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Issues:
- Deductibility of city compensatory allowance under section 16(v) of the Income-tax Act, 1961 for assessment years 1971-72 and 1972-73. Analysis: The High Court of BOMBAY addressed the issue of whether the city compensatory allowance received by the assessee was deductible under section 16(v) of the Income-tax Act, 1961. The court referred to a previous judgment in the case of CIT v. D. R. Phatak where it was held that compensatory (city) allowance was exempt under section 10(14) of the Income-tax Act and not considered a perquisite under section 17(2). The court noted that the language of section 10(14) and section 16(v) during the relevant period was not significantly different. Section 10(14) provided for exemption of special allowances while section 16(v) allowed for deduction of amounts actually expended by the assessee. The court emphasized that compensatory (city) allowance was not a source of profit to the recipient as it was regulated based on the expenses incurred due to posting in a particular place. Despite the insertion of an Explanation to section 10(14) by the Legislature, section 16(v) remained unchanged. The court held that the observation made in the previous case regarding section 16(v) still applied. The judgment was supported by the decision of the Calcutta High Court in CIT v. R. R. Bajoria, where a similar conclusion was reached after considering relevant case law. Therefore, the court answered the question in the affirmative, ruling in favor of the assessee. No costs were awarded in this matter.
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