Thursday, May 26, 2016

No discrimination if SBI lending rate is basis to tax concessional loan of all bank employees: HC

Facts:


a)   Petitioner (‘All India Union Bank O icers Federation’) filed a writ petition before the High Court challenging constitutional validity of section 17(2)(viii) of the Income-tax Act, 1961, read with Rule 3(7)(i) of the Income-tax Rules, 1962.

b)  Section 17(2)(viii) provides the method for computation of perquisite value of interest free or concessional loan provided by an employer to his employee on the basis of interest rate charged by the State Bank of India (SBI).


c)  Petitioner challenged the constitutional validity of aforesaid section by contending that it was unfair to compare the rate of interest charged by the individual banks on the loans advanced to their employees with the rate of interest o ered by the State Bank of India as each bank fixed its own rate of interest, depending upon the economies of their operation.

The High Court held as under:


1)  Rule 3(7)(i) does not even make a distinction between di erent categories of employees or between employees of di erent banks. Hence, the petitioners cannot compare themselves with the employees of the State Bank of India to contend that there is discrimination.

2)  If the State Bank of India charges interest at rate of 10% per annum on the loans advanced to its employees and another bank charges interest at rate of 7% per annum on the loans advanced to its employees, then the employees of the State Bank of India end up paying more in the form of interest than their counterparts in other banks.


3) If at all it is the employee of the State Bank of India, who can perhaps raise an argument that they are su ering a handicap in the form of a higher rate of tax. The employees of other banks end up paying income tax at slab rate on the di erential interest rate of 3%.

4) Therefore, the challenge on the basis of Article 14 is completely meaningless. The challenge to Section 17(2)(viii) as well as to Rule 3(7)(i) has to fail- [2016] 69 taxmann.com 371 (Madras)



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