City compensatory allowance held not taxable, barring tax deduction at source and requiring refund or adjustment of tax already deducted.

City compensatory allowance paid by an employer bank to its officers and staff was treated as falling outside the charging provisions of the Income-tax Act, 1961. The same approach was applied to allowances in the nature of city compensatory allowance, which were held not taxable. As a result, the bank was restrained from deducting tax at source from such payments, and refund or adjustment was directed for tax already deducted or deposited.

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Issues: Whether city compensatory allowance paid by the employer bank to its officers and staff is liable to tax under the Income-tax Act, 1961.

Analysis: The allowance was held to fall outside the charging provisions governing income tax. The decision followed the binding view already taken by the Division Bench in the connected precedent, and the same approach was applied to the present batch of writ petitions.

Conclusion: City compensatory allowance, and allowances in the nature of city compensatory allowance, were held not taxable. The bank was restrained from deducting tax at source from such payments, and refund or adjustment was directed in respect of tax already deducted or deposited.

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