2020 (2) TMI 310 - AT - Income Tax

Computation of Exemption u/s 10(13A) for House Rent Allowance (HRA) - As per AO performance bonus received by the assessee also formed part of salary for the purposes of Section 10(13A) and accordingly re-computed the exemption available u/s 10(13A) thereby resulting in disallowance of the entire exemption claim - HELD THAT - Performance bonus received by the appellant did not form part of salary for the purposes of computing exemption u/s 10(13A) of the Act. Decision of the Hon ble Kerala High Court in the case of CIT Vs 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/-. - Decided in favour of assessee

Summary

Issues Involved:
- Disallowance of exemption u/s 10(13A) for House Rent Allowance
- Interpretation of the term "salary" for the purpose of calculating exemption u/s 10(13A)

Issue 1: Disallowance of exemption u/s 10(13A) for House Rent Allowance

The appeal pertains to the assessment year 2011-12 challenging the order passed by the Commissioner of Income Tax (Appeal)-19, Kolkata, which arose from an assessment order under section 143(3) of the Income Tax Act, 1961. The assessee claimed exemption u/s 10(13A) for House Rent Allowance (HRA). The Assessing Officer disallowed the claim based on the inclusion of a performance bonus as part of the salary for calculating the exemption. The Assessing Officer considered the performance bonus as part of the salary, leading to the denial of the exemption claim. The Commissioner of Income Tax (Appeal) affirmed the Assessing Officer's decision, prompting the assessee to appeal to the ITAT Kolkata.

Issue 2: Interpretation of the term "salary" for the purpose of calculating exemption u/s 10(13A)

The crux of the dispute revolved around the definition of "salary" concerning the computation of exemption u/s 10(13A) of the Act. The Assessing Officer included the performance bonus in the calculation of the total salary, thereby disallowing the HRA exemption claimed by the assessee. However, the appellant contended that the performance bonus should not be considered as part of the salary for the purpose of calculating the exemption. The appellant relied on the decision of the Kerala High Court in CIT vs. B. Ghoshal, where it was held that a bonus does not partake the character of salary. The ITAT Kolkata, after considering the arguments and relevant legal provisions, concluded that the performance bonus received by the appellant did not form part of the salary for computing the exemption u/s 10(13A). As a result, the ITAT directed the Assessing Officer to allow the exemption of HRA at the appropriate amount, considering the correct computation of salary without including the performance bonus.

In conclusion, the ITAT Kolkata allowed the appeal of the assessee, emphasizing the correct interpretation of the term "salary" for the purpose of determining the exemption u/s 10(13A) of the Income Tax Act, 1961. The judgment highlighted the distinction between basic salary and additional components like performance bonuses in the computation of exemptions, aligning with legal precedents and provisions under the Act.