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Treatment of self-leases in the hands of employees

Self-lease as understood in the query is where an employee lets out his own property on lease to his employer but has such leased property allotted to himself taxable as rent-free or rent concessional accommodation as housing perquisite made available by the employer. The system had come into vogue without recognising, in some cases, that the lease rent in pursuance of lease agreement between the employee and the employer is taxable in the hands of the employee as income from property, exemption for self-occupation being lost. The advantage on self-lease is to a large extent, neutralised further, since the accommodation for such lessee is now evaluated by the formula with reference to emoluments of the employee and the cities where employment is exercised. Even if rent is charged, if it is concessional with reference to such statutory valuation, such concession is taxed as perquisite.

There was some advantage when the interpretation permitted charging of uniform rate from the employees as standard rent usually below 10 per cent of the salary. Rule 3 was modified dispensing with the standard rent concept and placing a statutory valuation with reference to the employee’s salary and the class of cities, so that the employers had to go by the revised law and the rules. This law is explained in the Circular issued by the Food Corporation enclosed by the reader.

It does constitute a hardship in quite a few cases, but self-lease is the choice of the employee.

The decision of the Supreme Court in Arun Kumar v Union of India (2006) 286 ITR 89 (SC) that this rule would apply only where such rent recovered is concessional with reference to standard rent is no longer applicable after amendment to law according to departmental perception after shifting such obligation by a retrospective amendment from Rule 3 to Sec. 17(2)(ii) in the statute.

Since the Food Corporation had acted on an advice of a tax consultant to include the difference between the rent charged and the statutory rent, the corporation had to rework the liability of the employees.

Apparently, it did so for past years and recovered the same from the employees and deposited the same to come clean with the Department.

Strictly speaking, the short deduction for past years could only be made good by direct assessment on the employees.

But this deduction by FCI, if it facilitated the employees by avoiding reassessment proceedings in their cases, such deduction need not be faulted.

The reader’s other grievance is in respect of Central Government employees on deputation. In the case of Government servant, the licence fee charged is accepted as not concessional, since statutory valuation has no application for them. For this disparity, FCI is helpless.

Such classification as between Government servant and others under Rule 3 and elsewhere has not been held to be discriminatory by the courts, so as to render it to be unconstitutional.

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