1992 (9) TMI 81 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of various allowances (excluding dearness allowance and house rent allowance).
2. Inclusion of allowances as "salary" or "perquisites" under Section 17(1) and (2) of the Income-tax Act, 1961.
3. Applicability of Section 10(14) exemptions to these allowances.
4. Effective dates of notifications for exemptions.

Detailed Analysis:

1. Taxability of Various Allowances:
The first thirteen writ petitions pertain to the taxability of various allowances such as city compensatory allowance, special compensatory allowance, hill compensatory allowance, capital allowance, hill and fuel allowance, and special compensatory allowance for remote areas. The petitioners argued that these allowances are neither "salary" nor "perquisites" as defined in Section 17(1) and (2) of the Income-tax Act, 1961, and consequently, cannot be included in the total income under the head "Salary" for income-tax assessment. They further contended that these allowances do not have "the character of income within the meaning and scheme of the Income-tax Act" and should not be included in total income.

2. Inclusion of Allowances as "Salary" or "Perquisites":
The petitioners relied on various High Court decisions, including CIT v. R. R. Bajoria, CIT v. S. G. Pgnatale, Bishambar Dayal v. CIT, and CIT v. D. R. Phatak. These cases held that compensatory allowances granted to government servants were regulated to ensure they did not become a source of profit, and were thus not considered emoluments, fees, profits, or perquisites. However, the amendment to Section 2(24) of the Income-tax Act, 1961, by Act No. 3 of 1989, with retrospective effect from April 1, 1962, included clauses (iiia) and (iiib) to define "income" to include any special allowance or benefit granted to meet expenses for the performance of duties or to compensate for increased living costs. This amendment clarified that such allowances are taxable as income unless expressly exempted.

3. Applicability of Section 10(14) Exemptions:
Section 10(14) of the Income-tax Act provides for exemptions from total income for certain allowances. The section has been amended multiple times to specify the conditions under which allowances can be exempted. The relevant notifications issued under Section 10(14) specify the types of allowances and the maximum amounts that can be exempted. For example, Notification No. S.O. 144(E), dated February 21, 1989, and subsequent Notification No. S.O. 259(E), dated March 27, 1990, specified allowances for various places in Himachal Pradesh, including Simla and its suburbs, with maximum amounts for exemptions.

4. Effective Dates of Notifications for Exemptions:
The court clarified that the exemptions provided under Section 10(14) are applicable only from the dates specified in the notifications. For instance, the notification dated February 21, 1989, did not include Simla, but the subsequent notification dated March 27, 1990, included Simla and its suburbs with effect from April 1, 1990. Therefore, allowances for Simla and its suburbs could not be exempted for periods prior to April 1, 1990.

Conclusion:
The court concluded that, due to the amendment to Section 2(24) of the Income-tax Act, allowances are considered income and are taxable unless exempted under Section 10(14). The exemptions are applicable only from the dates specified in the relevant notifications. Consequently, the writ petitions were disposed of, and the specific writ petition requesting retrospective application of the notification for Simla was dismissed. No orders as to costs were made.