1984 (11) TMI 125 - AT - Income Tax

Summary

Issues Involved:
1. Whether standard deduction under section 16(i) of the Income-tax Act, 1961, is permissible against the pension amount received by a Central Government pensioner.

Issue-wise Detailed Analysis:

1. Standard Deduction Against Pension:
The primary issue in this case is whether the standard deduction under section 16(i) of the Income-tax Act, 1961, is permissible against the pension amount received by a Central Government pensioner. The assessee, a retired Lt. Colonel, claimed a standard deduction of Rs. 1,464 against his pension income of Rs. 7,320, which was initially disallowed by the ITO. The AAC, however, accepted the claim, leading to the revenue's appeal.

Arguments by the Departmental Representative:
The departmental representative, Mr. J.S. Rao, argued that the term 'salary' in section 15 should be given its ordinary dictionary meaning, not the meaning provided in section 17(1). He emphasized that the standard deduction under section 16(i) requires the expenditure to be "incidental to employment" and "derived from such employment," which implies current employment, not past employment. He contended that since the assessee was retired, he could not have incurred any expenditure related to employment in the assessment year in question.

Arguments by the Assessee:
Mr. M.S. Syali and Mr. S.D. Nargolwala, representing the assessee, argued that the term 'pension' is included in the definition of 'salary' under section 17(1) and should be treated accordingly for the purposes of sections 15 and 16. They cited various Supreme Court judgments, including Deokinandan Prasad v. State of Bihar, State of Punjab v. Iqbal Singh, and D.S. Nakara v. Union of India, which establish that pension is a right and a continuation of the employer-employee relationship, even after retirement. They argued that the term 'employment' in section 16(i) should include both past and present employment, and that the pensioner incurs expenses related to drawing the pension, thus satisfying the conditions for standard deduction.

Tribunal's Analysis and Decision:
The Tribunal examined the provisions of sections 15, 16, and 17 of the Income-tax Act, along with the relevant constitutional articles and Supreme Court judgments. It concluded that:
- Pension is included in the definition of 'salary' under section 17(1).
- The relationship between the government and a pensioner is one of status, not contract, and continues even after retirement.
- The term 'employment' in section 16(i) should be interpreted broadly to include past employment.
- Pensioners incur expenses related to drawing their pension, which qualifies as expenditure "incidental to employment."

The Tribunal upheld the AAC's decision, allowing the standard deduction under section 16(i) against the pension income, and dismissed the revenue's appeal.