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Issues Involved:
1. Whether dearness relief received by the assessee in addition to the pension forms part of salary for the assessment year 1998-99 and is hence liable to income tax. Issue-wise Detailed Analysis: 1. Nature of Dearness Relief: The primary issue is whether the dearness relief of Rs. 53,640 received by the assessee, a retired Judge of the Allahabad High Court, should be considered part of the salary and thus taxable under the Income-tax Act, 1961. The assessee contends that dearness relief is a form of social insurance and not covered under section 17 of the Income-tax Act, thereby claiming it to be exempt from income tax. 2. Relevant Statutory Provisions: The judgment delves into the statutory provisions of the Income-tax Act, specifically sections 2(24)(iii) and 17. Section 2(24)(iii) defines income to include the value of any perquisite or profit in lieu of salary. Section 17 further defines 'salary' to include fees, commissions, perquisites, or profits in lieu of or in addition to any salary or wages. Sub-section (3) of section 17 provides an inclusive definition of 'profits in lieu of salary', which includes any payment due to or received by an assessee from an employer or former employer. 3. Principles of Statutory Interpretation: The judgment emphasizes certain guiding principles for interpreting the statutory provisions of the Income-tax Act. It highlights that for computing income for charging purposes, only the definition of section 17 should be considered. The chargeability of a receipt must be judged with reference to section 17, and if section 17 is not attracted, it is unnecessary to examine section 10. 4. Revenue's Contention: The revenue argues that dearness relief falls within the expression 'profits in lieu of salary' as defined in section 17(3) of the Act. The revenue's position is that both dearness relief and allowance are identical in nature and character, intended to compensate for the rise in the cost of living, and thus should be taxable. 5. Assessee's Argument: The assessee contends that dearness relief is a voluntary, ex-gratia payment extended unilaterally by the government and should not be regarded as profits in lieu of salary. The assessee relies on the Allahabad High Court's decision in M.C. Desai v. Union of India, which held that dearness relief granted to Judges to meet the rise in the cost of living cannot be treated as part of the pension. 6. Distinction between Allowance and Relief: The assessee emphasizes the distinction between 'allowance' and 'relief', arguing that while dearness allowance is taxable, dearness relief is gratuitous and should not be taxed. The assessee supports this argument with the Supreme Court's decision in CIT v. L.W. Russell and definitions from the Encyclopedia Britannica. 7. Tribunal's Analysis: The tribunal carefully considers the rival submissions and the scheme of taxation of salary under the Income-tax Act. It concludes that dearness relief satisfies all the ingredients of section 17(3)(ii) and is therefore liable to be treated as salary. The tribunal notes that dearness relief is a recompense for services rendered and is not a payment based on personal or extra employment considerations. The tribunal further observes that the payment of dearness relief is attributable to a legal obligation created under government notifications and circulars, and thus cannot be considered voluntary. 8. Legal Obligation: The tribunal highlights that the payment of dearness relief to retiring High Court Judges is governed by Rule 2 of the High Court Judges Rules, 1956, and Rule 17 of the All India Services (Death-cum-Retirement Benefits) Rules, 1958. These provisions establish a legal obligation for the government to pay dearness relief, thereby reinforcing its taxable nature. 9. Nomenclature and Taxability: The tribunal dismisses the distinction between 'allowance' and 'relief' as irrelevant for tax purposes. It asserts that the content of the definition of 'profits in lieu of salary' under section 17(3)(ii) is what matters, not the nomenclature used by the government. Dearness relief, being referable to employment and an addition to salary, is taxable as salary income. 10. Reliance on Judicial Precedents: The tribunal finds that the decisions cited by the assessee, including the Allahabad High Court's decision in M.C. Desai and the Supreme Court's decision in L.W. Russell, do not support the assessee's claim that dearness relief is not taxable. The tribunal distinguishes these cases on their facts and issues involved. 11. Conclusion: The tribunal concludes that dearness relief is covered under the definition of 'profits in lieu of salary' as per section 17(3)(ii) of the Income-tax Act. It endorses the CIT(A)'s conclusion regarding the taxability of dearness relief as salary income and dismisses the assessee's appeal.
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