CBDT circulars binding on tax authorities can prevent disallowance where employment benefits fall within the covered controversy.

Rent-free accommodation and cash house rent allowance provided under employment terms were treated as perquisites for the purpose of section 40(a)(v), but the controlling point was that a CBDT circular covering the controversy bound the departmental authorities. Where such a circular addresses the issue, it must be given effect in determining tax liability, and disallowance contrary to the circular is not justified. The Tribunal's reliance on the circular was treated as correct because no error was shown in that approach, and the departmental authorities were required to act consistently with the circular.

---

---

Issues: Whether rent-free accommodation and cash house rent allowance provided to employees under the terms of employment were perquisites so as to attract disallowance under section 40(a)(v) of the Income-tax Act, 1961, and whether the departmental authorities were bound by the Central Board of Direct Taxes circular covering the controversy.

Analysis: The Tribunal had allowed the assessee's claim on the basis of the Central Board of Direct Taxes circular dated 29 October 1969, treating it as binding on the departmental authorities. The controversy was covered by that circular, under which the amount in question could not be disallowed. The Court held that the authorities were bound to act in accordance with the circular and that no error had been shown in the Tribunal's view.

Conclusion: The question was answered in the affirmative and in favour of the assessee.

Ratio Decidendi: A circular issued by the Central Board of Direct Taxes that covers the controversy is binding on the departmental authorities and must be given effect to in determining tax liability.

---