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Issues:
1. Whether the cash payment of house rent allowance forms part of salary for the purpose of section 40A(5) of the Income-tax Act, 1961. 2. Whether extra shift allowance on exhaust fans forming part of textile machinery is allowable notwithstanding the exclusion in item No. III (iv) of Appendix-I of the Income-tax Rules, 1962. Issue 1: Cash Payment of House Rent Allowance as Part of Salary The court examined whether the cash payment of house rent allowance (HRA) should be considered as part of "salary" under section 40A(5) of the Income-tax Act, 1961. The assessee argued that such cash allowances do not qualify as "salary" or "perquisite" within the meaning of section 40A(5) read with the Explanation thereto. The court analyzed the definitions provided in section 17 of the Act, which defines "salary" inclusively, encompassing wages, fees, commissions, perquisites, or profits in lieu of salary. The court referred to authoritative definitions and prior judgments, concluding that the house rent allowance paid in cash, being a periodic payment for services rendered, falls within the broader definition of "salary." The court also noted that section 10(13A) of the Act, which exempts certain allowances from being included in total income, implies that such allowances are otherwise considered part of "salary." Consequently, the court held that the cash payment of house rent allowance does form part of "salary" for the purposes of section 40A(5). This conclusion was supported by precedents from the Delhi, Andhra Pradesh, and Karnataka High Courts. Issue 2: Allowability of Extra Shift Allowance on Exhaust Fans The second issue concerned the eligibility of exhaust fans for extra shift allowance (ESA) in computing allowable depreciation. The assessing authority had rejected the claim based on Appendix I of the Income-tax Rules, 1962, which specifically excludes fan installations from ESA. The assessee contended that exhaust fans in a textile mill are part of the textile machinery and thus should not be treated as separate electrical machinery. The Tribunal had accepted this view, considering the functional role of exhaust fans in maintaining the desired temperature and air quality in the factory premises. However, the court referred to its prior decision in CIT v. Kiran Crimpers, which established that each apparatus must be considered individually for depreciation purposes unless it loses its independent identity and becomes an integral part of another machine. The court concluded that exhaust fans, being electrical machinery, do not form an integral part of textile machinery but are used in the textile factory. Therefore, they fall under the category of electrical machinery, which is explicitly excluded from ESA. The court held that the principle and ratio from CIT v. Kiran Crimpers apply, and thus the claim for ESA on exhaust fans was rejected. Conclusion: The court answered both questions in the negative, ruling in favor of the Revenue and against the assessee. The cash payment of house rent allowance is part of "salary" under section 40A(5), and exhaust fans do not qualify for extra shift allowance as they are categorized as electrical machinery. There was no order as to costs.
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