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Issues:
Interpretation of section 10(13A) of the Income-tax Act, 1961 regarding exemption for house rent allowance received by an individual in lieu of salary. Application of rule 2A of the Income-tax Rules, 1962 in defining the term "salary" for the purpose of exemption. Validity of rule 2A in abridging the relief granted to an assessee under section 10(13A). Analysis: The case involved the assessment years 1966-67 and 1967-68 where the assessee, a branch manager, received commission in lieu of salary and house rent allowance from his employer. The Income-tax Officer disallowed the exemption under section 10(13A) for the house rent allowance. The Appellate Assistant Commissioner held that the commission received by the assessee should be assessed as "salary" and denied the exemption. However, the Tribunal disagreed, stating that the definition of "salary" should not be restricted to periodical payments and allowed the exemption under section 10(13A). The High Court analyzed section 10(13A) which grants exemption for special allowances to meet rent expenses and rule 2A of the Income-tax Rules, 1962 which defines the limits for this exemption. Rule 2A refers to the definition of "salary" in clause (h) of rule 2 of Part A of the Fourth Schedule to the Income-tax Act, 1961. The court noted that "salary" excludes all other allowances and perquisites except dearness allowance. Referring to a previous case, the court highlighted the distinction between "salary" and "commission" based on fixed payments versus variable payments dependent on factors like sales output. The court addressed the argument that rule 2A abridged the relief under section 10(13A) and was ultra vires. It dismissed this argument, stating that rule 2A was not in conflict with the Act's provisions and did not run counter to them. The court referenced other cases and emphasized that the rule's own dictionary should be applied to interpret the term "salary" for the purpose of relief under section 10(13A). Ultimately, the court held that the Tribunal's conclusion was incorrect, answering the referred question in the negative and in favor of the revenue. In conclusion, the High Court judges agreed that the Tribunal's decision was incorrect, denying the assessee's claim for exemption under section 10(13A) for the house rent allowance received. Each party was directed to bear their own costs in the case.
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