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2020 (1) TMI 617 - AT - Income TaxHouse Rent Allowance (HRA) - Computation of salary - Benefit of exemption u/s 10(13A) - authorities below treated the performance bonus received by the appellant to be part of the salary for the purpose of determining qualifying amount in arriving at the exemption allowable u/s 10(13 A) - HELD THAT - We note that the decision of the Hon'ble Kerala High Court in the case of CIT v. B.Ghosal 1980 (2) TMI 57 - KERALA HIGH COURT is on identical facts wherein on exact same set of facts the Court had held that 'performance bonus' does not form part of 'salary' as defined in clause (h) of Rule 2A for the purposes of Section 10(13A) of the Income tax Act, 1961. Considering the facts narrated above, we note that total rent paid by the assessee during the year is to the tune of ₹ 8,20,000/-. The basic salary for the purpose of computation of house rent disallowance is ₹ 3,00,000/- (10% of ₹ 30,00,000/- being basic salary). Therefore, excess of rent paid over 10% of salary comes at ₹ 5,20,000/- (₹ 8,20,000/- - ₹ 3,00,000/-). Therefore, assessee is entitled for house rent allowance at ₹ 5,20,000/- u/s 10(13A) of the Act. Assessing Officer is directed to allow the exemption of HRA at ₹ 5,20,000/-. Appeal of the assessee is allowed.
Issues:
1. Denial of exemption u/s 10(13A) of the Income Tax Act. 2. Treatment of performance bonus as part of salary for calculating exemption u/s 10(13A). 3. Interpretation of the term "salary" for the purpose of computing exemption u/s 10(13A). Issue 1: Denial of exemption u/s 10(13A) of the Income Tax Act: The appeal pertains to the assessment year 2011-12 and challenges the order passed by the Commissioner of Income Tax (Appeal)-19, Kolkata, which upheld the Assessing Officer's decision to deny the benefit of exemption u/s 10(13A) of the Act. The Assessing Officer disallowed the claim based on the inclusion of a performance bonus in the total salary for calculating the exemption. The appellant contended that the performance bonus should not be considered as part of the salary for the purpose of exemption u/s 10(13A). The Assessing Officer's denial was based on the interpretation that any bonus linked to performance is to be treated as salary for exemption calculation purposes. Issue 2: Treatment of performance bonus as part of salary for calculating exemption u/s 10(13A): The main contention revolved around whether the performance bonus received by the assessee should be included in the calculation of salary for determining the exemption u/s 10(13A). The Assessing Officer added the performance bonus to the basic salary, resulting in the denial of the exemption claim. However, the appellant argued that the performance bonus should not be categorized as part of the salary, citing a decision by the Kerala High Court that bonuses do not partake the character of salary. The appellant emphasized that the performance bonus should not be considered a perquisite as defined in the Fourth Schedule, which could be excluded from the salary calculation. Issue 3: Interpretation of the term "salary" for the purpose of computing exemption u/s 10(13A): The crux of the dispute lay in the interpretation of the term "salary" under Section 10(13A) of the Act. The appellant contended that as per Rule 2A of the Income Tax Rules, the performance bonus should not be considered part of the salary for calculating the exemption. The appellant relied on the Kerala High Court decision, which held that performance bonuses do not fall under the definition of salary for the purposes of Section 10(13A). The Tribunal, after considering the arguments and precedents, concluded that the performance bonus should not be included in the salary calculation for determining the exemption u/s 10(13A) and directed the Assessing Officer to allow the exemption of House Rent Allowance accordingly. In conclusion, the Appellate Tribunal, after careful consideration of the submissions and legal provisions, allowed the appeal of the assessee, directing the Assessing Officer to grant the exemption of House Rent Allowance at the appropriate amount, as the performance bonus was not to be considered part of the salary for the purpose of calculating the exemption u/s 10(13A) of the Income Tax Act.
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