court (Y.K. Sabharwal, C.K. Thakker and P.K. Balasubramanyan) on 2006-09-15, reported as AIRONLINE 2006 SC 636; Civil Appeal No. 3270 of 2003 with Transferred Cases (C) Nos. 101 and 102 of 2006. It bears on section 15, section 17(2), section 17(2)(ii), section 192(2C), section 295 of the Income Tax Act 1961, in Salary & Perquisites and How Tax Law Is Read matters.
This is the leading authority for the two-step structure of the perquisite charge — the charging provision is in the Act and the valuation rule is subordinate machinery that cannot create a liability the Act has not created. The structural holding survives and is the reason a Rule 3 computation can never be the whole of the Revenue's case. What does not survive is the practical relief: after the Finance Act 2007 the assessee can no longer say 'there was no concession' merely because the rent he pays is the ordinary rent for that accommodation, because the Act now deems the shortfall against the Rule 3 figure to be the concession. Read this case for the doctrine, not for the outcome. The 'jurisdictional fact' reasoning is also portable well beyond salary — it is the standard citation for the proposition that an authority cannot confer jurisdiction on itself by wrongly assuming the fact on which its power depends.
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The appellants were officers and executives of Tata Iron & Steel Co. Ltd. TISCO had built residential bungalows, flats and quarters in the Jamshedpur township and around its plants, allotting them to its own employees and to others including Central and State Government employees posted there, and it fixed the annual licence fee for each unit at 5 per cent of the capital cost of the accommodation. On 25 September 2001 the Central Board of Direct Taxes issued Notification No. S.O. 940(E) substituting Rule 3 of the Income-tax Rules 1962. The substituted rule abandoned the earlier fair-rental-value method — under which an assessee could satisfy the Assessing Officer that the computed figure exceeded the fair rent, so that no perquisite arose — and put in its place a presumptive percentage of salary fixed by the population of the city: for employees of an employer other than the Government, 10 per cent of salary where the population exceeded four lakhs and 7.5 per cent elsewhere. TISCO wrote to its employees on 25 October 2001 telling them that the amended Rule 3 value would be added to their salaries. The employees filed Writ Petition No. 2835 of 2002 in the Jharkhand High Court to quash the notification, contending that the amended rule was ultra vires the parent Act and violated Article 14 because it removed any opportunity to show that no concession in rent had in fact been given. The Jharkhand High Court upheld the rule in Tata Workers' Union v. Union of India (2002) 256 ITR 725, and the Calcutta High Court reached a similar result in Coal Mines Officers' Association of India v. Union of India (2004) 266 ITR 429, holding that after 2001 there was no scope for determining a fair rental value and that the distinction between Government and other employees did not offend Article 14. The employees appealed to the Supreme Court, and two writ petitions were transferred to it.
The appeal was partly allowed. Rule 3 as substituted in 2001 is not arbitrary, not discriminatory, not ultra vires Article 14 and not inconsistent with s.17(2)(ii); but it is a machinery provision only, and it applies solely to cases where there is a concession in the matter of rent. 'Concession' under s.17(2)(ii) is a jurisdictional fact whose existence must be established before Rule 3 can be applied at all. As the Act contained no deeming fiction as to concession, it remained open to an assessee to contend that no concession had been given and that s.17(2)(ii) was therefore not attracted. Transferred Cases Nos. 101 and 102 of 2006 were disposed of in those terms, with no order as to costs.
The Court separated the charge from the machinery. Section 17(2) applies only if there is a perquisite; s.17(2)(ii) makes the value of a concession in the matter of rent a perquisite, but there must first be a concession. Concession is therefore a foundational or jurisdictional fact, while the manner of computing the amount is the fact in issue or adjudicatory fact — "concession is a 'jurisdictional fact'; method of fixation of amount is 'fact in issue' or 'adjudicatory fact'". Where the assessee contends there is no concession, the authority must decide that question and record a finding before it turns to computation. The Court set out the general doctrine that a jurisdictional fact is one on whose existence the jurisdiction of a court, tribunal or authority depends, that if it does not exist the authority cannot act, and that an authority which wrongly assumes such a fact cannot thereby confer on itself a jurisdiction it does not possess, an order so made being open to certiorari. Existence of the jurisdictional fact is sine qua non for the exercise of the power. Applying that to the statutory scheme, the charging provision is in the Act of Parliament and the machinery component is in the subordinate legislation, and the latter operates only after liability is created under the former: unless liability arises under s.17(2)(ii), Rule 3 has no application and the method of valuation cannot be resorted to. The Court declined to read down the rule to restore the old fair-rent window, the substituted language being a deliberate policy choice, and it expressly reserved the question whether Parliament could create a deeming fiction as to concession, noting only that no such deeming provision was then found in the Act.
It is, therefore, open to the assessee to contend that there is no 'concession' in the matter of accommodation provided by the employer to the employees and the case is not covered by Section 17 (2) (ii) of the Act.
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Handle my notice → Ask a CA on WhatsAppOn the law as the Supreme Court found it in 2006, yes: 'concession' in s.17(2)(ii) is a jurisdictional fact, and Rule 3 is only a machinery provision that cannot be reached until the officer has first found as a fact that a concession was given. That space was closed almost at once — the Finance Act 2007 inserted the very deeming provision the Court said the Act did not contain, with retrospective effect from 1 April 2002, so from AY 2002-03 a concession is deemed wherever the value computed under Rule 3 exceeds the rent recovered. This was decided by the Supreme Court (Y.K. Sabharwal, C.K. Thakker and P.K. Balasubramanyan) and bears on section 15, section 17(2), section 17(2)(ii), section 192(2C), section 295 of the Income Tax Act 1961. It is reported as AIRONLINE 2006 SC 636; Civil Appeal No. 3270 of 2003 with Transferred Cases (C) Nos. 101 and 102 of 2006. This is the leading authority for the two-step structure of the perquisite charge — the charging provision is in the Act and the valuation rule is subordinate machinery that cannot create a liability the Act has not created. The structural holding survives and is the reason a Rule 3 computation can never be the whole of the Revenue's case. What does not survive is the practical relief: after the Finance Act 2007 the assessee can no longer say 'there was no concession' merely because the rent he pays is the ordinary rent for that accommodation, because the Act now deems the shortfall against the Rule 3 figure to be the concession. Read this case for the doctrine, not for the outcome. The 'jurisdictional fact' reasoning is also portable well beyond salary — it is the standard citation for the proposition that an authority cannot confer jurisdiction on itself by wrongly assuming the fact on which its power depends. If it applies to you, the first step is this: Check the assessment year before you take this point. For AY 2002-03 and later the deeming Explanation to s.17(2)(ii) applies retrospectively and a 'no concession' plea on the ordinary facts will fail.
The appellants were officers and executives of Tata Iron & Steel Co. Ltd. TISCO had built residential bungalows, flats and quarters in the Jamshedpur township and around its plants, allotting them to its own employees and to others including Central and State Government employees posted there, and it fixed the annual licence fee for each unit at 5 per cent of the capital cost of the accommodation. On 25 September 2001 the Central Board of Direct Taxes issued Notification No. S.O. 940(E) substituting Rule 3 of the Income-tax Rules 1962. The substituted rule abandoned the earlier fair-rental-value method — under which an assessee could satisfy the Assessing Officer that the computed figure exceeded the fair rent, so that no perquisite arose — and put in its place a presumptive percentage of salary fixed by the population of the city: for employees of an employer other than the Government, 10 per cent of salary where the population exceeded four lakhs and 7.5 per cent elsewhere. TISCO wrote to its employees on 25 October 2001 telling them that the amended Rule 3 value would be added to their salaries. The employees filed Writ Petition No. 2835 of 2002 in the Jharkhand High Court to quash the notification, contending that the amended rule was ultra vires the parent Act and violated Article 14 because it removed any opportunity to show that no concession in rent had in fact been given. The Jharkhand High Court upheld the rule in Tata Workers' Union v. Union of India (2002) 256 ITR 725, and the Calcutta High Court reached a similar result in Coal Mines Officers' Association of India v. Union of India (2004) 266 ITR 429, holding that after 2001 there was no scope for determining a fair rental value and that the distinction between Government and other employees did not offend Article 14. The employees appealed to the Supreme Court, and two writ petitions were transferred to it. The matter was decided on 2006-09-15 by the Supreme Court (Y.K. Sabharwal, C.K. Thakker and P.K. Balasubramanyan). On those facts the Supreme Court held as follows. The appeal was partly allowed. Rule 3 as substituted in 2001 is not arbitrary, not discriminatory, not ultra vires Article 14 and not inconsistent with s.17(2)(ii); but it is a machinery provision only, and it applies solely to cases where there is a concession in the matter of rent. 'Concession' under s.17(2)(ii) is a jurisdictional fact whose existence must be established before Rule 3 can be applied at all. As the Act contained no deeming fiction as to concession, it remained open to an assessee to contend that no concession had been given and that s.17(2)(ii) was therefore not attracted. Transferred Cases Nos. 101 and 102 of 2006 were disposed of in those terms, with no order as to costs.
The Court separated the charge from the machinery. Section 17(2) applies only if there is a perquisite; s.17(2)(ii) makes the value of a concession in the matter of rent a perquisite, but there must first be a concession. Concession is therefore a foundational or jurisdictional fact, while the manner of computing the amount is the fact in issue or adjudicatory fact — "concession is a 'jurisdictional fact'; method of fixation of amount is 'fact in issue' or 'adjudicatory fact'". Where the assessee contends there is no concession, the authority must decide that question and record a finding before it turns to computation. The Court set out the general doctrine that a jurisdictional fact is one on whose existence the jurisdiction of a court, tribunal or authority depends, that if it does not exist the authority cannot act, and that an authority which wrongly assumes such a fact cannot thereby confer on itself a jurisdiction it does not possess, an order so made being open to certiorari. Existence of the jurisdictional fact is sine qua non for the exercise of the power. Applying that to the statutory scheme, the charging provision is in the Act of Parliament and the machinery component is in the subordinate legislation, and the latter operates only after liability is created under the former: unless liability arises under s.17(2)(ii), Rule 3 has no application and the method of valuation cannot be resorted to. The Court declined to read down the rule to restore the old fair-rent window, the substituted language being a deliberate policy choice, and it expressly reserved the question whether Parliament could create a deeming fiction as to concession, noting only that no such deeming provision was then found in the Act. In the words reproduced by the source cited on this page: "It is, therefore, open to the assessee to contend that there is no 'concession' in the matter of accommodation provided by the employer to the employees and the case is not covered by Section 17 (2) (ii) of the Act."
It was decided by the Supreme Court on 2006-09-15 and is reported as AIRONLINE 2006 SC 636; Civil Appeal No. 3270 of 2003 with Transferred Cases (C) Nos. 101 and 102 of 2006. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 15, section 17(2), section 17(2)(ii), section 192(2C), section 295, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was partly allowed. Rule 3 as substituted in 2001 is not arbitrary, not discriminatory, not ultra vires Article 14 and not inconsistent with s.17(2)(ii); but it is a machinery provision only, and it applies solely to cases where there is a concession in the matter of rent. 'Concession' under s.17(2)(ii) is a jurisdictional fact whose existence must be established before Rule 3 can be applied at all. As the Act contained no deeming fiction as to concession, it remained open to an assessee to contend that no concession had been given and that s.17(2)(ii) was therefore not attracted. Transferred Cases Nos. 101 and 102 of 2006 were disposed of in those terms, with no order as to costs. It arises in Salary & Perquisites and How Tax Law Is Read matters, on section 15, section 17(2), section 17(2)(ii), section 192(2C), section 295 of the Income Tax Act 1961, and was decided by Y.K. Sabharwal, C.K. Thakker and P.K. Balasubramanyan. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Work the computation from the current Rule 3(1), not from any rate quoted in an older decision or an older circular — Rule 3(1) was substituted by the Income-tax (Eighteenth Amendment) Rules 2023, Notification No. 65/2023, GSR 615(E), dated 18 August 2023, and the earlier 20%/15%/7.5% and 15%/10%/7.5% tables are dead. Reduce the Rule 3 value by the rent actually recovered from or payable by the employee before anything is added to salary; ask for the employer's recovery ledger if the Form 16 does not show it. Where the accommodation is not 'provided by the employer' at all, or the person is not an employee, take that point instead — the deeming fiction operates inside s.17(2)(ii) and does not supply the employment relationship the charge needs. Use the case as authority when a subordinate rule is being used to create a charge: identify the charging provision, show the fact it requires, and require the officer to record a finding on that fact before he computes anything.
Superseded by amendment. The structural holding — charging provision in the Act, machinery in the Rule, concession as a jurisdictional fact — has not been overruled and is still cited. The practical relief has been legislated away. CBDT Circular No. 3/2008 dated 12 March 2008 records in terms that 'the Finance Act 2007 inserted a deeming provision defining what constitute concession in the matter of rent with retrospective effect from 1.4.2002, i.e. assessment year 2002-03 and subsequent years', and at para 18.7 that the Supreme Court decision 'was not adverse to the Government and, in fact, indicated that the way out would be to insert a deeming provision'. The department's own current text of s.17(2)(ii), read at incometaxindia.gov.in/w/section-17-226, now reads: 'the value of any accommodation provided to the assessee by his employer at a concessional rate. Explanation.—For the purposes of this sub-clause, it is clarified that accommodation shall be deemed to have been provided at a concessional rate, if the value of accommodation computed in such manner as may be prescribed, exceeds the rent recoverable from, or payable by, the assessee'. Clauses (i) and (ii) of s.17(2) were themselves recast again by the Finance Act 2023, and Rule 3(1) was substituted by the Income-tax (Eighteenth Amendment) Rules 2023, Notification No. 65/2023, GSR 615(E), dated 18 August 2023 — the rates and population slabs in this and every earlier decision are spent. I did not run a full citator check on later treatment of Arun Kumar itself; I located and read one later decision applying it, Chemplast Employees Union (Madras, 9 December 2016), and found no decision doubting it. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The indiankanoon print header gives the bench only as names — Y.K. Sabharwal, C.K. Thakker and P.K. Balasubramanyan — with no designations, and the only equivalent citation shown is AIRONLINE 2006 SC 636; no ITR citation appeared on the page I read, so none is stated here. The first ?type=print fetch of this document returned a model rendering rather than raw text; two later fetches of the same URL returned raw judgment text, and the key_quote and the reasoning below are taken from those raw passages. The fact narrative in 'facts' is a paraphrase of retrieved text that I could not confirm was verbatim; the parts of it that matter — Notification S.O. 940(E) dated 25 September 2001, the Jharkhand High Court's decision in Tata Workers' Union (2002) 256 ITR 725, and the appeal number Civil Appeal 3270 of 2003 — are independently corroborated by CBDT Circular No. 3/2008 paras 18.2 to 18.6. Indiankanoon carries the same Supreme Court judgment at a second document id, /doc/71876133/. One oddity worth knowing: the Madras High Court in Chemplast Employees Union v Union of India (W.P. No. 1634 of 2003, decided 9 December 2016) dismissed the writ petition but gave the union's members liberty to plead that there was no concession 'for the period from 2001-02 to 2008-09' — a period the 2007 deeming provision covers retrospectively. That order does not discuss the Explanation, and it should not be read as authority that the Explanation is inapplicable. Merged at build 110 with a second write-up of the same judgment prepared in the same pass. The earlier entry recorded as an open question whether s.17(2) was later amended to supply the deeming provision the Court said the Act did not contain; it was, by the Finance Act 2007 with retrospective effect from 1 April 2002, and the validity note now carries that. The judgment was read at two indiankanoon document ids, both listed. The harvested text is badly clipped: about 34,824 characters from the middle are not reproduced. That portion carried the text of Rule 3 as substituted in 2001, the rival submissions in full, the Court's treatment of the Calcutta High Court judgment under challenge in the transferred cases, and the opening of its discussion of jurisdictional fact, which resumes mid-authority. The facts, the statutory provisions, the Court's reasoning from paragraph 44 onwards and the operative order were all read. The batch line lists Rule 3 among the sections; that is a rule of the Income Tax Rules, 1962 and not a section of the Act, so the sections field carries section 17(2)(ii) with the enabling provisions in sections 295 and 192(2C). The judgment does not decide whether any of these appellants in fact received a concession - that question is remitted in substance to the assessing authority - so it fixes no liability and gives no worked example. It also expresses no final opinion on whether Parliament could create a deeming fiction, and it declines to enter the larger question about the object of Rule 3 raised through British Bank of Middle East. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was partly allowed. Rule 3 as substituted in 2001 is not arbitrary, not discriminatory, not ultra vires Article 14 and not inconsistent with s.17(2)(ii); but it is a machinery provision only, and it applies solely to cases where there is a concession in the matter of rent. 'Concession' under s.17(2)(ii) is a jurisdictional fact whose existence must be established before Rule 3 can be applied at all. As the Act contained no deeming fiction as to concession, it remained open to an assessee to contend that no concession had been given and that s.17(2)(ii) was therefore not attracted. Transferred Cases Nos. 101 and 102 of 2006 were disposed of in those terms, with no order as to costs.
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