N.V. BALASUBRAMANIAN, J.

An interesting question of law on the interpretation of rule 3(a)(iii) of the Income-tax Rules, 1962 (hereinafter to be referred to as the Income-tax Rules), arises on the facts of the case. The assessee is an individual. He is the director of Addison paints and Chemicals Ltd., Madras. Previously he was an employee of Amalgamations Ltd. and while he was in employment under Amalgamations Ltd., he was allotted a house at Alwarpet, Chennai, as rent-free quarters. Addison Paints and Chemicals Ltd. is a subsidiary of another company which again is a subsidiary of Amalgamations Ltd. After the assessee became an employee of Addision Paints and Chemicals Ltd., Amalgamations Ltd. charged Rs. 500 per month by way of rent for the abovesaid Alwarpet property to the Addison Paints and Chemicals Ltd. which in turn allowed the assessee to reside in the same building of rent having agreed to provide him with rent-free quarters. During the previous year ended on March 31, 1980, relevant to the assessment year 1980-81, the assessee occupied the house at Alwarpet, Madras, is an employee of Addison Paints and Chemicals Ltd. The assessee in the assessment proceedings for the assessment year 1980-81, admitted the value of the perquisites from the rent-free quarters at Rs. 6, 000 which was the rent actually paid by Addision Paints and Chemicals Ltd. to Amalgamations Ltd. The Income-tax Officer, however, invoked the provisions of rule 3 of the Income-tax Rules and determined the perquisite value of the rent-free accommodation as under Perquisites in respect of rent-free accommodation.

Rs

Basic salary 54, 000

Annual value 60, 000

10% of salary 5, 400

Annual value in excess of 20% of sala 49, 200

Total 54, 600

The value of the perquisites, was, however, restricted to 100 per cent. of salary of Rs. 54, 000. In other words, the Income-tax Officer determined the perquisite value in respect of the rent-free accommodation at Rs. 54, 000 being 100 per cent. of the assessees basic salary on the ground that the annual value of the property was estimated at Rs. 60, 000 in the assessment proceedings of Amalgamations LtdThe assessee went on appeal to the Commissioner of Income-tax (Appeals), Madras, challenging the addition made towards the value of the perquisite towards rent-free accommodation. The Commissioner (Appeals) found that the annual rental value of the property was estimated at Rs. 60, 000 while dealing with the appeal by Amalgamations Ltd. and applying rule 3(a)(iii) of the Income-tax Rules, he upheld the value of the perquisite at Rs. 54, 000 adopted by the Income-tax Officer and dismissed the appeal preferred by the assessee.

The assessee went on further appeal before the Income-tax Appellate Tribunal and the Tribunal, following its earlier order rendered in the assessees own case for the assessment year 1974-75 in 1. T. A. No. 1931/ Mds. of 1976-77 held that the provisions of rule 3(a)(iii) of the Income-tax Rules are directory and have no application when the accommodation was hired by the employer and in such a situation, the rent annually paid by the employer for hiring the accommodation should be taken as the perquisite value of the rent-free accommodation provided to the assessee. The Tribunal held that the value of the perquisite should be Rs. 6, 000 being the actual rent paid by the employer to the owner of the buildings and allowed the appeal preferred by the assessee.

The Revenue has challenged the order of the Appellate Tribunal and the Tribunal has referred the following question of law for our consideration under section 256(1) of the Income-tax Act, 1961 (hereinafter to be referred to as " the").

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that rule 3(a)(iii) has no application when the accommodation itself is hired by the employer "

Mr. C. V. Rajan, learned counsel for the Revenue, submitted that the Tribunal was not correct in holding that the provisions of rule 3 of the Income-tax Rules are directory in nature and that the provisions of the said rule are not applicable where the accommodation was provided to the employee by the employer and the rent was paid by the employer. Learned counsel submitted that the provisions of rule 3 have to be applied irrespective of whether the employer takes up a residential quarter on lease and pays rent and allows its employee to occupy the rented house or allows its employee to occupy its own building free of rent and in both the cases, the provisions of rule 3 would applyMr. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the provisions of rule 3 are only directory in nature and the expression, "ordinarily" occurring in rule 3 of the Income-tax Rules clearly shows that the provisions are directory in nature. He further submitted that the provisions of section 17 of thedo not suggest that the value of perquisite should be determined as per the Income-tax Rules and in the absence of such an indication in section 17 of the Act, the pro visions of the said rule must be held to be directory. He also submitted that the fair rental value in the case of Amalgamations Ltd. for the assessment year 1979-80 was determined by the Appellate Tribunal in I. T. A. No. 571(Mds.) of 1983, dated October 17, 1983, at Rs. 42, 000 and the Tribunal had noticed the fact that the Madras Corporation, had fixed the net annual value of the property at Rs. 5, 460. He, therefore, submitted that the Tribunal has come to a correct conclusion that Rs. 6, 000 which is nearer to the value determined by the corporation authorities should be adopted as the value of perquisite on the facts of the case.

We have carefully considered the rival submissions of learned counsel for the respective parties. Section 17 of thedefines the expression, "salary" to include perquisite and the word, "perquisite" is defined under section 17(2) to include the value of rent-free accommodation provided to the assessee by his employer. Under section 295 of the Act, the Board is empowered to make rules to determine the value of any perquisite charge able to tax under the in such a manner and on such basis as appears to the Board to be proper and reasonable and, consequently, the Board framed the Income-tax Rules and rule 3 of the Income-tax Rules, provides for the valuation of perquisites. Rule 3 deals with three types of situations in determining the value of perquisites. The first situation dealt with by rule 3 is with regard to the accommodation provided by the Government or any body under the control of the Government. The second situation dealt with by the said rule is with regard to the accommodation provided by the Reserve Bank of India, statutory Corporations, etc. We are not concerned with the first two situations provided under rule 3 of the Income-tax Rules. The third situation provided under rule 3 of the Income-tax Rules not covered in the said two cases filed deals with all other cases. In the instant case we are concerned with rule 3(a)(iii) of the Income-tax Rules. Rule 3(a)(iii) in so far as it is relevant to the facts of the case reads as under:

"3. Valuation of perquisites.---For the purpose of computing the income chargeable under the head, Salaries the value of the perquisites (not provided for by way of monetary payment to the assessee) mentioned below shall be determined in accordance with the following clauses, namely.

(a) The value of rent-free residential accommodation shall be determined on the basis provided hereunder, namely :---

(iii) in any other case, ---

(A) the value of rent-free residential accommodation which is not furnished shall ordinarily be a sum equal to 10 per cent. of the salary due to the assessee in respect of the period during which the said accommodation was occupied by him during the previous year.

Provided that---

(1) where the fair rental value of the accommodation is in excess of 20 per cent. of the assessees salary, the value of the perquisite shall be taken to be 10 per cent. of the salary increased by a sum equal to the amount by which the fair rental value exceeds 30 per cent. of the salary ; so, however, that the Income-tax Officer may, having regard to the nature of the accommodation, determine the sum by which 10 per cent. of the salary is to be increased, as a percentage (not exceeding 100 per cent.) of the amount by which the fair rental value exceeds 20 per cent. of the salary ;

(2) where the assessee claims, and the Income-tax Officer is satisfied that the sum arrived at on the basis provided above exceeds the fair rental value of the accommodation, the value of the perquisite to the assessee shall be limited to such fair rental value ;

(B) where the accommodation is furnished, the value of rent-free residential accommodation shall be the aggregate of the following sums, namely :---

(1) the fair rental value of the accommodation arrived at in accordance with the provisions of sub-clause (iii)(A) as if the accommodation were not furnished ; and(2) the fair rent for the furniture (including television sets, radio sets, refrigerators, other house-hold appliances and air-conditioning plant or equipment) calculated at 15 per cent. per annum of the original cost of such furniture or if such furniture is hired from a third party, the actual hire charges payable therefor.

Explanation 2.---For the purposes of sub-clause (iii), the fair rental value of accommodation which is not furnished shall be the rent which a similar accommodation would realise in the same locality or the municipal valuation in respect of the accommodation, whichever is higher."

Rule 3 of the Income-tax Rules, provides that the value of the property shall be determined in accordance with the rules and the expression, "shall" used in rule 3 clearly indicates that the rule 3 should be applied in the cases covered by the said rules. The Appellate Tribunal placed reliance on the expression, "ordinarily" in rule 3(a)(iii)(A) to come to the conclusion that the rule is only directory in nature and, therefore, the rule has no application where a house was taken on lease by the employer and provided to the employee free of rent. In our opinion, the view of the Appellate Tribunal is clearly erroneous in law. Under the rule 3(a)(iii) of the Income-tax Rules, when the accommodation is unfurnished, the perquisite value of the rent-free accommodation of such unfurnished house shall ordinarily be 10 per cent. of the salary due to the assessee. Had the rule stopped with the main paragraph, there would have been some justification for the view taken by the Tribunal that rule 3(a)(iii) cannot be applied to all cases, but, the rule proceeds further and provides for the determination of the value of the perquisite, if the fair rental value of the accommodation exceeds 20 per cent. of the assessees salary and the rule in such a contingency provides that the rate of perquisite shall be taken to be 10 per cent. of the salary which should be further increased boy a sum equal to the amount by which the fair rental value exceeds 20 per cent. of the salary. In other words, where the salary of the employee is taken to be one lakh rupees, normally 10 per cent. of the salary is regarded as perquisite value of the unfurnished accommodation. But, if 20 per cent. of the fair rental value of the property-let us assume the fair rental value of the property is Rs. 60, 000 and 20 per cent. of the salary is only Rs. 20, 000 the sum of Rs. 40, 000 is regarded as the value of perquisite. But the Income-tax Officer is given the power to restrict the value of the perquisite either to 100 per cent. of the salary or the fair rental value of the property. In this case, the Income-tax Officer had chosen to adopt the first course and deter mined 100 per cent. of the salary as the perquisite value by applying the proviso to rule 3(a)(iii) of the Income-tax Rules in computing the perquisite value. We are of the view that mere employment of the expression, "ordinarily" in the main part of rule 3(a)(iii) does not show that the rule is directory. When the statute provides for a uniform method of valuation of the perquisite, , the. statutory method of valuation of perquisite should be adopted and all the authorities functioning under the including tile Appellate Tribunal are bound by the rules and it is not permissible to ignore or refuse to apply rule 3, on the ground that it is only directory, in nature or it is applicable only in cases where the house is owned by the employer and given to the employee free of rentThe object of the rule is to determine the value of the perquisite in all situations. It is an immaterial consideration whether the building was owned by the employer or taken on amount by the employer for the proper application of rule 3 of the Income-tax Rules, and in our view, in both the situations, rule 5(a)(iii) will apply as there are no limiting expressions found in rule 5 to make it applicable only in the case of a property, let out by an employer to its employee of the property owned by the employer and in the absence of any restriction found in rule 3, we are of the opinion that the provisions of rule 3 would cover both the situations and rule 3 has strictly to be followed in determining the value of the perquisite.

In Krishan Gopal v. Prakashchandra the expression "ordinarily" was considered by the Supreme Court when it dealt with the provisions of section 80A of the Representation of the People Act, 1951, and the Supreme Court considering the expression "ordinarily" found herein held as under:

"It is plain that sub-section (2) does not confer jurisdiction to try an election petition. Such jurisdiction is conferred by sub-section (1) of section 80A upon the High Court. Sub-section (2) merely specifies the instrumentality through which the jurisdiction which is vested in the High Court shall be exercised. The subsection thus relates to the procedure for the exercise of the jurisdiction and provides that the jurisdiction shall he exercised ordinarily by a single judge of the High Court who has been assigned for the purpose by the Chief justice. Perusal of sub-section (2) of section 80A makes it manifest that it is only a judge of the High Court assigned for the purpose by the Chief Justice who can exercise the jurisdiction which is vested in the High Court to try an election petition by sub section (1) of that section. The provisions of sub-section (2) are mandatory and a person who is not a judge of the High Court concerned and who has not been assigned for purpose by the Chief Justice cannot exercise the, jurisdiction which is vested in the High Court by sub-section (1) of section 80A of the. The word ordinarily does not indicate that the provisions of sub-section (2) of section 80A are not mandatory and that relaxation in compliance. with those provisions is permissible. The word ordinarily only qualities the number of judges who can exercise the jurisdiction which is vested in the High Court to try an election petition. Tile said word indicates that normally it would be single judge of the High Court who can exercise the jurisdiction which is vested in the High Court, but in appropriate cases, such jurisdiction can also be exercised by two or more judges."

The principle laid down by the apex court will equally apply to the facts of the case as well. The employment of the expression, ordinarily in the main part of rule 3(a)(iii) indicates that ordinarily the value of the property will be taken as 10 per cent. of the salary and where the fair rental value of the property in occupation of the employee exceeds 20 per cent. of the salary, then, instead of normal rule of 10 per cent. of the salary, the value of the perquisite should be determined in the manner provided in the proviso. Therefore, the expression, "ordinarily" in that context connotes that the value of the perquisite cannot be less than 10 per cent. of the salary in any case, but in the situation contemplated by the proviso to rule 3 of the Income-tax Rules, the value of the perquisite should be further increased and in that contingency, 10 per cent. of the salary fixed in rule 3(a)(iii) of the Income-tax Rules, should be further increased. In our view, that is the purport of the expression, "ordinarily" employed in section 3(a)(iii) of the Income-tax Rules and hence, we are unable to uphold that order of the Appellate Tribunal that the expression, "ordinarily" means that the rule itself need not be applied and the value of the perquisite should be the actual rent paid by the employer. If such a view is accepted, it would lead to non-application of the rule itself, which is not warranted on the fair reading of the rule. It is no doubt true that the application of rule 3 of the Income-tax Rules may cause undue hardship in certain cases to the employee-assessee as by the process of evaluation of the value of the perquisite in the manner provided under rule 3 the ultimate tax liability on the employee may exceed the total amount of salary of the employee. In our opinion, the hardship cannot prevent the operation of the rule. There is an oft-quoted observation that income-tax and logic are strangers. We cannot construe the rule in such a manner which prevents its application and irrespective of the hardship, the provisions of the rule should be applied and if its application results in undue hardship, it is for the Board to intervene by suitable modification in the rule, and this court, as a court of construction cannot hold otherwiseMr. Janarthana Raja, on the other hand, submitted that since the Tribunal has taken the view that rule 3(a)(iii) is not applicable, the Tribunal has not considered the applicability of Explanation 2 to the rule 3. The submission of learned counsel for the assessee is reasonable and the Tribunal has not considered the provisions of Explanation 2 to rule 3 of the Income-tax Rules as it was of the view that the rule was wholly inapplicable. We are, therefore, of the view that the Tribunal should determine the fair rental value of the accommodation in accordance with Explanation 2 to rule 3(a)(iii) of the Income-tax Rules taking into account all aspects of the matter including the municipal valuation of the property, and its earlier order fixing the fair rental value of the property or the rent which a similar accommodation would fetch in the same locality. Needless to add, it is also open to the assessee to establish before. the Tribunal that the fair rental value of the property fixed by the Tribunal at Rs. 42, 000 in I.T.A. No. 571/(Mds) of 1983 is not conclusive and requires modification or it is something less than it was earlier fixed by the Appellate Tribunal on the ground that the present proceeding is an independent proceeding in so far as the assessee is concerned. In this view of the matter, the question of law referred to us is liable to be answered in favour of the Revenue.

Accordingly, the question of law referred to us is answered in the negative and in favour of the Revenue. No costs.