1989 (4) TMI 60 - HC - Income Tax

Summary

Issues:
1. Whether dearness allowance paid to the members of a union can be included in their total income for the purpose of income tax assessment.
2. Whether dearness allowance is considered as part of salary and thus taxable under the Income-tax Act.
3. The impact of the Direct Tax Laws (Amendment) Act, 1989 on the taxation of dearness allowance.
4. The availability of a refund for income tax already deducted on dearness allowance.

Analysis:
The petitioner, a union of employees, sought direction to exclude dearness allowance from the total income of its members for income tax assessment. The petitioner argued that dearness allowance is not income but a payment to offset erosion in wages, hence not taxable. However, the court held that dearness allowance is part of salary and constitutes income under the Income-tax Act. The court referred to relevant sections of the Act, emphasizing that dearness allowance falls under the category of salary and is taxable unless exempted. The court rejected the petitioner's argument, stating that the purpose of wage/salary fixation is irrelevant for taxation, and dearness allowance is taxable income.

The court cited a Karnataka High Court decision that dearness allowance is akin to basic pay and must be considered part of salary. The court also mentioned a Madras High Court decision supporting the inclusion of dearness allowance in salary. The court highlighted that the Direct Tax Laws (Amendment) Act, 1989 further clarified the inclusion of dearness allowance in taxable income, removing any doubts on its taxability. The court dismissed the petitioner's claim that a similar matter was pending in another court, emphasizing that the amendment to the law settled the issue.

Regarding the refund of income tax already deducted on dearness allowance, the court ruled that such relief cannot be granted through a writ application and must follow the provisions of the Income-tax Act. The court concluded that there was no merit in the petitioner's application and dismissed it, mentioning that no costs were awarded. The judgment clarified the taxability of dearness allowance as part of an individual's income and upheld the inclusion of dearness allowance in the total taxable income for assessment under the Income-tax Act.