Strict definition of salary excludes personal allowance from disallowance computation under section 40(c)(iii).

For disallowance under section 40(c)(iii) of the Income-tax Act, salary must be read in the limited sense given by the Explanation read with clause (h) of rule 2 of Part A of the Fourth Schedule. On that definition, salary includes dearness allowance only if the terms of employment so provide, and excludes other allowances and perquisites. Personal allowance is not dearness allowance and cannot be added to salary by reference to section 17. The provision must therefore be construed strictly, and personal allowance is not includible in salary for computing the disallowance.

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Issues: Whether personal allowance paid to an employee forms part of salary for the purpose of disallowance under section 40(c)(iii) of the Income-tax Act, 1961.

Analysis: For the purposes of section 40(c)(iii), salary is governed by the Explanation read with clause (h) of rule 2 of Part A of the Fourth Schedule, under which salary includes dearness allowance only if the terms of employment so provide and excludes all other allowances and perquisites. Personal allowance is not dearness allowance and cannot be brought within the defined meaning of salary. The definition under section 17 is not applicable for this purpose. Since the statutory language is clear, the provision must be construed strictly and no additional allowance can be added to the salary by interpretation.

Conclusion: Personal allowance is not includible in salary for the purpose of section 40(c)(iii), and the disallowance was rightly to be computed without treating such allowance as salary.

Ratio Decidendi: Where the relevant definition of salary expressly includes only dearness allowance and excludes other allowances, a personal allowance cannot be treated as salary for computation of disallowance under section 40(c)(iii).

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