In ITO v. Raghu Nandan Modi, the ITAT Kolkata held that rent-Free accommodation received by a Part Time-Director cum Employee from the Company cannot be taxable as “Business Income” under the provisions of Income Tax Act.
Assessee, in the instant case, was a part-time Director of M/s Prabhukripa Overseas Ltd. during his tenure, assessee received rent-free accommodation in the flat owned by the Company, POL. AO completed assessment by holding the value of the rent fee accommodation is taxable in the hands of the assessee under Section 2(24)(iv) of the Income Tax Act r.w.s. 17(2)/ 28(iv) of the Income Tax Act.
Before the appellate authorities, assessee contended that he was holding the post of part-time director in the company as well as the post of employee to look after the export business of POL. The assessee has received no salary from the company, therefore the perquisites value u/s. 17(2) r.w.s. Rule 3 of the Rules becomes nil. He further contended that s. 28(iv) would not applicable in the case of the assessee as there exists employee and employer relationship between the assessee and the POL.
After considering arguments from both sides, the bench noted that as the assessee was not drawing any salary from POL then in our considered view the perquisites cannot be determined in terms of the provision of Sec. 17(2) r.w.r. 3 of the Rules. The bench also noted that “the provisions of Sec. 28(iv) of the Act are attracted if the benefit of perquisites is arising to the assessee from the business or exercise of the profession. As there is no dispute that there was existing employees and employer relationship between assessee and POL then there is no question of attracting the benefit or perquisites as define u/s. 28(iv) of the Act.”
Assessee, being a director in the company, benefit or perquisites derives by the assessee are taxable under section 2(24)(iv) of the Income Tax Act and the perquisites value can be determined as per Sec. 23(1)(a) of the Income Tax Act for the purpose of taxation of rent free accommodation.
Read the full text of the Order below.
