Strict construction of HRA exemption bars relief for self-occupied homes; subordinate rules cannot widen the statutory limit.

House rent allowance is exempt under section 10(13A) only where it meets actual rent expenditure for residential accommodation; the exemption does not extend to officers living in their own houses or flats and claiming only a notional rental loss. Rule 2A cannot enlarge the statutory condition or create a wider exemption than the Act permits. The administrative circulars directing tax deduction on such allowance were also left undisturbed and not quashed, given the court's conclusion that the allowance was not exempt. The governing principle is strict construction of exemption provisions, with subordinate rules confined to the parent statute.

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Issues: (i) Whether house rent allowance paid to officers who occupied their own residential houses or flats was exempt under section 10(13A) of the Income-tax Act, 1961 read with rule 2A of the Income-tax Rules, 1962. (ii) Whether the circulars issued by the income-tax authorities directing deduction of tax from such house rent allowance were liable to be quashed.

Issue (i): Whether house rent allowance paid to officers who occupied their own residential houses or flats was exempt under section 10(13A) of the Income-tax Act, 1961 read with rule 2A of the Income-tax Rules, 1962.

Analysis: Section 10(13A) exempts only a special allowance specifically granted to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee. The language requires actual expenditure on rent, and the allowance cannot be extended to cases where the employee lives in his own house and claims only a notional loss or deprivation of rental benefit. Rule 2A prescribes limits for the exemption but cannot travel beyond the parent provision or create a wider exemption. The rule is subordinate to the Act and cannot be used to rewrite the statutory condition of actual rent expenditure.

Conclusion: The officers occupying their own houses or flats were not entitled to exclude the house rent allowance from total income under section 10(13A).

Issue (ii): Whether the circulars issued by the income-tax authorities directing deduction of tax from such house rent allowance were liable to be quashed.

Analysis: The Board had power under section 119 to issue administrative instructions for proper implementation of the Act. Although the circulars were not appreciated, the Court did not accept that they warranted quashing in the present case, especially in view of the Court's own conclusion on the exemption issue.

Conclusion: The circulars were not quashed.

Final Conclusion: The writ petitions failed because house rent allowance received by officers residing in their own residential accommodation did not fall within the exemption, and the impugned circulars were left undisturbed.

Ratio Decidendi: An exemption provision must be construed strictly, and where the statute requires allowance to meet expenditure actually incurred on rent, rule-making power cannot enlarge the exemption to cover self-occupied residential accommodation.

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