ICAI — Please explain!

CA Inter Question No 3(a) Sept 24: Value of gardener provided to employee has been added to salary. Let us analyse this with the help of a CBDT circular as stated below.

THE CBDT CIRCULAR NO. 122 dated 19/10/1973 states that

“The Board in consultation with Ministry of Law has re-examined the question of taxability of the salaries paid to the gardeners of the buildings belonging to the employers occupied by the employees as perquisite — An individual might not be interested in having a gardener at all and he might allow the garden to run to weed. On the other hand, he might be an enthusiastic gardener who might himself have laid out large sums to the garden and have employed more gardeners than one. A gardener is employed by the employers primarily with a view to maintain the garden and renders services whether or not the building is occupied by any employee. In view thereof, it amounts to the maintenance of house and the grounds which the employer in any case would have done irrespective of the fact whether the building was occupied or vacant. As such the amount spent on the salary of gardener by the company does not represent a sum paid by the employer, in respect of any obligation which, but for such payment, would have been payable by the employee. The payment of salary as such cannot be regarded as perquisite so as to justify that amount being taxed in the hands of employees. However the expenses incurred by way of maintenance of a gardener may be taken into account for the purpose of estimating the value of rent-free accommodation provided by the employer under Rule 3 of the Income Tax Rules, 1962.”

Present-day valuation

The above circular was issued in 1973. Nowadays 10% (or 5%/7.5%) of “salary” of an employee is the taxable value of perquisite in respect of a house owned by an employer. The Fair Rental Value of those houses, including cost of maintenance of garden, is not taken into account nowadays on valuation of the perquisite of Rent Free Accommodation. The cost of maintenance of garden by the employer, and other expenses of general maintenance of the building, do not affect the taxable value of the house perquisite.

Thus, as per the circular above, one can assume that the value as per Rule 3 includes the value of gardener and should not be separately taxed — making the treatment by ICAI contrary to the legal position.