1998 (6) TMI 18 - HC - Income Tax

Summary

Issues:
1. Whether the family allowance received by the assessee is includible in the total income and chargeable to income tax.

Analysis:
The case involved a reference at the instance of the Revenue regarding the inclusion of a sum of Rs. 30,887 received by the assessee in September 1975 as family allowance in the assessee's total income for taxation purposes. The assessee, a doctor, received the family allowance while serving as a regular Assistant Surgeon in the Tamil Nadu Medical Service. The Government of Madras had sanctioned the family allowance to medical officers seconded to the armed forces, including the assessee. The primary question was whether this family allowance was taxable under the Income-tax Act, 1961.

The assessee contended that the family allowance was exempt from taxation as it was intended for the family's maintenance and not part of his salary. However, the Income-tax Officer and the Appellate Assistant Commissioner rejected this claim. On appeal, the Appellate Tribunal concluded that the amount was paid as compensation for the high cost of maintaining a family in Tamil Nadu and was not akin to salary under the Act. The Tribunal held that the payment was made to the family members of the officers concerned.

The High Court analyzed the nature of the family allowance and its relation to the assessee's employment. It determined that the family allowance was paid to the assessee by virtue of his employment in the Government of Tamil Nadu, similar to other allowances payable to an employee. The Court disagreed with the Tribunal's view that the amount was paid to the family members, emphasizing that the payment was made to the Government servant, with the option to nominate family members for the payment. The Court held that the family allowance should be treated as part of the assessee's salary and assessed under the head "Salary" for taxation purposes. Consequently, the Court answered the question of law in the negative and in favor of the Revenue, rejecting the exemption claim for the family allowance under the Income-tax Act.

In conclusion, the judgment clarified that the family allowance received by the assessee was not exempt from taxation and should be considered as part of his salary, thereby affirming the Income-tax Officer's assessment and overturning the Tribunal's decision.