Employment-linked allowances are taxable salary benefits unless a specific statutory exemption applies under the Income-tax Act.

The Income-tax Act adopts an inclusive approach to income and salary, so employment-linked monetary benefits are taxable unless a specific exemption applies. House rent allowance is a salary-related receipt and is exempt only to the extent allowed under section 10(13A), while city compensatory allowance and dearness allowance are treated as taxable employment benefits. Reimbursement of tuition fee, leave encashment linked with leave travel concession, running allowance and night allowance are also treated as taxable salary-related emoluments because they arise by virtue of employment and are not shown to be true reimbursements of necessary expenditure.

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Issues: (i) Whether city compensatory allowance, house rent allowance and dearness allowance form part of income and are taxable under the head of salaries as perquisites or profits in lieu of salary; (ii) Whether reimbursement of tuition fee, leave encashment linked with leave travel concession, running allowance and night allowance are taxable under the Act.

Issue (i): Whether city compensatory allowance, house rent allowance and dearness allowance form part of income and are taxable under the head of salaries as perquisites or profits in lieu of salary.

Analysis: The Act treats income broadly through the inclusive definition in section 2(24), and the salary provisions in sections 17(1), 17(2) and 17(3) are themselves inclusive. The scheme of section 10, especially the specific exemptions for house rent allowance and other allowances, shows that these receipts are regarded as income but are exempt only to the extent provided. The allowances are received by reason of employment and are advantages over and above salary. House rent allowance, while partly exempt under section 10(13A), remains a salary-related receipt. City compensatory allowance and dearness allowance are also covered by the statutory scheme as employment-related monetary benefits and cannot be treated as mere reimbursements of actual expenditure.

Conclusion: These allowances are taxable and fall within the salary head, with house rent allowance enjoying only the statutory exemption available under section 10(13A).

Issue (ii): Whether reimbursement of tuition fee, leave encashment linked with leave travel concession, running allowance and night allowance are taxable under the Act.

Analysis: Reimbursement of tuition fee is not excluded as a true reimbursement of an employer's direct payment in discharge of the employee's obligation, but it is covered by the residual salary provision as a payment received from employment. Leave encashment linked with leave travel concession is a monetary benefit arising from employment and falls within profits in lieu of salary. Running allowance and night allowance are not shown to be reimbursement of necessary disbursements; they are received as benefits attached to service and therefore assume the character of perquisites under the extended salary definition.

Conclusion: These receipts are taxable as salary-related emoluments.

Final Conclusion: The challenged allowances and related receipts were held taxable under the Income-tax Act, and the writ petitions were rejected.

Ratio Decidendi: Under the Income-tax Act, employment-linked monetary benefits are taxable if they are advantages over and above salary or payments received by virtue of employment, and statutory exemptions alone can carve out limited exclusions from that charge.

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