The Supreme Court ruling on May 7, 2024, affirmed the authority of subordinate legislation to impose taxes on interest-free or concessional loans provided to bank employees as a fringe benefit under Section 17(2)(viii) of the Income Tax Act. Justices Sanjiv Khanna and Dipankar Datta, dismissing petitions filed by the All India Bank Officers Federation and others, upheld the validity of Section 17(2)(viii) of the Income Tax Act, 1961, and Rule 3(7)(i) of the Income Tax Rules, 1962.
The court emphasized that the enactment of subordinate legislation for taxing interest-free or concessional loans as a fringe benefit falls within the rulemaking power under Section 17(2)(viii) of the Act and is not an instance of excessive delegation. It also underscored that the fixation of the State Bank of India’s interest rate as the benchmark is not arbitrary or unequal exercise of power.
Additionally, the ruling clarified that the legislation regarding fiscal or tax measures allows for flexibility, and judicial deference to legislative wisdom is warranted in such matters. The court emphasized that the legislation in question prevents potential abuse, promotes certainty, and is not unjust or draconian towards taxpayers. It concluded that the legislation is pragmatic, fair, and just, and upheld its compatibility with Article 14 of the Constitution.
The judgment also addressed the challenged provisions, outlining that they encompassed the definition of ‘perquisites’ and ‘fringe benefits’ under Section 17(2)(viii) and prescribed the method of valuation of such perquisites for taxation purposes. The court emphasized that the benchmarking of computation of the perquisite with reference to the SBI’s PLR is not arbitrary, providing consistency, clarity, and tax efficiency, aligning with constitutional values.
The ruling upheld the legislation’s uniform approach and fair determining principle, emphasizing the avoidance of unnecessary litigation and the provision of certainty and clarity for both the assessee and the revenue department. It underlined that these aspects are hallmarks of good tax legislation, and the rule is based on a uniform approach while being rooted in fairness and constitutional values. Read more