In Food Corporation of India, tax is being recovered at source from officers in respect of self-leased property taking lease rent as income from house property as per Sec. 23(a). But now as per Explanation to Sec. 17 of the Income-tax Act, 1961, as amended by Finance Act, 2007, the lease rent is again valued as perquisite and notice issued to officers with additional tax liability retrospectively from 2002-03 raising a debit for the difference between licence fee recovered during the relevant period and the statutory income and the officers are put in a very difficult financial position. Kindly clarify the position in the light of the following views of employees: (1) Once the income is accounted for and tax recovered at source and TDS certificate issued and tax return filed and the Income-tax Officer has accepted the returns, can the DDOs reopen the case without actually making any additional payment and without reporting the matter to the Income-tax Officer?; (2) When once an income is accounted for tax, will it attract tax again in some other name? and (3) When the employee receives lease charges he is not entitled to HRA. In B1 class city, an employee with a basic pay of Rs. 12,100 is eligible for 15 per cent HRA which comes to Rs. 1,850 is denied when lease is allowed and further burdened with tax liability for Rs. 5,200 (Rs. 2,600 for house property income and again Rs. 2,600 for perquisite valuation). But for Government employees, the rule is different as per Para 4 of the circular dated June 26, 2008. Will set rule apply differently in different organisations?

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 employees 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 readers 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.