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Section 17(2) of the Income-tax Act, 1961, read with rule 3(5) of the Income-tax Rules, 1962 - Salaries - Perquisites - Assessment year 2003-04 - Assessee-school was providing free education to children of staff - Assessing Officer took cost of education for other students in same school, as perquisite value in hands of employee - Tribunal held that later part of rule 3(5) which requires Assessing Officer to determine cost of education in a similar institution in or near locality, was completely overlooked by Assessing Officer and, therefore, he proceeded on an entirely incorrect proposition - Whether Tribunal was justified - Held, yes Mrs. P.L. Bansal for the Appellant. Abhishek Maratha for the Respondent. ORDER 1. The revenue is aggrieved by an order dated 23-3-2007 passed by the Income-tax Appellate Tribunal ('the Tribunal'), Delhi Bench 'H' in ITA No. 483/Delhi/2006 relevant for the assessment year 2003-04. 2. The only issue that arises for consideration is with regard to the interpretation of rule 3(5) of the Income-tax Rules, 1962 ('Rules'). The assessee's school gives free education to the children of the staff. The question was whether this could be treated as a perquisite in their hands. Rule 3(5) of the Rules reads as follows : "(5) The value of benefit to the employee resulting from the provision of free or concessional educational facilities for any member of his household shall be determined as the sum equal to the amount of expenditure incurred by the employer in that behalf or where the educational institution is itself maintained and owned by the employer or where free educational facilities for such member of employees' household are allowed in any other educational institution by reason of his being in employment of that employer, the value of the perquisite to the employee shall be determined with reference to the cost of such education in a similar institution in or near the locality. Where any amount is paid or recovered from the employee on that account, the value of benefit shall be reduced by the amount so paid or recovered: Provided…

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