Mathew, J.:— The question to be answered in this reference under section 256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax is:
“Whether, on the facts and in the circumstances of the case, the inter pretation given by the Appellate Tribunal to Explanation (2) to rule 3 of the Income-tax Rules, 1962, was legal and proper and the consequent direction given for the deletion of income-tax paid by the employer, and the value of perquisites, viz., the use of the car, electricity charges and professional tax, reimbursed by the employer from the quantum of salary for computing the value of rent-free accommodation, was legally correct and justified?”
2. The assessee here is the same as the assessee in I.T.R No. 22/1969* and the question to be answered is much the same. The assessment year is 1962-63. The assessee valued the rent-free quarters at Rs. 3,226 on the footing that the income-tax paid on the assessee's behalf by the employer, as also the use of a car, electricity charges and profession tax, was not part of his salary. The Income-tax Officer, however, computed the value of the rent-free quarters at Rs. 5,069. The assessee appealed to the Appellate Assistant Commissioner. He substantially confirmed the order. The assessee appealed to the Appellate Tribunal and relied on the Explanation to rule 3 of the Income-tax Rules, 1962. The Appellate Tribunal found that because the definition of “salary” in the Explanation to rule 3 of the Income-tax Rules, 1962, did not include perquisites, the income-tax paid by the employer and the allowances do not form part of the salary and cannot be taken into consideration for determining the value of the rent-free quarters; and set aside the orders of the authorities below.
3. The rule that falls for consideration is Explanation 2 to rule 3 of the Income-tax Rules, 1962, which is identical in language to rule 24A of the Indian Income-tax Rules, 1922. We have considered the contention of the assessee that income-tax paid by the employer does not form part of his salary and should not be taken into account for determining the value of rent-free quarters for the assessment year 1961-62 in I.T.R No. 22/1969;. and for the reasons given in that judgment, we find that the income-tax paid by the employer forms part of the salary, and must be taken into consideration for determining the value of the rent-free accommodation for the assessment year 1962-63.
4. The further question is whether the use of the car, electricity charges and profession tax should also be taken into account in determining the quantum of salary of the assessee for the purpose of rule 3 for computing the value of the rent-free accommodation. We do not think that use of car by the assessee can be an allowance within the meaning of the definition of salary; and therefore it has to be excluded in computing the salary of the assessee for determining the value of the rent-free quarters. But we are of opinion that electricity allowances and professio??? tax would come within the definition of the word “salary” in the Explanation; and they have to be taken into account for the purpose of determining the value of the rent-free accommodation.
5. We, therefore, answer the question partly in the negative and against the assessee and partly in the affirmative and against the department. We make no order as to costs.
6. A copy of this judgment will be sent to the Appellate Tribunal under the seal of the High Court and the signature of the Registrar.