In this batch of writ petitions the petitioners have prayed for a declaration that rule 3 of the Income Tax Rules, 1962 (hereinafter referred to as 'the Rules') which has been brought into the existence by Income- tax (Twenty-second Amendment) Rules, 2001 is ultra vires, invalid and inoperative as it runs counter to the provisions contained in section 17(2) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') as a consequence of which it travels beyond the rule making power as envisaged under section 295(2) of the Act and further the said rule being discriminatory is defiant of article 14 of the Constitution of India. Quite apart from the above various other prayers have been putforth. It is also relevant to state here that in certain writ petitions apart from the aforesaid prayer other reliefs have also been sought. As the basic question was common to all the writ petitions they were heard analogously. For the sake of clarity and convenience we are inclined to adumbrate the facts as have been putforth in Writ Petition No. 278/02.

2. The petitioner No. 1 is a registered association of the officers' employed in the Coal Mines of the Northern Coal Fields Ltd. in different projects at Singrauli area of Aidhan Tahsil of Sidhi District. The petitioner No. 2 is an employee of the Northern Coalfields Ltd. Respondent No. 2 is a subsidiary of Coal India Ltd. a government undertaking. It is putforth that the respondent No. 2, company has constructed about 20,000 residential units in different mining projects which are allotted in favour of its employees. Out of the same about 1400 residential units are occupied by the members of the petitioner association. Some of the residential units are also allotted to the Central Government and State Government employees, Banks and employees of other public undertakings providing services to the respondent No. 2. Standard licence fee/standard rent is fixed in respect of various categories of residential units on the basis of plinth area accommodation and the cost of construction generally following the rule 45 of the Fundamental Rules. The standard rent is recovered from the members of the association for the leased accommodation provided to the same. If an accommodation of the appropriate category to which a member of the association is entitled, is not available he is provided accommodation of a lower category and accordingly the proportionate rent is charged.

3. According to the writ petitioners the members of the association are provided with unfurnished residential accommodation. The perquisite value was being treated as nil. While the matter stood thus the Central Board of Direct Taxes substituted the old rule and brought the new rule for the purpose of valuation of perquisite in respect of the house property vide notification No. 313 of 2001 dated 25-9-2001. It is urged in the petition that the respondent No. 2 issued circulars directing its Finance Manager to recover the income-tax on the basis of the perquisite value given in the notification. In respect of unfurnished accommodation, flat rate of valuation is provided. Various other assertions have been putforth how the recoveries of income-tax is erroneous and how the Coal Fields Limited has misinterpreted the provisions. It is contended that the rule 3 which has come into force runs in oppugnation to the main provision and as there is transgression it has travelled beyond the rule making power as stipulated under section 295 of the Act. Reference has been made to the old rules to show how that had been interpreted by various High Courts and how the present rule if studiedly scrutinised in the bedrock of the said decisions cannot withstand scrutiny. An attack is also advanced how the classification made under the rules does not meet the conception of intelligible differentia and how the same suffers from the vice of arbitrariness and irrationality. Number of examples have been given to indicate how rule in question cannot pass the test of proper probe.

4. A return has been filed by the Central Board of Direct Taxes and Commissioner, respondent Nos. 1 and 3, respectively contending, inter alia that rent is being charged uniformally in respect of similar accommodation irrespective of the salary drawn by the occupants is not correct. It has also been emphatically putforth that the rent recovered by the employer from the employees in the shape of license fees is far less from the actual rent and submission that there is no concession in the matter of rent is totally incorrect. Definition of salary has been taken aid of to show that the salary includes the value of any perquisite or profit in lieu of salary is taxable under clauses (2) and (3) of section 17. It has also been averred that the rule 3 is in consistent with section 17(2) of the Act and the respondent No. 1 is empowered by section 295(2) of the Act to amend the Rules. It is setforth that the rule making authority has not travelled beyond the rule making power and in fact a rule has been brought into being to usher in the concept of uniformity. Quite apart from the aforesaid stance various other averments have been pleaded in support of the rule in question.

5. We have heard Mr. H.S. Shrivastava, learned senior counsel with Mr. Sandesh Jain for the petitioner in some writ petitions and we have also been addressed by Mr. Sumit Nema. We have heard Mr. Rohit Arya learned senior counsel with Mr. Ajit Ade for the respondents 1 and 3.

6. Mr. Shrivastava as well as Mr. Nema has submitted that the present rule which has been substituted is not in accordance with the provisions of the parent statute and as it travels beyond the rule making power as postulated by the provisions of the main enactment it has to be annulled being ultra vires. It has also been putforth by them that the valuation of the perquisites as has been provided in respect of the accommodation which is unfurnished, offends the provisions of article 14 of the Constitution of India as the notification is not based on any intelligible differentia and smacks of arbitrariness as the provisions when scrutinised would clearly reveal that it is unsustainable and hence, invites frown of article 14 of the Constitution being arbitrary and irrational.

7. To bolster the first submission he has placed reliance on the decisions rendered in the cases of Officers' Association, Bhilai Steel Plant v. Union of India (1983) 139 ITR 937 (MP), Indian Bank Officers' Association v. Indian Bank (1994) 209 ITR 72 (Cal), ITO v. All India Vijaya Bank Officers' Association (1997) 225 ITR 37 (Cal) and Steel Executives Association v. Rashtriya Ispat Nigam Ltd. (2000) 241 ITR 203 (AP).

8. Mr. Rohit Arya, learned senior counsel appearing for the revenue, per contra, has submitted that the present rule is in consistent with the parent Rules and there is no deviation and, therefore, the rule cannot be declared ultra vires. It is contended by him that the present rule has a different connotation and there has been a sea change in the old rule and the present rule. The learned counsel for the revenue has also contended that the decisions cited by the learned counsel for the assessee are basically based on the decision rendered in the case of Officers Association, Bhilai Steel Plant (supra) but in the aforesaid cases the Division Bench has not taken note of the relevant provisions of rule 3 and has erroneously interpreted the concept of concession as enshrined under section 17(2) of the Act. It has also been putforth by him that the present rule does not invite the wrath of article 14 of the Constitution inasmuch as the same has been incorporated in the Rules by substituting the old rule to usher in the element of uniformity and when such an effort has been made by the respondent No. 1 there has to be some harshness in its operational sphere and the some people might be affected but such a harshness is quite expected while reframing the rule under the taxing statute. The learned counsel has further canvassed that while conceiving the idea of uniformity enough guidance has been penetrated into the Rules and it cannot be held to be arbitrary as free play at the joints are to be allowed in respect of a rule which pertains to the fiscal. Learned counsel has further submitted that the present rule has been declared intra vires by other High Courts. He has commended us to the decisions rendered in the cases of Aditya Cement Staff Club v. Union of India (2003) 131 Taxman 609 (Raj.) and BHEL Employees Association v. Union of India (2003) 261 ITR 15. (Karn).

9. To appreciate the rival submissions raised at the Bar it is appropriate to refer to the unamended rule 3 of the Income Tax Rules. It reads as under :

"Valuation of perquisites.For the purpose of computing the income chargeable under the head 'Salaries', the value of the perquisites (not provided for by way of monetary payment to the assessee) mentioned below shall be determined in accordance with the following clauses, namely:

(a) The value of rent-free residential accommodation shall be determined on the basis provided hereunder, namely :

(i) Where the accommodation is provided (A) by Government to a person holding an office or post in connection with the affairs of the Union or of a State;

(B) by a body or undertaking under the control of government to any officer of government whose services have been lent to that body or undertaking (the accommodation itself having been allotted to it by government), an amount equal to (1) if the accommodation is unfurnished, the rent which has been or would have been determined as payable by such person or officer in accordance with the rules framed by government for allotment of residences to its officers;

(2) if the accommodation is furnished, an amount calculated in accordance with sub-clause (i)(1) plus 10 per cent per annum, of the original cost of the furniture (including television sets, radio sets, refrigerators, other household appliances and air-conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable therefor;

(ii) where the accommodation is provided (A) by the Reserve Bank of India, to any person employed by it;

(B) by a corporation established by a Central, State or Provincial Act, or by a company in which all the shares are held (whether singly or taken together) by the government or the Reserve Bank of India or a corporation owned by that Bank, to any person employed by it;

(BB) by a company [not being a company referred to in sub-clause (ii)(B) or sub-clause (ii)(D)] in which all the shares are held by a corporation referred to in sub-clause (ii)(B) or by a company referred to in that sub-clause, to any person employed by it;

(C) by a body undertaking including a society registered under the Societies Registration Act, 1860 (21 of 1860), financed wholly or mainly by the Government, to any person employed by it;

(D) by a company (not being a company referred to in sub-clause (ii)(B) or sub-clause (ii)(BB) in which not less than 40 per cent of the shares are held (whether singly or taken together) by the government or the Reserve bank of India or a corporation owned by that Bank, to any officer of government whose services have been lent to it or to any person employed by it after his retirement from the service of government, an amount equal to (1) if the accommodation is unfurnished, 10 per cent of the salary due to such person or officer, as the case may be, in respect of the period during which the said accommodation was occupied by him during the previous year:

Provided that where the assessee claims and the assessing officer is satisfied that the sum arrived at on the aforesaid basis exceeds the fair rental value of the accommodation, the value of the perquisite to the assessee shall be limited to such fair rental value;

(2) if the accommodation is furnished, an amount calculated in accordance with sub-clause (ii)(1) plus 10 per cent per annum, of the original cost of the furniture (including television sets, radio sets, refrigerators, other household appliances and air-conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable therefor;

(iii) in any other case, (A) the value of rent-free residential accommodation which is not furnished shall ordinarily be a sum equal to 10 per cent of the salary due to the assessee in respect of the period during which the said accommodation was occupied by him during the previous year:

Provided that Provided that (1) where the fair rental value of the accommodation is in excess of 20 per cent of the assesse's salary, the value of the perquisite shall be taken to be 10 per cent of the salary increased by a sum equal to the amount by which the fair rental value exceeds 20 per cent of the salary; so, however, that the assessing officer may, having regard to the nature of the accommodation, determine the sum by which 10 per cent of the salary is to be increased, as a percentage (not exceeding 100 per cent) of the amount by which the fair rental value exceeds 20 per cent of the salary;

(2) where the assessee claims, and the assessing officer is satisfied that the sum arrived at on the basis provided above exceeds the fair rental value of the accommodation, the value of the perquisite to the assessee shall be limited to such fair rental value;

(B) where the accommodation is furnished, the value of rent-free residential accommodation shall be the aggregate of the following sums, namely (1) the fair rental value of the accommodation arrived at in accordance with the provisions of sub-clause (iii)(A) as if the accommodation were not furnished; and (2) the fair rent for the furniture (including television sets, radio sets, refrigerators, other household appliances and air-conditioning plant or equipment) calculated at 10 per cent per annum of the original cost of such furniture or if such furniture is hired from a third party, the actual hire charges payable therefor.

Explanation 1'Salary' includes the pay, allowances, bonus or commission payable monthly or otherwise, but does not include the following, namely:

(i) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the assessee concerned;

(ii) employer's contributions to the provident fund account of the assessee;

(iii) allowances which are exempted from payment of tax;

(iv) any allowance in the nature of an entertainment allowance, to the extent such allowance is deductible under clause (ii) of section 16.

Explanation 2For the purposes of sub-clause (iii), the fair rental value of accommodation which is not furnished shall be the rent which a similar accommodation would realise in the same locality or the municipal valuation in respect of the accommodation, whichever is higher.

(b) The value of residential accommodation provided at a concessional rent shall be determined as the sum by which the value computed in accordance with clause (a), as if the accommodation were provided free of rent, exceeds the rent actually payable by the assessee for the period of his occupation during the relevant previous year."

10. This court in the case of Officers' Association, Bhilai Steel Plant (supra) while interpreting the said rule has held as under :

"Sub-clause (ii) of the definition of 'perquisite' in section 17(2) extends the meaning of that term by including therein 'the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer'. It is 'any concession in the matter of rent' which falls within this clause. If the employer gives no concession to the employee in the matter of rent, there can be no question of any perquisite. A case of concession in the matter of rent would arise when the rent normally payable for the accommodation is higher than the rent paid. The definition of 'perquisite' does not say that if the rent paid by the employee is less than 10 per cent of his salary, the difference will be deemed as perquisite. It is not uncommon that accommodations suiting the standard of the officers are not available and they have to occupy accommodations which are of lower category. The rent of such accommodations is low and if the rent paid in such a situation is less than 10 per cent of the salary (which is the rent normally payable for an accommodation of the category which should have been allotted to the officer), the difference cannot be treated as perquisite. Similarly, if the rent of an accommodation is fixed irrespective of the person who occupies it, the difference between 10 per cent of salary and the fixed rent paid cannot be said to be any perquisite. In these cases it cannot be said that the officer was granted any concession in the matter of rent.

Rule 3, the relevant portions of which have been extracted, has been framed in exercise of the rule-making power conferred by section 295(2)(c). The object of section 3 is the determination of the value of the perquisite chargeable to tax. The rule operates at the stage when a finding is reached that the employee is in receipt of any perquisite as defined in section 17(2), the rule cannot be used to determine whether the officer is really in receipt of any perquisite. The rule applies only for determining the value of the perquisite when the fact of receipt of perquisite is otherwise established. Rule 3(a) deals with the case when the employee is in occupation of rent free residential accommodation. If the fact that the employee is in occupation of rent-free accommodation is established, the value thereof would be calculated by applying the method provided in rule 3(a). Similarly rule 3(b) applies when the employee is in occupation of residential accommodation at a concessional rent. If it is established that the employee is in fact in occupation of an accommodation at a concessional rent, the value thereof would be calculated in the manner provided in this rule. The effect of the rule in taking the value of rent-free unfurnished accommodation at 10 per cent, is not to lay down that the moment it is found that an employee is paying less than 10 per cent of his salary as rent, it must be deemed that he has been provided accommodation at a concessional rent.

The question whether an employee is in occupation of an accommodation at a concessional rent, in other words, the question whether the employee is in receipt of any concession in the matter of rent, would depend upon two factors: (i) the normal rent for the accommodation in occupation of the employee, and (ii) rent actually paid by the employee. If the employee is paying that rent which is the normal rent of the accommodation in his occupation, it cannot be said that he is receiving any concession in the matter of rent even though the rent paid by him is less than 10 per cent, of his salary. As earlier pointed out, there is no deeming clause in the definition of 'perquisite' contained in section 17(2) that once it is established that an employee is paying rent less than 10 per cent of his salary it must be deemed that he is receiving a concession in the matter of rent and no such deeming clause can be inferred from rule 3. Indeed, if rule 3 were to be so construed, it will go beyond the rule making power conferred by section 295(2) and would become invalid. We are, therefore, clearly of opinion that the management of the plant was not right in treating in every case the difference between 10 per cent of the salary and the rent actually paid as a perquisite for the purposes of deduction of income-tax. The petition is allowed, Respondent No. 2 is directed not to treat the difference between the rent actually paid and 10 per cent of the salary as a perquisite in every case for purposes of deduction of income-tax. There shall be no order as to costs of this petition. The security amount shall be refunded to the petitioners."

11. The said view was adopted by the Calcutta High Court as well as the High Court of Andhra Pradesh. The relevant part of the amended rule which has come into existence reads as under:

"3. Valuation of perquisitesFor 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 accommodation provided by the employer during the previous year shall be determined on the basis provided in the Table below:

TABLE-1 S1. No. S1. No. S1. No. Circumstances Circumstances Circumstances Where the accommodation is unfurnished Where the accommodation is unfurnished Where the accommodation is unfurnished Where the accommodation is furnished Where the accommodation is furnished Where the accommodation is furnished Where the accommodation is provided by Union or State Government to their employees either holding office or post in connection with the affairs of Union or State or serving with any body or undertaking under the control of such Government on deputation.

Where the accommodation is provided by Union or State Government to their employees either holding office or post in connection with the affairs of Union or State or serving with any body or undertaking under the control of such Government on deputation.

License-fee determined by Union or State Government in respect of accommodation in accordance with the rules framed by that Government as reduced by the rent actually paid by the employee.

The value of perquisite as determined under col. (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment) or if such furniture is hired from a third party, the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.

Where the accommodation is provided by any other employer and Where the accommodation is provided by any other employer and (1) 10% of salary in cities having population exceeding 4 lakhs as per 1991 census;

(1) 10% of salary in cities having population exceeding 4 lakhs as per 1991 census;

The value of perquisite as determined under col. (3) and increased by 10% per annum of the cost of furniture (including television sets, radio sets, refrigerators, other household appliances, air-conditioning plant or equipment or other similar appliances or gadgets) or if such furniture is hired from a third party, by the actual hire charges payable for the same as reduced by any charges paid or payable for the same by the employee during the previous year.

(a) Where the accommodation is owned by the employer, or

(ii) 7.5% of salary in other cities, in respect of the period during which the said accommodation was occupied by the employee during the previous year as reduced by the rent, if any, actually paid by the employee.

(b) Where the accommodation is taken on lease or rent by the employer Actual amount of lease rental paid or payable by the employer or 10% of salary whichever is lower as reduced by the rent, if any, actually paid by the employee.

Actual amount of lease rental paid or payable by the employer or 10% of salary whichever is lower as reduced by the rent, if any, actually paid by the employee.

** ** ** Provided that nothing contained in this sub-rule would be applicable to any accommodation located in a 'remote area' provided to an employee working at a mining site or an onshore oil exploration site, or a project execution site or an accommodation provided in an offshore site of similar nature:

Provided that nothing contained in this sub-rule would be applicable to any accommodation located in a 'remote area' provided to an employee working at a mining site or an onshore oil exploration site, or a project execution site or an accommodation provided in an offshore site of similar nature:

(2) to (8) ** ** **

(v) 'remote area', for purposes of proviso to this sub-rule means an area that is located at least 40 kilometres away from a town having a population not exceeding 20,000 based on latest published all-India census."

12. It is submitted by Mr. H.S. Shrivastava, learned senior counsel and Mr. Sumit Nema that without amending section 17(2) of the Act the rule could not have been amended. Per contra, it is submitted by Mr. Rohit Arya that the concept of concession has been totally misconstrued by the Division Bench in the case of Officers' Association, Bhilai Steel Plant (supra) and that apart the Rules were quite different at that time.

13. We have carefully gone through the decision rendered by the Division Bench of this court in the case of Officers' Association Bhilai Steel Plant (supra) and other decisions which have followed the ratio laid down therein. Their Lordships have given emphasis on the term concession. We have quoted the relevant part from the aforesaid decision. It is not disputed before us that the decision which have been rendered by other High Courts making amended rule as intra vires have not referred to section 17(2) of the Act but the said High Courts have categorically held that there has been no transgression in making of the rules. In view of the obtaining factual matrix and considering the complexity of the matter and further in view of the decisions rendered by other High Courts holding the provision as intra vires we are of the considered opinion that the matter should be heard by a larger Bench. We may hasten to state here that we are of the prima facie opinion that as long as the decision rendered in the case of Officers' Association, Bhilai Steel Plant (supra) is not overruled or clarified, it would be difficult to arrive at a conclusion that the present rule is not beyond the rule making power as conferred on the respondent No. 1 under section 295 of the Act. The decision rendered by the Division Bench is a binding precedent on us and the language used therein is unequivocal and clear. Quite apart from the above when various decisions have come into the field the matter should be heard by a larger Bench. We may further state here that there are no conflicting decisions but taking note of the complexity and importance of the matter it should be heard by a larger Bench. Accordingly we so recommend.

14. Let the matter be placed before Hon'ble the Chief Justice for constitution of appropriate larger Bench.