All India Bank Officers’ Confederation vs The Regional Manager, Central Bank of India and Others

Held: The legislature can and does delineate the meaning of terms through explicit definitions – Explicit definitions are useful, but it is wrong to state that all words or expressions must be explicitly defined – Popular meaning makes the statute simpler and easier for the common people – After all, it is the common person who is concerned with the ramifications of a statute, and thus, the common man’s understanding is the definitive index of the legislative intent – The legislature is assumed to be aware of the well-understood meaning attributed to the word/expression, and by necessary implication the legislature by not prescribing a fixed and exact definition, ascribes the prevalent meaning assigned to the word/expression in common parlance or commercial usage – This would include meaning assigned to technical words in a particular trade, business or profession, etc – when the legislation is concerning a particular trade, business or transaction – This rule equally applies to construing words or expressions in a taxation statute. Section 17(2(viii) is a residuary clause, enacted to provide flexibility – Since it is enacted as an enabling catch-within-domain provision, the residuary clause is not iron-cast and exacting – A more pragmatic and commonsensical approach can be adopted by locating the prevalent meaning of ‘perquisites’ in common parlance and commercial usage – The expression ‘perquisite’ is well-understood by a common person who is conversant with the subject matter of a taxing statute – New International Webster’s Comprehensive Dictionary defines ‘perquisites’ as any incidental profit from service beyond salary or wages; hence, any privilege or benefit claimed due – Thus, ‘perquisite’ is a fringe benefit attached to the post held by the employee unlike ‘profit in lieu of salary’, which is a reward or recompense for past or future service – It is incidental to employment and in excess of or in addition to the salary. It is an advantage or benefit given because of employment, which otherwise would not be available – From this perspective, the employer’s grant of interest-free loans or loans at a concessional rate will certainly qualify as a ‘fringe benefit’ and ‘perquisite’, as understood through its natural usage in common parlance. [Paras 13-15, 18, and 19]

Income Tax Act, 1961 – Section 17(2)(viii) – Rule 3(7)(i) – Income Tax Rules, 1962 does not lead to a delegation of the ‘essential legislative function’ to the CBDT.

Held: A Constitution Bench of Seven Judges of this Court in Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills, Delhi and Another (1968) SCC Online SC 13, has held that the legislature must retain with itself the essential legislative function – ‘Essential legislative function’ means the determination of the legislative policy and its formulation as a binding rule of conduct – Therefore, once the legislature declares the legislative policy and lays down the standard through legislation, it can leave the remainder of the task to subordinate legislation – The test, therefore, is whether the primary legislation has stated with sufficient clarity, the legislative policy and the standards that are binding on subordinate authorities who frame the delegated legislation. Subordinate authority’s power under Section 17(2)(viii), to prescribe ‘any other fringe benefit or amenity’ as perquisite is not boundless – The express delineation does not take away the power of the legislature, as the plenary body, to delegate the rule-making authority to subordinate authorities, to bring within the ambit of ‘perquisites’ any other ‘fringe benefit’ or annuities’ as ‘perquisite’ – An unlimited right of delegation is not inherent in the legislative power itself – The legitimacy of delegation depends upon its usage as an ancillary measure, which the legislature considers necessary for the complete and effective exercise of legislative powers – Provided that the legislative policy is enunciated with sufficient clearness or a standard is laid down, the courts should not interfere with the discretion that undoubtedly rests with the legislature itself in determining the extent of delegation necessary in a particular case – An executive authority can be authorised by a statute to modify either existing or future laws but not in any essential feature – What constitutes an essential feature cannot be enunciated in exact terms – However, it was held that modification could not include a change in policy, since the ‘essential legislative function’ consists of the determination of legislative policy and its formulation as a binding rule of conduct – In the context of Section 17(2)(viii) and Rule 3(7)(i), we are of the opinion that main legislation does not fall foul of the essential feature test – They do not modify an essential feature nor do they violate the condition of determining legislative policy or a binding rule of conduct – A delegated legislation is not unconstitutional when the legislature leaves it to the executive to determine details relating to the working of taxation laws, such as selection of persons on whom the tax has to be levied, the rates at which it is to be charged in respect of different classes of goods and the like – The principal legislature has not given unqualified power to fix the rate of tax without guidance, control or safeguard – The power to decide who is to pay the tax is not an essential part of legislation, neither would the power to decide the rate of tax be so – The enactment of subordinate legislation for levying tax on interest free/concessional loans as a fringe benefit is within the rule making power under Section 17(2)(viii) of the Act – Section 17(2)(viii) itself, and the enactment of Rule 3(7)(i) is not a case of excessive delegation and falls within the parameters of permissible delegation. [Paras 21-25, 28, 30, and 31]

Income Tax Rules, 1962 – Rule 3(7)(i) – not arbitrary and violative of Article 14 of the Constitution insofar as it treats the PLR of SBI as the benchmark.

Held: The fixation of SBI’s rate of interest as the benchmark is neither an arbitrary nor unequal exercise of power – The rulemaking authority has not treated unequal as equals – The benefit enjoyed by bank employees from interest-free loans or loans at a concessional rate is a unique benefit/advantage enjoyed by them – It is in the nature of a ‘perquisite’, and hence is liable to taxation – Rule 3(7)(i) is not arbitrary or irrational for the reason it benchmarks computation of the perquisite with reference to the SBI’s PLR – SBI is the largest bank in the country and the interest rates fixed by them invariably impact and affect the interest rates being charged by other banks – By fixing a single clear benchmark for computation of the perquisite or fringe benefit, the rule prevents ascertainment of the interest rates being charged by different banks from the customers and, thus, checks unnecessary litigation – Rule 3(7)(i) ensures consistency in application, provides clarity for both the assessee and the revenue department, and provides certainty as to the amount to be taxed – When there is certainty and clarity, there is tax efficiency which is beneficial to both the tax payer and the tax authorities – These are all hallmarks of good tax legislation – Rule 3(7)(i) is based on a uniform approach and yet premised on a fair determining principle which aligns with constitutional values – When it comes to uniform approach the laws relating to fiscal or tax measures enjoy greater latitude than other statutes – Commercial and tax legislations tend to be highly sensitive and complex as they deal with multiple problems and are contingent – To interfere with the legislation in question, which prevents possibilities of abuse and promotes certainty – It is not iniquitous, draconian or harsh on the taxpayers – A complex problem has been solved through a straitjacket formula, meriting judicial acceptance – To hold otherwise, would lead to multiple problems/issues and override the legislative wisdom – The universal test in the present case is pragmatic, fair and just – Therefore, Rule 3(7) is held to be intra vires Article 14 of the Constitution of India. [Paras 32-34]