Dearness relief to a retired judge was treated as taxable profits in lieu of salary under income tax law.

Dearness relief received by a retired High Court Judge was treated as taxable income because it was linked to the judicial office and the retirement-benefit framework, bringing it within the broad statutory concept of salary and profits in lieu of salary. The nomenclature of the payment was not decisive, and the receipt was not regarded as a gratuitous ex gratia sum. The distinction between pension and dearness relief did not prevent taxation where the payment satisfied the definition in the Income-tax Act, so the relief was held taxable and not exempt from income tax.

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Issues: Whether dearness relief received by a retired High Court Judge is taxable as "profits in lieu of salary" under Section 17(3)(ii) of the Income-tax Act, 1961.

Analysis: The relevant statutory scheme treats salary broadly to include profits in lieu of salary, and Section 17(3)(ii) brings within its sweep any payment due to or received by an assessee from an employer or former employer, other than amounts specifically excluded. The payment in question was linked to the judicial office and the retirement benefits framework applicable to High Court Judges, including the service rules providing relief against rise in cost of living. The Court accepted that the nomenclature of the payment was not decisive and that the receipt was not a gratuitous ex gratia sum but an employment-related benefit forming part of the taxable framework of retired judges. The distinction drawn by the assessee between pension and dearness relief did not prevent taxation where the receipt answered the statutory description of profits in lieu of salary.

Conclusion: Dearness relief is taxable as profits in lieu of salary under Section 17(3)(ii) and is not exempt from income tax.

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