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Issues Involved:
1. Taxability of House Rent Allowance (HRA) u/s 10(13A) of the I.T. Act, 1961. 2. Taxability of encashment of leave as "profits in lieu of salary" u/s 17(3) of the I.T. Act, 1961. 3. Binding nature of High Court decisions on authorities in other states. Summary: Issue 1: Taxability of House Rent Allowance (HRA) u/s 10(13A) of the I.T. Act, 1961 The petitioners argued that HRA is exempt from tax u/s 10(13A) read with Rule 2A, irrespective of whether the employee resides in a rented house or their own house. They relied on precedents from Punjab and Haryana High Court. The Revenue contended that HRA is meant to reimburse actual rent expenditure, which does not apply to those residing in their own houses. The court analyzed the term "expenditure" through past Supreme Court judgments and concluded that HRA is exempt only when it reimburses actual rent paid. Therefore, HRA for petitioners residing in their own houses is not exempt from tax. Issue 2: Taxability of encashment of leave as "profits in lieu of salary" u/s 17(3) of the I.T. Act, 1961 The petitioners claimed that encashment of leave is neither salary nor "profits in lieu of salary" and thus not taxable. The court examined Sections 14, 15, 16, and 17 of the Act, defining "salary" and "profits in lieu of salary." It held that encashment of leave is a benefit arising from employment and falls within the meaning of "profits in lieu of salary" u/s 17(3)(ii). Thus, it is taxable. Issue 3: Binding nature of High Court decisions on authorities in other states The petitioners argued that decisions of other High Courts on all-India statutes should be binding across states. The court clarified that while the Supreme Court's decisions are binding nationwide, each High Court's jurisdiction is limited to its own territory. Therefore, decisions of one High Court are not binding on another High Court or authorities in other states. The court did not find merit in the contention that the Central Board of Direct Taxes' circulars based on other High Courts' decisions should apply universally. Conclusion: 1. HRA Taxability: The HRA received by petitioners residing in their own houses is not exempt from tax. 2. Encashment of Leave: Encashment of leave is taxable as "profits in lieu of salary" u/s 17(3)(ii). 3. High Court Decisions: High Court decisions are not binding on authorities in other states; each High Court's decisions are confined to its jurisdiction. All writ petitions were dismissed, and the rule issued in all cases was discharged. Parties were directed to bear their own costs.
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