Interest-free loans to employees and tax implications

Perquisites in relation to an employee are the personal advantage gained by the employee during the course of his/her employment. It is the profit or gain incidentally made from employment in addition to regular salary or wages. Section 17(2) of the Income Tax Act, 1961 defines perquisite in an inclusive manner. It includes the following:

The value of rent-free accommodation provided to the employee by the employer.
The value of concession in the matter of rent in respect of any accommodation provided to the employee by the employer.
The value of any benefit or amenity granted or provided free of cost or at concessional rate in case of specified employees.

The value of any specified security allotted or transferred, directly or indirectly, by any person free of cost or at concessional rate to an individual who is or has been in employment of that person, such as ESOP (applicable only up to financial year 1999-2000).
Any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the employee.
Any sum payable by the employer, whether directly or through a fund other than a recognised provident fund or approved superannuation fund or a deposit linked insurance fund, to effect an assurance on the life of the employee or to effect a contract for an annuity.
From the above it becomes evident that any benefit, concession or amenity given by an employer to his employee would take the form of perquisite taxable in the hands of the employee. One such interesting situation is that of interest-free loan or loan provided at concessional rate by an employer to his employee.

The questions that come to our mind are:

Whether such benefit is really a perquisite?
Whether such benefit is taxable and if yes in whose hands would it be taxed?
What rate of tax would be attracted?
The answers to these questions could be found in the various decisions delivered by high courts and the Supreme Court. It could definitely be argued that loan given by an employer free of interest or at concessional rate would endow benefit to the employee, which otherwise would have been borne by such employee. Let us take an example to get a clear idea.