Exemption from income-tax U/s 10(14), Finance Act, 1975. - Income Tax - 1284/CBDT

INSTRUCTION NO. 1284/CBDT Dated : October 15, 1979 Attention is drawn to the Board's instructions contained in D.O.No.268/497/77-ITJ, dated 25th January, 78 (printed below) addressed to the Commissioner of Income-tax, Bombay City-III, Bombay, copy whereof was endorsed to all Commissioners of Income-tax for necessary action. 2. The Finance Act, 1975 had amended Section 10(14) in order to specifically provide that any allowance granted to a person to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides will not qualify for exemption from income-tax. This was done to get over the effect of the decision of the Bombay High Court in CIT Vs. D.R. Phatak (99 ITR 14) by inserting an Explanation to Section 10(14) with retrospective effect. Recently the Allahabad High Court in Addl. CIT Vs. A.K. Misra (117 ITR 342) have examined the taxability of City Compensatory Allowance in the context of the amended provisions and have held that such allowance was granted to meet the personal expenditure necessitated by the high cost of living at big cities. According to the Court, "In view of the Explanation such an allowance could not be treated as deductible under section 10(14) on the ground that it was granted to meet expenses wholly necessarily and exclusively incurred in the performance of duties". In holding so, the Court noticed that the allowance was not granted with reference to the nature of the duties but exclusively with reference to the place of posting. 3. In the instructions earlier issued, the Commissioners were asked to request the AACs to keep such appeals involved in the issue of taxability of CCA pending so that further filing of second appeals to the Tribunal by the Department could be avoided. In the wake of the Allahabad High Court's decision directly on the issue which is the only decision on the amended provisions of Section 10(14), it would no longer be necessary to block the appeals before the AACs. The Income-tax Officers may rely on the said decision before the Appellate Assistant Commissioners of Income-tax. Before the Appellate Tribunal also the said decision should be relied upon and in case the Tribunal still prefers to decide the issue on the basis of the Madhya Pradesh High Court's decision (103 ITR 813) , the Tribunal may be requested to make a direct reference under section 257 to the Supreme Court in view of the fact that there is a conflict between the decisions of the High Courts.