Rule 3(7)(i) Prescribing SBI’s Rate of Interest to Compute Perquisite Isn’t Arbitrary/Unequal | SC

Case Details: All India Bank Officers' Confederation vs. Central Bank of India - [2024] 162 taxmann.com 228 (SC)

Judiciary and Counsel Details

• • Sanjiv Khanna & K.M. Joseph, JJ.

Facts of the Case

The issue before the Supreme Court was:

“Is Rule 3(7)(i) of the Income-tax Rules arbitrary and violative of Article 14 of the Constitution insofar as it treats the PLR of SBI as the benchmark?”

The Apex Court held that rule 3(7)(i) was not arbitrary or irrational because it benchmarks the computation of the perquisite with reference to the SBI’s PLR. SBI is the largest bank in the country, and the interest rates it fixes 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 application consistency, clarity for the assessee and the revenue department, and certainty about the amount to be taxed. When there is certainty and clarity, there is tax efficiency, which is beneficial to both the taxpayer and the tax authorities. These are all hallmarks of good tax legislation. This rule is based on a uniform approach yet premised on a fair determining principle that aligns with constitutional values.

It is also apposite to note that when it comes to a uniform approach, the fiscal or tax measures laws enjoy greater latitude than other statutes. The Legislature should be allowed some flexibility in such matters, and the Court would be more inclined to give judicial deference to legislative wisdom. Commercial and tax legislation tend to be highly sensitive and complex as they deal with multiple problems and are contingent.

Supreme Court Held

Thus, the Court held that it would not like 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 straitjacket formula has solved a complex problem, meriting judicial acceptance. Holding otherwise would lead to multiple problems/issues and override 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. Accordingly, the appeal was dismissed, and the High Courts’ judgements were upheld.