1988 (9) TMI 45 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of various allowances (dearness allowance, city compensatory allowance, house rent allowance, leave encashment linked with leave travel concession, running allowance, night allowance).
2. Interpretation of "income" and "salary" under the Income-tax Act, 1961.
3. Application of section 10 exemptions.
4. Reimbursement of tuition fees.
5. Leave encashment linked with leave travel concession.
6. Running allowance and night allowance.

Summary:

Taxability of Various Allowances:
The petitioners, categorized as Central Government employees, employees of Central Government undertakings, bank employees, State Government employees, and General Insurance employees, disputed the taxability of allowances such as dearness allowance, city compensatory allowance, house rent allowance, leave encashment linked with leave travel concession, running allowance, and night allowance.

Interpretation of "Income" and "Salary":
The court examined whether these allowances amount to "income" u/s 2(24) of the Income-tax Act, 1961, and whether they are chargeable under the head "Salaries" u/s 14 read with section 17. The court held that these allowances are in the nature of income and are taxable under the head "Salaries."

Application of Section 10 Exemptions:
Section 10(13A) and section 10(14) provide exemptions for house rent allowance and certain special allowances. However, the court noted that these exemptions imply that the allowances are considered income. The court emphasized that the inclusive definitions in section 17 extend to various allowances, making them taxable unless specifically exempted.

Reimbursement of Tuition Fees:
In Writ Petition No. 1295 of 1988, the petitioners argued that reimbursement of tuition fees should not be taxable. The court held that such reimbursements are not covered by section 17(2)(iv) but fall under section 17(3)(ii) as "profits in lieu of salary."

Leave Encashment Linked with Leave Travel Concession:
In Writ Petition No. 604 of 1988, the court agreed with the Andhra Pradesh High Court's decision in M. Krishna Murthy v. CIT, holding that leave encashment linked with leave travel concession is taxable as "profits in lieu of salary" u/s 17(3)(ii).

Running Allowance and Night Allowance:
In Writ Petition No. 474 of 1988, the court held that running allowance and night allowance are not reimbursements of necessary disbursements but are advantages received by virtue of employment. Therefore, they are taxable as "perquisites" u/s 17(1)(iv) read with section 17(2).

Conclusion:
The court dismissed all the writ petitions, vacated the stay orders, and held that the allowances in question are taxable under the head "Salaries" as defined by the Income-tax Act, 1961. There was no order as to costs.