Holding

Section 17(2)(viii) and Rule 3(7)(i) do not amount to excessive delegation of essential legislative power and are intra vires, and Rule 3(7)(i) is not arbitrary nor violative of Article 14.

Summary

The All India Bank Officers’ Confederation and other bank staff unions challenged Section 17(2)(viii) of the Income Tax Act, 1961 and Rule 3(7)(i) of the Income Tax Rules, 1962, alleging that they amounted to an excessive delegation of the essential legislative function to the Central Board of Direct Taxes and that the rule was arbitrary for using the State Bank of India's prime lending rate as a benchmark for valuing interest‑free or concessional loans to bank employees. The Supreme Court examined whether the residuary clause in Section 17(2)(viii) and the rule provided sufficient legislative policy and standards, and whether the delegation was within permissible limits. It held that the primary legislation clearly delineated policy, allowing the CBDT to prescribe "any other fringe benefit or amenity" and that such delegation did not infringe the essential legislative function. The Court also found that using the SBI PLR as a benchmark was a rational, uniform approach that ensured certainty and avoided litigation, and therefore was not violative of Article 14. Consequently, the appeals were dismissed and the High Court judgments upheld.

Issues considered

Whether Section 17(2)(viii) of the Income Tax Act, 1961 and/or Rule 3(7)(i) of the Income Tax Rules, 1962 constitute an excessive delegation of the essential legislative function to the Central Board of Direct Taxes.
Whether Rule 3(7)(i) is arbitrary and violative of Article 14 of the Constitution by treating the State Bank of India's prime lending rate as the benchmark for valuing perquisites.

Legislation cited

Constitution of Indias. Article 14
Income Tax Act, 1961s. 17(2)(viii)
Income Tax Rules, 1962s. Rule 3(7)(i)

Subjects

PerquisitesFringe BenefitsAmenitiesPrime Lending RateConcessional or Interest Free Loan BenefitsSalaryResiduary ClauseEssential Legislative FunctionsExcessive DelegationDelegation of PowerUltra ViresIntra Vires

Judgment

[2024] 5 S.C.R. 906 : 2024 INSC 389

All India Bank Officers’ Confederation
v.
The Regional Manager, Central Bank of India and Others
(Civil Appeal No. 7780 of 2014)
With
(Civil Appeal No. 18459 of 2017)
(Civil Appeal No. 18460 of 2017)
(Civil Appeal No. 18462 of 2017)
(Civil Appeal No. 18463 of 2017)
(Civil Appeal No. 18461 of 2017)
(Civil Appeal No. 18464 of 2017)
(Civil Appeal Nos. 18465-18466 of 2017)
(Civil Appeal Nos. 18457-18458 of 2017)
and
(Civil Appeal No. 18467 of 2017)
07 May 2024
[Sanjiv Khanna* and Dipankar Datta, JJ.]

Issue for Consideration
I. Does Section 17(2)(viii) of the Income Tax Act, 1961 and/
or Rule 3(7)(i) of the Income Tax Rules, 1962 lead to a
delegation of the ‘essential legislative function’ to the Central
Board of Direct Taxes?
II. Is Rule 3(7)(i) of the Income Tax Rules, 1962 arbitrary and
violative of Article 14 of the Constitution of India insofar as
it treats the Prime Lending Rate of the State Bank of India
as the benchmark?

Headnotes
Income Tax Act, 1961 – Section 17(2)(viii) – Income Tax Rules
1962 – Rule 3(7)(i) – Challenged before High Courts – High
Courts dismissed the writ petitions – Several appeals were
filed by staff unions and officers’ associations of various
banks, impugning judgments of High Courts before Supreme
Court, challenging section 17(2)(viii) and rule 3(7)(i) on the
grounds of excessive and unguided delegation of essential
legislative function to the Central Board of Direct Taxes,
furthermore, rule 3(7)(i) was also challenged as arbitrary and

* Author
[2024] 5 S.C.R. 907

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

violative of article 14 of the constitution insofar as it treats
the Prime Leading Rate of SBI as the benchmark instead of
the actual interest rate charged by the bank from a customer
on a loan – Supreme Court uphold the impugned judgments
of the High Courts – Appeals dismissed.
Held: When it comes to uniform approach the laws relating to
fiscal or tax measures enjoy greater latitude than other statutes.
[Paras 1, 3, 34, and 35]
Interpretation of Statute – 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 – 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 – The expression ‘perquisite’ is well-understood
by a common person who is conversant with the subject
matter of a taxing statute.
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
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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
[2024] 5 S.C.R. 909

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

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 rule-
making 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
910 [2024] 5 S.C.R.

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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]

Case Law Cited
Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving
Mills, Delhi and Another [1968] 3 SCR 251 : (1968) SCC Online
SC 13; Pandit Banarsi Das Bhanot v. State of Madhya Pradesh
[1959] 1 SCR 427 – relied on.
Arun Kumar v. Union of India [2006] Supp. 6 SCR 290 : (2007)
1 SCC 732; Additional Commissioner of Income Tax v. Bharat V.
Patel [2018] 7 SCR 1067 : (2018) 15 SCC 670, Govt. of A.P. v. P.
Laxmi Devi [2008] 3 SCR 330 : (2008) 4 SCC 720, Swiss Ribbons
(P) Ltd. v. UOI [2019] 3 SCR 535 : (2019) 4 SCC 17 – followed.
Owen v. Pook (1969) 2 WLR 775 (HL); Rendell v. Went (1964) 1
WLR 650 (HL); In Re.: The Delhi Laws Act, 1912 [1951] 1 SCR
747 : (1951) SCC 568; Raj Narain Singh v. Chairman, Patna
Administration Committee [1955] 1 SCR 290; Hari Shankar Bagla
[2024] 5 S.C.R. 911

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

v. State of Madhya Pradesh [1955] 1 SCR 380; Western India
Theatres Limited v. Municipal Corporation of the City of Poona,
AIR 1959 SC 586; Powell v. Apollo Candle Company Ltd., 8 AC
282; Devidas Gopal Krishnan v. State of Punjab, AIR (1967) SC
1895; Corporation of Calcutta v. Liberty Cinema [1965] 2 SCR
477 – referred.

Books and Periodicals Cited
The New International Webster’s Comprehensive Dictionary, Black’s
Law Dictionary (10th Edition), P. Ramanatha Aiyar’s The Major
Law Lexicon (4th Edition).

List of Acts
Income Tax Act, 1961; Income Tax Rules, 1962; Income Tax (First
Amendment) Rules; 2004; Constitution of India.

List of Keywords
Perquisites; Fringe Benefits; Amenities; Prime Lending Rate;
Concessional or Interest Free Loan Benefits; Salary; Residuary
Clause; Essential Legislative Functions; Excessive Delegation;
Delegation of Power; Ultra Vires; Intra Vires.

Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7708 of 2014
From the Judgment and Order dated 30.11.2009 of the High Court of
M.P. at Jabalpur in WP No. 3963 of 2008
With
Civil Appeal Nos. 18459, 18460, 18462, 18463 18461, 18464, 18465-
18466, 18457-18458 and 18467 of 2017
Appearances for Parties
N. Venkatraman, A.S.G., Pramod Swarup, Arvind P. Datar, Wasim
Qadri, V. Chitambaresh, Sr. Advs., Abhishek Atrey, Ms. Pareena
Swarup, Benny Joseph, Ms. Alka Sinha, Dr. Abhishek Atrey, Haris
Beeran, Anand P. Menon, Sayid Marzook Bafaki, Azhar Assees,
Rajesh Mahale, R. Chandrachud, Dhuli Venkata Krishna, Raj Bahadur
Yadav, Shashank Bajpai, Prahlad Singh, Mrs. Gargi Khanna, Pratyush
Srivastav, H.R. Rao, M/s. Mitter & Mitter Co., Harshad V. Hameed,
Dileep Poolakkot, Mrs. Ashly Harshad, Shivam Sai, Ms. Mansha
912 [2024] 5 S.C.R.

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Shukla, Rajesh Kumar Gautam, Anant Gautam, Samir Mudgil, Ms.
Anani Achumi, Dinesh Sharma, Ms. Shivani Sagar, R.P. Daida, Ashish
Wad, Mrs. Tamali Wad, Ms. Kirti Sharma, Ms. Akriti Arya, M/s. J.S.
Wad And Co, Rajat Arora, Ravi Ranjan Mishra, Anuvrat Sharma,
Badri Prasad Singh, Sanjay Kapur, Arjun Bhatia, Surya Prakash,
Ms. Isha Virmani, Surya Nath Pandey, Satendra Tripathi, Aayush
Kesarwani, Radha Shyam Jena, Advs. for the appearing parties.
Judgment / Order of the Supreme Court
Judgment
Sanjiv Khanna, J.
This common judgment decides the appeals filed by staff unions and
officers’ associations of various banks, impugning judgments which
dismiss their writ petitions, where the vires of Section 17(2)(viii) of
the Income Tax Act, 19611 or Rule 3(7)(i) of the Income Tax Rules,
19622, or both, were challenged.
2. Section 17(2)(viii) of the Act includes in the definition of ‘perquisites’ 3,
‘any other fringe benefit or amenity’, ‘as may be prescribed’.4 Rule 3 of
the Rules prescribes additional ‘fringe benefits’ or ‘amenities’, taxable
as perquisites, pursuant to Section 17(2)(viii). It also prescribes the
method of valuation of such perquisites for taxation purposes. Rule
3(7)(i) of the Rules stipulates that interest-free/concessional loan
benefits provided by banks to bank employees shall be taxable as
‘fringe benefits’ or ‘amenities’ if the interest charged by the bank on
such loans is lesser than the interest charged according to the Prime
Lending Rate5 of the State Bank of India6.

1 For short, “Act”.
2 For short, “Rules”.
3 Section 17(2) of the Act defines perquisites. It specifies a list of benefits/advantages, incidental to
employment, and received in excess of salary, which are made taxable as perquisites. Section 17(2)(viii)
is a residuary clause that authorizes a subordinate rule-making authority to prescribe ‘any other fringe
benefits or amenities’ that are liable to taxation as ‘perquisites’.
4 Before amendments brought in by Finance (No.2) Act, 2009, with effect from 01.04.2010, Section 17(2)
(vi) of the Act read: “(vi) the value of any other fringe benefit or amenity (excluding the fringe benefits
chargeable to tax under Chapter XIIH) as may be prescribed”. Post the amendment, Section 17(2)(viii),
in effect contains the same stipulations as erstwhile Section 17(2)(vi), with some modifications. It states:
“(viii) the value of any other fringe benefit or amenity as may be prescribed.” Thus, the present Section
17(2)(viii) contains similar stipulations as erstwhile Section 17(2)(vi), reference to Chapter XIIH only
being deleted. To retain uniformity, we will be referring to it as Section 17(2)(viii).
5 For short, “PLR”.
6 For short, “SBI”.
[2024] 5 S.C.R. 913

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

3. Section 17(2)(viii) and Rule 3(7)(i) are challenged on the grounds of
excessive and unguided delegation of essential legislative function
to the Central Board of Direct Taxes7. Rule 3(7)(i) is also challenged
as arbitrary and violative of Article 14 of the Constitution insofar as it
treats the PLR of SBI as the benchmark instead of the actual interest
rate charged by the bank from a customer on a loan.
4. Sections 15 to 17 of the Act relate to income tax chargeable on
salaries.
⇒ Section 15 stipulates incomes that are chargeable to income
tax as ‘salaries’.
⇒ Section 16 prescribes deductions allowable under ‘salaries’.
⇒ Section 17 defines the expressions ‘salary’, ‘perquisites’ and
‘profits in lieu of salary’ for Sections 15 and 16.
5. Section 17(1) includes in the definition of ‘salary’: wages, annuity
or pension, gratuity, fee, commission, perquisites, or profits in lieu
of or in addition to salary or wages, advance of salary, payments
received by an employee in respect of leave not availed, annual
accretion to the balance at the credit of the employee participating
in a recognised provident fund, etc.
6. Section 17(2) relates to ‘perquisites’ and reads:8
“(2) “Perquisite” includes—
(i) the value of rent-free accommodation provided to the
assessee by his employer computed in such manner
as may be prescribed;
(ii) the value of any accommodation provided to the
assessee by his employer at a concessional rate.
Explanation.— For the purposes of this sub-clause,
it is clarified that accommodation shall be deemed
to have been provided at a concessional rate, if the
value of accommodation computed in such manner
as may be prescribed, exceeds the rent recoverable
from, or payable by, the assessee;

7 For short, “CBDT”.
8 Post 01.04.2010.
914 [2024] 5 S.C.R.

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(iii) the value of any benefit or amenity granted or provided
free of cost or at concessional rate in any of the
following cases—
(a) by a company to an employee who is a director
thereof;
(b) by a company to an employee being a person
who has a substantial interest in the company;
(c) by any employer (including a company) to an
employee to whom the provisions of paragraphs
(a) and (b) of this sub-clause do not apply
and whose income under the head “Salaries”
(whether due from, or paid or allowed by, one
or more employers), exclusive of the value of
all benefits or amenities not provided for by way
of monetary payment, exceeds fifty thousand
rupees:
Explanation.—For the removal of doubts, it is hereby
declared that the use of any vehicle provided by a
company or an employer for journey by the assessee
from his residence to his office or other place or work,
or from such office or place to his residence, shall
not be regarded as a benefit or amenity granted or
provided to him free of cost or at concessional rate
for the purposes of this sub-clause;
(iv) any sum paid by the employer in respect of any
obligation which, but for such payment, would have
been payable by the assessee; and
(v) any sum payable by the employer, whether directly
or through a fund, other than a recognised provident
fund or an approved superannuation fund or a
Deposit-linked Insurance Fund established under
Section 3-G of the Coal Mines Provident Fund and
Miscellaneous Provisions Act, 1948 (46 of 1948), or,
as the case may be, Section 6-C of the Employees’
Provident Funds and Miscellaneous Provisions Act,
1952 (19 of 1952), to effect an assurance on the life
of the assessee or to effect a contract for an annuity;
[2024] 5 S.C.R. 915

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

(vi) the value of any specified security or sweat equity
shares allotted or transferred, directly or indirectly,
by the employer, or former employer, free of cost or
at concessional rate to the assessee.
Explanation.— For the purposes of this sub-clause,—
(a) “specified security” means the securities
as defined in clause (h) of Section 2 of the
Securities Contracts (Regulation) Act, 1956 (42
of 1956) and, where employees’ stock option
has been granted under any plan or scheme
therefor, includes the securities offered under
such plan or scheme;
(b) “sweat equity shares” means equity shares
issued by a company to its employees or
directors at a discount or for consideration other
than cash for providing know-how or making
available rights in the nature of intellectual
property rights or value additions, by whatever
name called;
(c) the value of any specified security or sweat
equity shares shall be the fair market value of
the specified security or sweat equity shares, as
the case may be, on the date on which the option
is exercised by the assessee as reduced by the
amount actually paid by, or recovered from the
assessee in respect of such security or shares;
(d) “fair market value” means the value determined
in accordance with the method as may be
prescribed;
(e) “option” means a right but not an obligation
granted to an employee to apply for the
specified security or sweat equity shares at a
predetermined price;
(vii) the amount or the aggregate of amounts of any
contribution made to the account of the assessee
by the employer—
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(a) in a recognised provident fund;
(b) in the scheme referred to in sub-section (1) of
Section 80-CCD; and
(c) in an approved superannuation fund,
to the extent it exceeds seven lakh and fifty thousand
rupees in a previous year;
(viia) the annual accretion by way of interest, dividend
or any other amount of similar nature during the
previous year to the balance at the credit of the fund
or scheme referred to in sub-clause (vii) to the extent
it relates to the contribution referred to in the said
sub-clause which is included in total income under
the said sub-clause in any previous year computed
in such manner as may be prescribed; and
(viii) the value of any other fringe benefit or amenity
as may be prescribed:
xx xx xx”
(emphasis supplied)
7. Rule 3(7)(i) of the Rules9 reads:
“(7) In terms of provisions contained in Sub-Clause (vi)
of Sub-Section (2) of Section 17,10 the following other
fringe benefits or amenities are hereby prescribed and the
value thereof shall be determined in the manner provided
hereunder:
(i) the value of the benefit to the assessee resulting from
the provision of interest-free or concessional loan for any
purpose made available to the employee or any member
of his household during the relevant previous year by the
employer or any person on his behalf shall be determined
as the sum equal to the simple interest computed at the rate
charged per annum by the State Bank of India Act, 1955

9 As it stands after amendment vide Income Tax (First Amendment) Rules, 2004, with effect from
01.04.2004.
10 See supra note 4.
[2024] 5 S.C.R. 917

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(23 of 1955), as on the 1st day of the relevant previous
year in respect of loans for the same purpose advanced
by it on the maximum outstanding monthly balance as
reduced by the interest, if any, actually paid by him or any
such member of his household.
However, no value would be charged if such loans are
made available for medical treatment in respect of diseases
specified in Rule 3A of these Rules or where the amount of
loans are petty not exceeding in the aggregate of Rs.20,000:
Provided that where the benefits relates to the loans
made available for medical treatment referred to above,
the exemption so provided shall not apply to so much of
the loan as has been reimbursed to the employee under
any medical insurance scheme.” 11
8. Section 17(1), provides a broad and inclusive definition of ‘salary’. It
states that salary, inter alia, includes wages as well as other payments
paid to employees like perquisites. Thus, perquisites paid by the
employer to the employee are taxable as ‘salary’.
9. ‘Perquisite’ has been defined in Section 17(2) for clarity, and also,
to include and widen its scope. Clauses (i) to (viiia) to Section 17(2)
make the following taxable as ‘perquisites’:
⇒ Clause (i) – rent-free accommodation by employer.
⇒ Clause (ii) – accommodation at a concessional rate by employer.
⇒ Clause (iii) – benefit of amenity provided free of cost/at a
concessional rate, in specified cases.
⇒ Clause (iv) – sum paid by the employer for an obligation.
⇒ Clause (v) – sum payable by the employer through a fund
(barring specified exceptions) to effect an assurance on the life
of the assessee or to effect a contract for annuity.
⇒ Clause (vi) – specified security or sweat equity shares allotted/
transferred by employer at concessional rate/free of cost.

11 It is relevant to state here that the appellants have not challenged Rule 3(7)(i) as it existed for the period
01.04.2001 to 31.03.2004, that is, prior to the amendment vide the Income Tax (First Amendment) Rules,
2004, with effect from 01.04.2004. We are thus referring to the said Rule.
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⇒ Clause (vii) – specified amounts contributed to assessees’
account by employer such as provident fund, superannuation
fund etc.
⇒ Clause (viia) – annual accretion by way of interest, dividend or
other similar amounts with respect to clause (vii).
10. After specifically stipulating what is included and taxed as ‘perquisite’,
clause (viii) to Section 17(2), as a residuary clause, deliberately and
intentionally leaves it to the rule-making authority to tax ‘any other
fringe benefit or amenity’ by promulgating a rule. The residuary clause
is enacted to capture and tax any other ‘fringe benefit or amenity’
within the ambit of ‘perquisites’, not already covered by clauses (i)
to (viia) to Section 17(2).
11. In terms of the power conferred under Section 17(2)(viii), CBDT
has enacted Rule 3(7)(i) of the Rules. Rule 3(7)(i) states that
interest-free/concessional loan made available to an employee or
a member of his household by the employer or any person on his
behalf, for any purpose, shall be determined as the sum equal to
interest computed at the rate charged per annum by SBI, as on the
first date of the relevant previous year in respect of loans for the
same purpose advanced by it on the maximum outstanding monthly
balance as reduced by interest, if any, actually paid. However, the
loans made available for medical treatment in respect of diseases
specified in Rule 3A or loans whose value in aggregate does not
exceed Rs.20,000/- , are not chargeable.
12. The effect of the rule is twofold. First, the value of interest-free or
concessional loans is to be treated as ‘other fringe benefit or amenity’
for the purpose of Section 17(2)(viii) and, therefore, taxable as a
‘perquisite’. Secondly, it prescribes the method of valuation of the
interest-free/concessional loan for the purposes of taxation.
13. While enacting laws, the legislature can and does delineate the
meaning of terms through explicit definitions. Specific meanings
are assigned for precision, to distinguish words/expressions from
loose or popular meanings, expand or restrict the scope of words or
expressions, or to designate ‘terms of art’, that is, words or phrases
with specialized meanings. Explicit definitions are useful, but it is
wrong to state that all words or expressions must be explicitly defined.
Defining each word or expression that is part of normal or commercial
[2024] 5 S.C.R. 919

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vocabulary is neither possible nor expedient. It would be a superfluous
exercise, and make statutes voluminous. Instead, 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 reason is simple. 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.
14. In the present case, 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.
15. 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.12 ‘Fringe
benefit’ is defined as any of the various benefits received from an
employer apart from salary, such as insurance, pension, vacation,
etc. Similarly, Black’s Law Dictionary defines ‘fringe benefit’ as a
benefit (other than direct salary or compensation) received by an
employee from the employer, such as insurance, a company car, or
a tuition allowance.13 The Major Law Lexicon has elaborately defined
the words ‘perquisite’ and ‘fringe benefit’.14

12 The New International Webster’s Comprehensive Dictionary, p.941.
13 Black’s Law Dictionary, p.188 (10th Edition).
14 Perquisite means something gained by a place or office beyond the regular salary or fee. It is a gain or
profit incidentally made from employment. P. Ramanatha Aiyar The Major Law Lexicon, Vol. 5, p. 5059-
5069 (4th Edition).
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16. ‘Perquisites’ has also been interpreted as an expression of common
parlance in several decisions of this Court. For example, ‘perquisite’
was interpreted in Arun Kumar v. Union of India,15 with respect
to Section 17(2) of the Act. The Court referenced its dictionary
meanings and held that ‘perquisites’ were a privilege, gain or profit
incidental to employment and in addition to regular salary or wages.
This decision refers to the observations of the House of Lords in
Owen v. Pook,16 where the House observed that ‘perquisite’ has a
known normal meaning, namely, a personal advantage. However,
the perquisites do not mean the mere reimbursement of a necessary
disbursement. Reference was also made to Rendell v. Went,17
wherein the House held that ‘perquisite’ would include any benefit
or advantage, having a monetary value, which a holder of an office
derives from the employer’s spending on his behalf.
17. Similarly, in Additional Commissioner of Income Tax v. Bharat
V. Patel ,18 this Court held that ‘perquisite’, in the common parlance
relates to any perk or benefit attached to an employee or position
besides salary or remuneration. It usually includes non-cash benefits
given by the employer to the employee in addition to the entitled
salary or remuneration.
18. 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.
19. 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.

Fringe benefit is a term embracing a variety of employees’ benefits, paid by the employers and
supplementing the workers’ basic wage or salary. P. Ramanatha Aiyarm The Major Law Lexicon, Vol. 3
(4th Edition).
15 [2006] Supp. 6 SCR 290 : (2007) 1 SCC 732
16 (1969) 2 WLR 775 (HL)
17 (1964) 1 WLR 650 (HL)
18 [2018] 7 SCR 1067 : (2018) 15 SCC 670
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20. Two issues arise for consideration now: (I) Does Section 17(2)(viii)
and/or Rule 3(7)(i) lead to a delegation of the ‘essential legislative
function’ to the CBDT?; and (II) Is Rule 3(7)(i) arbitrary and violative
of Article 14 of the Constitution insofar as it treats the PLR of SBI
as the benchmark?
I. Does Section 17(2)(viii) and/or Rule 3(7)(i) lead to a
delegation of the ‘essential legislative function’ to the
CBDT?
21. A Constitution Bench of Seven Judges of this Court in Municipal
Corporation of Delhi v. Birla Cotton, Spinning and Weaving
Mills, Delhi and Another,19 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. In such cases, the subordinate legislation
is ancillary to the primary statute. It aligns with the framework of
the primary legislation as long as it is made consistent with it,
without exceeding the limits of policy and standards stipulated by
the primary 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.
22. In our opinion, the subordinate authority’s power under Section
17(2)(viii), to prescribe ‘any other fringe benefit or amenity’ as
perquisite is not boundless. It is demarcated by the language of
Section 17 of the Act. Anything made taxable by the rule-making
authority under Section 17(2)(viii) should be a ‘perquisite’ in the
form of ‘fringe benefits or amenity’. In our opinion, the provision
clearly reflects the legislative policy and gives express guidance to
the rule-making authority.
23. Section 17(2) provides an ‘inclusive’ definition of ‘perquisites’.
Section 17(2)(i) to (vii)/(viia) provides for certain specific categories
of perquisites. However, these are not the only kind of perquisites.

19 [1968] 3 SCR 251 : (1968) SCC OnLine SC 13
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Section 17(2)(viii) provides a residuary clause that includes ‘any other
fringe benefits or amenities’ within the definition of ‘perquisites’, as
prescribed from time to time. 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’. The legislative intent, policy and guidance is drawn
and defined. Pursuant to such demarcated delegation, Rule 3(7)
(i) prescribes interest-free/loans at concessional rates as a ‘fringe
benefit’ or ‘amenity’, taxable as ‘perquisites’. This becomes clear
once we view the analysis undertaken in Birla Cotton 7J (supra)
viz. the ‘essential legislative function’ test.
24. Birla Cotton 7J (supra) refers to In Re.: The Delhi Laws Act 1912 ,20
wherein this Court held that 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.
25. Birla Cotton 7J (supra) refers to Raj Narain Singh v. Chairman,
Patna Administration Committee,21 wherein this Court held that
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.

20 [1951] 1 SCR 747 : (1951) SCC 568
21 [1955] 1 SCR 290
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26. Birla Cotton 7J (supra) also refers to Hari Shankar Bagla v. State
of Madhya Pradesh,22 where the majority held that the legislature
must declare the policy of law and legal principles which are to control
any given cases and thereby provide a standard of guidance to the
executive, empowered to execute laws.
27. In Western India Theatres Limited v. Municipal Corporation of
the City of Poona,23 referred by Birla Cotton 7J (supra), the issue
related to the power of the municipality to levy “any other tax to the
nature and object of which the approval of the Governor-in-Council
shall have been obtained prior to the selection contemplated”. The
delegated legislation was upheld on the ground that municipality
was authorised by the principal enactment to impose the tax. The
enactment defined the obligations and functions cast upon the
municipality. The taxes could only be levied for implementing those
specific purposes and not for any other purpose. Further, the section
in the enactment laid down the procedure that the municipality
had to follow for imposing the tax. Thus, the legislature had not
abdicated its function in favour of the municipality. Same is true in
the present case.
28. In Birla Cotton 7J (supra), the assessee had challenged a
resolution passed by the municipal corporation to levy three taxes,
including a levy of tax on consumption or sale of electricity. The
challenge was that the levy of tax by the Corporation was by way
of excessive delegation and was therefore ultra vires. This Court
relied upon the judgment in Pandit Banarsi Das Bhanot v. State
of Madhya Pradesh, 24 to uphold the levy. In Pandit Banarsi
(supra), this Court had observed that 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, it was held, has
not given unqualified power to fix the rate of tax without guidance,
control or safeguard.

22 [1955] 1 SCR 380
23 AIR 1959 SC 586
24 [1959] SCR 427
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29. Pandit Banarsi Das (supra) also refers to Powell v. Apollo Candle
Company Ltd.25 which had upheld the power of delegation to
levy duties by observing that there was complete guidance in the
manner of fixing the rate of duty and finally the order passed by
the Governor had to be laid before both Houses of the Parliament
without unnecessary delay.
30. In Devidas Gopal Krishnan v. State of Punjab,26 this Court
distinguished its earlier decision in Corporation of Calcutta v. Liberty
Cinema 27 where the majority upheld the fixation of tax on cinema
shows, albeit the Calcutta Municipal Act, 1951 had failed to prescribe
a limit to which tax could go. The majority in Liberty Cinema (supra)
had referred to Pandit Banarsi Das (supra) and held that there is
no in-principle distinction between delegation of power to fix rates of
taxes to be charged on different classes of goods and power to fix
rates simpliciter; if power to fix rates in some cases can be delegated
then equally the power to fix rates generally can be delegated. The
Court held that if 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 Court thus held that fixation of tax rate was
not unqualified as the legislature had stipulated the maximum rate.
The guidance rule was held as satisfied.
31. We are of the opinion that 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. Section 17(2) clearly delineates the legislative policy and
lays down standards for the rule-making authority. Accordingly, Rule
3(7)(i) is intra vires Section 17(2)(viii) of the Act. Section 17(2)(viii)
does not lead to an excessive delegation of the ‘essential legislative
function’.
II. Is Rule 3(7)(i) arbitrary and violative of Article 14 of the
Constitution insofar as it treats the PLR of SBI as the
benchmark?

25 8 AC 282
26 AIR (1967) SC 1895
27 [1965] 2 SCR 477
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32. Rule 3(7)(i) posits SBI’s rate of interest, that is the PLR, as the
benchmark to determine the value of benefit to the assessee in
comparison to the rate of interest charged by other individual banks.
The fixation of SBI’s rate of interest as the benchmark is neither an
arbitrary nor unequal exercise of power. The rule-making 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.
33. Rule 3(7)(i), it can be hardly argued, is 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 an uniform approach
and yet premised on a fair determining principle which aligns with
constitutional values.
34. It is also apposite to note that when it comes to uniform approach
the laws relating to fiscal or tax measures enjoy greater latitude than
other statutes.28 The Legislature should be allowed some flexibility in
such matters and this Court would be more inclined to give judicial
deference to legislative wisdom.29 Commercial and tax legislations
tend to be highly sensitive and complex as they deal with multiple
problems and are contingent. This Court 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 complex problem has been solved through a

28 Govt. of A.P. v. P. Laxmi Devi (2008) 4 SCC 720
29 Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC 17
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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.
35. We, accordingly, dismiss the appeals and uphold the impugned
judgments of the High Courts of Madras and Madhya Pradesh. No
order as to costs.

Result of the case: Appeals dismissed.

†
Headnotes prepared by: Himanshu Rai, Hony. Associate Editor
(Verified by: Kanu Agrawal, Adv.)