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TMI Blog1987 (7) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an earlier decision of the Tribunal in Income-tax, Appeal No. 3074 (Bom) of 1970-71, held that the said city compensatory allowance was not taxable and should not be included in the total income of the assessee and that having regard to the provisions of sections 10(14) and 16(v) of the Income-tax Act, 1961, the amount paid to the assessee as city compensatory allowance could not be brought to tax and the appeals of the assessee were allowed by the Appellate Assistant Commissioner by a consolidated order. Being aggrieved by the said decision of the Appellate Assistant Commissioner, the Revenue preferred an appeal before the Income-tax Appellate Tribunal. It was urged on behalf of the Revenue before the Tribunal that the finding of the Appellate Assistant Commissioner was not sustainable in law having regard to the amendments made in the provisions of section 10(l 4) of the Act by the Finance Act, 1975. By the said amendment, an Explanation had been inserted to the said section 10(14) of the said Act which read as follows: " For the removal of doubts, it is hereby declared that any allowance granted to the assessee to meet his personal expenses at the place where the duties o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 1974-75, the city compensatory allowance would be allowed to be deducted as section 16(v) of the Income-tax Act was deleted with effect from April 1, 1975. On an application of the Revenue under section 256(1) of the Income-tax Act, 1961, the following questions were referred to this court by the Tribunal: " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the city compensatory allowance cannot come within the charging sections and/or within the meaning of Government servant in accordance with section 2(24) of the Income-tax Act, 1961, read with the Fundamental Rules and cannot come within the ambit of the meaning of total income as contained in section 2(45) of the Act ? (2) Whether, on the facts and in the circumstances of the case, when the assessee's case cannot come within the provisions of sections 15 and 17 of the Act, the Tribunal was right in not considering the applicability of the provisions of section 16(v) of the Act ? (3) Whether, on the facts and in the circumstances of the case, up to the assessment year 1974-75, because of the deletion of section 16(v) of the Act with effect from April 1, 1975, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmance of such duties." "Section 14 : Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income". " Section 17 : For the purposes of sections 15 and 16 and of this section, (i) ' Salary' includes-... (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages. " Dr. Pal submitted before us that the amount received by way of city compensatory allowance in respect of the relevant assessment years cannot be included in the total income of the assessee inasmuch as the same was receivable by him by virtue of the Fundamental Rules which govern the terms and conditions of service of a Government employee. It is the contention of the assessee that the Fundamental Rules indicate that city compensatory allowance is given not as a source of profit or gain. It is the further contention of the assessee that in congested big cities like Bombay and Calcutta, an assessee had to spend more and to incur higher cost of living and city compensatory allowance is provided to compensate the loss which the employees suffer an account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance is received by the assessee. It was further held by the court that the actual amount received by the Government servant is much less than what he ordinarily spends by reason of his posting at a particular place. Therefore, such expenses were wholly, exclusively and necessarily incurred in the performance of the duties. The court also observed that the sole object of the compensatory city allowance is to compensate the Government servant for the extra expenditure which he will be called upon to bear by reason of his posting at a particular place. Relying upon the said judgment, Dr. Pal urged that the assessee is entitled to claim exemption in respect of the city compensatory allowance under section 10(14) of the Income-tax Act. Subsequent to the said judgment, however, an explanation has been inserted by the Finance Act, 1975, with retrospective effect which has already been set out hereinbefore. The said explanation has made it clear that any allowance granted to the assessee 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 shall not be regarded for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. On an appeal to the Income-tax Appellate Tribunal, the Appellate Tribunal affirmed the view of the Additional Commissioner. The questions that were referred to the High Court by the Appellate Tribunal are as follows : " 1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the compensatory city allowance received by the assessee under the provisions of article 222(2) of the Constitution of India was liable to be included in his total income under the head ' Salaries ' for the purpose of income-tax assessment ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Additional Commissioner had rightly held that the order passed by the Income-tax Officer under section 142(1) of the Income-tax Act without including such compensatory city allowance in the total income of the assessee was erroneous in so far as it is prejudicial to the interests of the Revenue ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was not entitled to the deduction of the house rent of Rs. 3,720 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 9(1)(ii) as salary earned in India and the living allowance was assessable as a perquisite under section 17(2), it was held by the Gujarat High Court that the amount received as " retention remuneration " was not " salary earned in India " within the meaning of section 9(1)(ii) and was not assessable. It was also held that the living allowance was given to the assessee as reimbursement rather than as a personal advantage and hence was not "perquisite ". It was not salary because it was neither a fee, commission or perquisite nor profit in lieu of or in addition to salary or wages. It was held that the amount received as living allowance was not assessable. Relying upon the said decision, Dr. Pal urged that the city compensatory allowance paid to the assessee cannot come either within the scope of salary or within the definition of special allowance or perquisite and as such cannot be included within his total income and cannot be assessed to tax. Learned counsel for the assessee next contended that the assessee's case cannot come within the meaning of income and also the meaning of total income and that he further urged that the assessee's case cannot Wine within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. In this connection, learned counsel relied on the decision in the case of Nalinikant Ambalal Mody v. S. A. L. Narayan Row, CIT [1966] 61 ITR 428 (SC). In this case, the assessee, who was an advocate, had adopted the calendar year as the accounting year and kept his accounts on the cash basis. He ceased to carry on his profession on March 1, 1957, when he was elevated to the Bench of the High Court. In the year 1958-59, during no part of which he carried on any profession, he received certain moneys on account of fees outstanding for professional work done by him. The Supreme Court, by a majority judgment, held that the receipts were not chargeable to tax at all. The receipts were the outstanding dues for professional work done and were clearly the fruits of the assessee's professional activity. They were the profits and gains of a profession and they fell under the fourth head, viz., " profits and gains of business, profession or vocation ". They were not, however, chargeable to tax under that head because under the corresponding computing section, i.e., section 10 of the, Indian Income-tax Act, 1922, an income received by an assessee, who kept his accounts on the cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment servant under its control and may make rules prescribing the amounts and the considerations under which they may be drawn. Different types of city compensatory allowances are contemplated under the Supplementary Rules. For example, under Supplementary Rule 6A, grant is permitted in respect of grain compensation allowance. In the same manner, under Supplementary Rule 6B, grant is permitted owing to expensiveness of living. Similarly, under Supplementary Rule 6C, compensatory allowance by way of house rent allowance is permitted. Rates of city compensatory allowance may also vary with the class of cities. Fundamental Rule 11 provided that the whole time of a Government servant is at the disposal of the Government which pays him, and he may be employed in any manner required by the proper authority without the claim of additional remuneration, whether the services required of him are such as would ordinarily be remunerated from general revenues, from local fund or from the funds of a body incorporated or not, which is wholly or substantially owned or controlled by the Government. Since payment of city compensatory allowance under the Government is neither an emolument nor fe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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