9911796707
TMI Blog1988 (2) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... ave are not taxable and that professional tax is deductible. We shall deal with each of these issues separately. 2. As regards the taxability of dearness allowance, the main burden of the assessee's argument was that dearness allowance was not specifically included in the definition under section 17 or the definition in rule 2(h) of Part A, Part B and Part C of the Fourth Schedule to the Act. It was also argued that dearness allowance was not included under the Payment of Wages Act, 1936, Payment of Bonus Act, 1965 and Payment of Gratuity Act, 1972. Further, the assessee argued that the definition of 'salary' for the purpose of section 36(1)(ii)(a) and section 40A(5) does not include dearness allowance. The assessee also argued that since dearness allowance is not fixed but fluctuating from time to time and varies with the cost of living index, the amount thereof is not a part of the salary. This was, according to him, the case of the department in the case of Addl. CIT v. P. Krishna Kamat [1975] 99 ITR 74 (Kar.). He also argued that dearness allowance is not taken into account for payment of house rent allowance, compensatory city allowance, contribution to provident fund, payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that "Anything which can properly be described as income, is taxable under the Act unless expressly exempted". A statutory recognition to this principle is to be found in the provisions of sections 4, 5 and 10 of the IT Act. It is in the light of the above principles that the issue raised before us in the present appeals has to be considered. 4. When we apply the above test to the receipts like dearness allowance or city compensatory allowance, we find that these amounts are received by the assessee by virtue of his being an employee of the State Govt. These amounts are received from a definite source, namely, the Govt. of Maharashtra. These are received by virtue of his employment under that Govt. There is nothing in the Act which provides for the exclusion of receipts of this type from the scope of taxation. In other words, no exemption from inclusion in total income is provided in respect of dearness allowance or city compensatory allowance. For these reasons, among others, the assessee's claim for exemption from taxation of these receipts is liable to be rejected. 5. We may now turn to the specific arguments taken by the assessee. The assessee has first referred to the defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trustees on behalf of a recognised provident fund, etc. The reference made by the assessee to the definition of 'salary' in rule 2(h) of Part A to distinguish it from the definition in sec. 17 does not, therefore, help the assessee much. As pointed out earlier, 'salary' was defined to include dearness allowance for a specific purpose because that Schedule dealt with provident fund and the rules framed in that context refer to dearness allowance for a specific purpose. This fact by itself does not throw any light whatsoever on the controversy before us, namely, whether dearness allowance is taxable. The assessee's reference to the definition of 'salary' under the Payment of Wages Act, 1936. Payment of Bonus Act, 1965 and Payment of Gratuity Act, 1972 is for the same reason equally irrelevant as such definition of 'salary' appears in the respective Acts for the purposes mentioned in that Act and does not help the assessee in his claim that dearness allowance is not a taxable receipt. Reference may be made to a decision of the Karnataka High Court in P. Krishna Kamat's case. In this case, the following observations of the Karnataka High Court only support out finding given above th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance or contribution to provident fund has no relevance at all for considering its taxability. What is relevant is that it is received by a salary earner from his employer for services rendered. If the amount of dearness allowance varies from time to time according to the cost of index and if it is intended as a reimbursement for meeting the increasing cost of living, the quantum of dearness allowance would be the same in all grades of employees. However, it is common knowledge that the grades of dearness allowance vary with the grades of pay. It is also common knowledge that so far as Govt. servants are concerned, the Pay Commission has taken this fact into account while considering the revised pay structure in various grades of the Govt. employees. 'Dearness allowance' is distinguishable from 'travelling allowance' or 'daily allowance' which is granted specifically to meet a specific type of expenditure already incurred by an employee and is in the nature of a reimbursement of expenditure so incurred. We are not satisfied that dearness allowance is paid as reimbursement of any specific expenditure. It is paid as conditions of service and can well be considered as coming within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of recompense or reward for the services rendered and cannot be regarded as a payment made on personal or extra employment considerations. An argument was advanced at the time of the hearing that the amendment to section 17 by addition of sub-clause (v)(a) indicated that compensation for surrender of earned leave was not normally taxable or, in any case, not taxable for the period prior to the amendment. In M. Krishna Murthy's case, the Court was interpreting sec. 17(3)(ii) which gives inclusive definition of what constitutes 'Profits in lieu of salary'. The observations of the Court in respect of amounts received by way of leave encashment are in this context. The insertion of sub-clause (v)(a) by Taxation Laws (Amendment) Act, 1984 with retrospective effect from 1-4-1978 has to be considered only clarificatory. Further, it would appear that the Court considered clause (10AA) of sec. 10 which was introduced by the Finance Act, 1982 with retrospective effect from 1-4-1978 in this context but did not have occasion to consider clause (5A) possibly because the amendment brought about by the Taxation Laws (Amendment) Act, 1984 was not before the Hon'ble Court at the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccupied by the assessee to such extent as may be described. However, this exemption is not available in case where residential accommodation occupied by the assessee is owned by him or the assessee has not actually incurred expenditure on payment of rent by whatever name called in respect of residential accommodation occupied by him. The assessee's argument in this connection is two-fold : He first argues that the flat which he occupies in a Co-op. Housing Society is not owned by him and, secondly, he argues that the payments made by him to the Society are in the nature of rent and, therefore, clauses (a) and (b) of the Explanation, which carved out an exception to the general exemption granted under clause (13A), are applicable in his case. Sec. 27 of the IT Act defines 'owner of house property' and clause (iii) of section 27 provides a member of a Co-op. Society to whom a building or a part thereof is allotted or is leased under a house building scheme of the society shall be deemed to be the owner of that building or part thereof. Although this definition is for the purposes of sections 22 to 26, it is ultimately relevant for deciding computation of income from house property an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred on payment of rent for the residential accommodation occupied by the employee. The employee concerned, in order to claim exclusion of the house rent allowance, has to show that he had paid house rent." The Andhra Pradesh High Court also gave a similar finding in M. Krishna Murthy's case. We, therefore, reject the claim of the assessee that house rent allowance received by him is exempt under sec. 10(13A). 9. Since, in our opinion, the assessee is an owner of the premises occupied by him, his case is covered by Explanation to section 10(13A). 10. As regards the claim for deduction of professional taxes, it is clearly not admissible in view of sec. 40A(2), which provides that any sum paid on account of any rate of tax levied on the profits or gains of any business or profession or assessed at a proportion or otherwise on the basis of any such profits or gains not a deductible expenditure. What is deductible from salary income is specifically provided under sec. 16(i). The assessee's reliance on a decision in Sixth ITO v. Narendra V. Patel [1985] 11 ITD 587 (Bom.) (TM) is misplaced because in that case the Tribunal by majority decision held that other expenses incurred fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be accepted as the settled law. In the case relied upon by the assessee in this context, the Supreme Court was concerned with sales tax on forward transactions which was voluntarily paid but which was subsequently held as invalid. In the case cited by the assessee, the respondent paid sales tax in respect of its forward transactions in pursuance of assessment orders passed by the Sales Tax Officer for the years 1949 to 1951, but in 1952, the Allahabad High Court held that the levy of sales tax on forward transactions was ultra vires. The respondent applied for a refund and on these facts the Supreme Court held that the term 'mistake' in sec. 72 of the Indian Contract Act comprises within its scope a mistake of law as well as a mistake of fact. The Supreme Court, however, specifically held that where there is a clear and unambiguous provision of law which entitles a party to the relief claimed by him, equitable considerations cannot be imported. In the present case, there is no clear and unambiguous pronouncement of law supporting the assessee's stand. Further, a mistake can be rectified under the Income-tax Act if it is a mistake apparent from record. We are, therefore, satis ..... 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