Bank Employees Drawing Higher Salaries Called Upon To Bear Higher Burden Not Arbitrariness: Bombay HC Dismisses Pleas Against Income Tax Act Amendments
The Bombay High Court dismissed Writ Petitions filed by Associations/Federations of the officers of Nationalised Banks, challenging the amendments under the Income Tax Act, 1961.

The Bombay High Court held that the bank employees drawing higher salaries being called upon to bear a higher burden does not lead to arbitrariness.
The Court was deciding a batch of Writ Petitions preferred by the Associations/Federations of the officers of Nationalised Banks, challenging the Explanations 1 and 4 below Section 17(2) of the Income Tax Act, 1961 (ITA) by the Finance Act, 2007, which entered force with limited retrospective effect.
A Division Bench comprising Justice M.S. Sonak and Justice Jitendra Jain observed, “Simply because bank employees drawing higher salaries are called upon to bear a proportionately higher burden does not mean that there is any hostile discrimination within the class or any manifest arbitrariness involved in the impugned amendments. Classifications based on the economic superiority of the persons of incidence are well recognised.”
The Bench said that the impugned amendments are not vulnerable on the grounds of discrimination merely because the burden of taxes is higher upon the employees who draw higher salaries from the bank.
Advocates Sean Wassoodew, K.P. Anil Kumar, and Sagar Rane appeared for the Petitioners while Advocates Chottaray, Vishal Talsania, and Suresh Kumar appeared for the Respondents.
Factual Background
The Petitioners were the Associations/Federations of the officers of nationalised banks. They represented the bank officers and in some of the Petitions, there was a prayer for a grant of leave to prosecute these Petitions in a representative capacity. However, such prayers were not pursued possibly because the Petitioners felt that if the impugned provisions of the ITA were struck down, then the benefit of such striking down would inure to all the bank officers and not just the bank officers whom the Petitioners expressly represented.
Though the relief in some of the Petitions were somewhat convoluted and confused, the Petitioners mainly challenged Explanations 1 and 4 below Section 17(2) of the ITA by the Finance Act, 2007, which entered force with limited retrospective effect. [Explanations 1 to 3 from 1 April 2002, and explanation 4, from 1 April 2006]. (impugned amendments). The impugned amendments introduced a legal fiction that an employee shall be deemed to have received a concession in the value of rentals once it was established that the employee was provided an employer-owned accommodation and the rent recoverable or payable by the employee-assessee was less than the specified percentage of such employee’s salary.
Reasoning
The High Court in the above regard, noted, “Thus, applying the above principles to the case at hand, the contentions relating to the classification between government servants and others, urban and non-urban areas, or the arguments based on the alleged lack of nexus between salaries of the employees and the computation of concession in matters of rents for accommodation provided by the employer, would not pass muster.”
The Court added that even the instances cited by the Petitioners could, at the highest, be regarded as some crudities or inequities and based on the same, there is no scope to interfere with economic or fiscal legislation.
“The learned Counsel for the Respondents also referred to instances where bank employees are provided accommodation in areas where the rentals would far exceed even fifty to sixty per cent of the salaries of such employees. They gave instances of areas like Nariman Point in Bombay to support their argument that the rentals would exceed the salaries drawn by the bank employees”, it said.
Furthermore, the Court clarified that it cannot decide on the constitutional validity of economic or fiscal legislation based on such crudities and inequities and even individual hardships are not very relevant in such matters.
“There is nothing arbitrary or manifestly arbitrary in linking the issue of determination of the value of the concession with the salary structure of the bank employees. Based upon such instances, examples or arguments, we cannot hold that the classification or the criteria adopted was not within the broad and flexible range available to the legislature in such matters. Such classifications or adopting such criteria do not transgress the fundamental principles of equality”, it observed.
The Court was of the opinion that the argument that a dealer beyond a certain limit is obliged to pay higher tax when others bear less tax, and it is consequently discriminatory, really misses the point, namely that former kind of dealers are in a position of economic superiority because of their volume of business and form a class by themselves.
“They cannot be treated as on par with comparatively small dealers. An attempt to proportion the payment to capacity to pay and thus bring about real and factual equality cannot be ruled out as irrelevant in the tax levy on the sale or purchase of goods. The object of a tax is not only to raise revenue but also to regulate the economic life of the society”, it also remarked.
The Court noted that the judicial veto is to be exercised only in cases that leave no room for reasonable doubt and Constitutionality is to be presumed. It said that the question of arbitrariness cannot be decided in the abstract and these are policy decisions where the legislature has been vested with significant latitude.
“The legislature has created a legal fiction, and further rational criteria are provided for measuring and levying the tax. Such a provision introduces certainty and clarity. Due to such a provision, there is tax efficiency, which is, in the long run, beneficial to both the taxpayer and the tax authorities. Therefore, the impugned amendments cannot be declared ultra-vires, irrational or unconstitutional”, it further held.
The Court remarked that it is too premature to decide whether the banks could be held to be “assesses in default” or made liable to pay any taxes on behalf of the employees.
“The revenue authorities must consider that this Court had interdicted tax deductions at source through interim orders that operated during the pendency of some of these Petitions. The tax authorities must also consider the plight of the banks vis-a-vis its employees, most of whom must have retired by now. In any event, for the present, since such issues are yet to arise, we make no further observations on such matters, leaving all contentions of parties open”, it concluded.
Accordingly, the High Court dismissed the Writ Petitions.
Cause Title- All India Central Bank Officers Federation & Anr. v. Union of India & Ors. (Neutral Citation: 2025:BHC-OS:834-DB)