1993 (1) TMI 117 - AT - Income Tax

Summary

Issues Involved:
1. Whether the Special (Duty) Allowance (SDA) is part of salary.
2. Whether the SDA is exempt under section 10(14) of the IT Act, 1961.
3. Whether the SDA is of a casual and non-recurring nature and thus exempt under section 10(3) of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Whether the Special (Duty) Allowance (SDA) is part of salary:
The Assessing Officer added the SDA amounting to Rs. 12,407 to the returned income of the assessee, arguing that it was not exempt and thus part of the salary. The DCIT (Appeals) initially held that the SDA was not part of the salary, leading to the present appeal by the Assessing Officer. The tribunal noted that the SDA was granted to civilian employees of the Central Government serving in the North Eastern Region and was initially given to those with all India transfer liabilities. The SDA was argued to be a compensatory allowance under rule 9(5) of the Fundamental Rules and not a part of pay. However, the tribunal concluded that the SDA is indeed part of the salary, reversing the DCIT (Appeals) decision.

2. Whether the SDA is exempt under section 10(14) of the IT Act, 1961:
The assessee contended that the SDA should be exempt under section 10(14) of the IT Act, 1961. The tribunal examined the definition of income under section 2(24) of the Act, which includes allowances granted to meet expenses for the performance of duties or to compensate for increased living costs. Section 10(14) specifies that exemptions apply only if the Central Government issues a notification in the Official Gazette specifying the extent of such expenses. The tribunal found no evidence of such a notification for SDA, implying that the Central Government did not consider SDA as an allowance requiring exemption. Thus, the tribunal held that the SDA is not exempt under section 10(14).

3. Whether the SDA is of a casual and non-recurring nature and thus exempt under section 10(3) of the IT Act, 1961:
The DCIT (Appeals) had considered the SDA to be of a casual and non-recurring nature, potentially exempt under section 10(3) of the Act. The tribunal clarified that for section 10(3) to apply, the receipt must be both casual and non-recurring. The tribunal referred to various judicial interpretations and concluded that the SDA, being foreseeable and provided for by agreement, does not qualify as casual or non-recurring. Therefore, the SDA does not meet the criteria for exemption under section 10(3).

Conclusion:
The tribunal concluded that the SDA is an income and, in the absence of any specific notification by the Central Government under section 10(14), is not exempt. It should be considered part of the salary and is thus liable to tax under the IT Act, 1961. The decision of the DCIT (Appeals) was reversed, and the order of the Assessing Officer was upheld. Consequently, the appeal by the Revenue was allowed.