Section.16(1) - Standard deduction admissibility to pensioner - Reference applications not to be filed unless tax effect is beyond specified limit. - Income Tax - 1298/CBDT

INSTRUCTION NO. 1298/CBDT Dated: February 1, 1980 Section(s) Referred: 16(1) Statute: Income - Tax Act, 1961 The Finance Act, 1974 substituted separate deductions in clauses (1), (iii) to (v) of section 16 by a standard deduction "in respect of expenditure incidental to employment" to be allowed in the computation of taxable salary. The Board's Circular No.138 of 1974 dated 7-6-1974 (explanatory Notes on Finance Act, 1974) clarified that in the case of a pensioner since no salary can be said to be derived from employment, no deduction will be admissible in computing the taxable income. The Ministry of Law was consulted in the matter and the advice given is that the language of section 16(1) does not support the interpretation put upon it by the decisions of the Tribunal against the Department and that the standard deduction is not admissible to a pensioner. 2. Eversince the Bombay Bench of ITAT in the case of S.A. Narielwala gave its decision in July 1977 holding that a pensioner is also entitled to standard deduction under section 16(1), a number of other Benches of the Tribunal have followed the said decision. The other decisions are by Hyderabad Bench in the case of Shri Gopala Rao Ekbote, by Chandigarh Bench in the case of Md. Ismail, by Madras Bench in the case of H. Venkatasubban. Recently one Bench of the Tribunal at Bombay in the case of N.K. Pandya [ITA No. 2510(Bom)78-79 dated 14-2-1979] has supported the Department's case and has referred the matter to the High Court at the instance of the assessee. 3. The Board have considered the matter with a view to check the proliferation of litigation. It is found that the cost of litigation involved in each case is disproportionately higher compared to the revenue effect. Therefore, it has been decided that fresh reference application need not be filed against any adverse order of the Income-tax Appellate Tribunal unless the tax effect is beyond the minimum specified in this regard in the existing instructions. 4. It has also been decided that the AACs should be requested to keep the appeals involving this question pending until necessary clarificatory provisions are enacted in the Act.