The ratio of Supreme Court’s judgment in the case of Arun Kumar vs. UOI – amended Rule 3 – retrospective amendment – is valid for levy of tax on employee, but not on employer for deduction of tax at source.

The assessee, a public sector company, had provided
residential accommodation to its employees in addition to salaries. The rent in
respect of such accommodation was recovered from the employees. The rent charged
to employees was as per the Service Regulations, approved by the central
government.

The assessing officer, relying on the Supreme Court’s
judgment in the case of Arun Kumar vs. Union of India [2006] (286 ITR 89),
required the assessee to deduct tax and pay the tax on the concessional
accommodation provided to its employees, from assessment year 2001-02, i.e.,
retrospectively. As per the AO, the difference in the rate specified in amended
Rule 3 and the rent charged by the assessee was a benefit in the nature of
concession and, therefore, perquisite under Section 17(2) of the Income-tax Act,
1961 (‘the Act’). The assessee ought to have deducted tax. Since the tax had not
been deducted, the assessee was in default under Section 192 read with Section
201(1A) of the Act.

On appeal to the Tribunal, the ITAT observed that a
retrospective amendment was to be given effect to, as it was there in existence
on the date from which it came into effect. The Tribunal, therefore, held that
the perquisite value is to be worked out on the basis of the amended provision
of Section 17(2) of the Act.

The Tribunal also held that a retrospective amendment could
be valid for levy of tax on the employee, but there exists no force in the
contention of the revenue that the employer would also be under responsibility
to deduct tax at source retrospectively.

Further, it observed, analysing the provisions of Sections
192(1), 192(1A) and 192(1B), Section 200 and Rule 30, that liability to deduct
tax is there on the date(s) when the salary is actually paid. If there was no
perquisite at the time when the tax was to be deducted at source, there would be
no liability to deduct tax. If a perquisite value is assumed by the
retrospective amendment after the period during which it was deducted, how can a
deduction be made on an earlier date? The retrospective amendment is for deeming
valuation of perquisites and cannot extend to deduction of tax at source
thereon.