1988 (2) TMI 99 - AT - Income Tax

Assessment Year, City Compensatory Allowance, House Rent Allowance, Profits In Lieu, Special Allowance

Summary

Issues Involved:
1. Taxability of dearness allowance
2. Taxability of compensatory city allowance
3. Taxability of house rent allowance
4. Taxability of compensation for surrender of earned leave
5. Deductibility of professional tax
6. Additional grounds for rectification and refund claims

Issue-wise Detailed Analysis:

1. Taxability of Dearness Allowance:
The assessee argued that dearness allowance (DA) is not taxable as it is not included in the definition of 'salary' under various sections and rules of the Income Tax Act, and other Acts like the Payment of Wages Act, Payment of Bonus Act, and Payment of Gratuity Act. The Tribunal, however, noted that DA is received by virtue of employment and from a definite source, namely, the Government of Maharashtra. There is no provision in the Act that excludes DA from taxable income. The Tribunal held that DA is a part of salary and taxable, referencing the Karnataka High Court decision in P. Krishna Kamat's case and the observations of the Andhra Pradesh High Court in M. Krishna Murthy's case.

2. Taxability of Compensatory City Allowance:
The Tribunal dealt with compensatory city allowance (CCA) similarly to DA, noting that it is received by virtue of employment. The Allahabad High Court in A.K. Misra's case and the Andhra Pradesh High Court in M. Krishna Murthy's case held that CCA is taxable. The Tribunal concluded that CCA is not exempt from tax under section 10(14) of the IT Act, as it is not granted to meet expenses incurred in the performance of duties but rather due to the place of posting.

3. Taxability of House Rent Allowance:
The assessee claimed exemption under section 10(13A) for house rent allowance (HRA), arguing that payments made to the Co-op. Housing Society are in the nature of rent. The Tribunal rejected this, stating that the assessee is deemed the owner of the flat under section 27(iii) and the payments to the Society are not rent but common charges. The Tribunal referenced the Delhi High Court decision in All India Lakshmi Commercial Bank Officers' Union v. Union of India and the Andhra Pradesh High Court in M. Krishna Murthy's case, concluding that HRA is not exempt under section 10(13A).

4. Taxability of Compensation for Surrender of Earned Leave:
The Tribunal held that compensation for surrender of earned leave is taxable as 'profits in lieu of salary' under section 17(3)(ii). It referenced the Andhra Pradesh High Court's decision in M. Krishna Murthy's case, which interpreted section 17(3)(ii) and dismissed the contention that such compensation is not taxable.

5. Deductibility of Professional Tax:
The Tribunal rejected the assessee's claim for deduction of professional tax, stating that it is not admissible under section 40A(2) and that deductions from salary income are specifically provided under section 16(i). The Tribunal noted that the decision in Sixth ITO v. Narendra V. Patel is not applicable as it dealt with business expenses and not salary income.

6. Additional Grounds for Rectification and Refund Claims:
The Tribunal addressed the assessee's cross-objections for the assessment years 1973-74 and 1976-77, where the assessee claimed exemption for DA and CCA, and sought rectification and refund for taxes paid under a mistake of law. The Tribunal held that DA and CCA are taxable receipts and rejected the claim for refund, stating that there is no clear and unambiguous pronouncement of law supporting the assessee's stand. The Tribunal also rejected the claim that compensation for the use of a parking lot is not taxable, holding that it is rightly taxable as income from other sources.

Conclusion:
All the departmental appeals were allowed, and the assessee's cross-objections were dismissed. The Tribunal upheld the taxability of DA, CCA, HRA, and compensation for surrender of earned leave, and rejected the claim for deduction of professional tax and additional grounds for rectification and refund.