House rent allowance exemption upheld where statutory limits applied and the assessee-favourable interpretation rule governed taxation.

House rent allowance paid to a judge was held exempt from tax within the statutory limits under section 10(13A) read with rule 2A. The court treated the allowance as compensation for residential accommodation expense or disadvantage, and held that the rules supplement, rather than override, the exemption provision. It further applied the rule that, where a taxing provision admits two interpretations, the one favourable to the assessee must be adopted. On that basis, the allowance was not includible in taxable income to the extent permitted by the statute.

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Issues: Whether house rent allowance received by a judge was liable to be included in taxable income or was exempt under section 10(13A) of the Income-tax Act, 1961 read with rule 2A of the Income-tax Rules, 1962.

Analysis: The allowance was paid as house rent allowance subject to the statutory limits. The Court followed its earlier view that section 10(13A) is intended to compensate an assessee for expenditure or disadvantage arising from residential accommodation, and that the rules supplement the section rather than conflict with it. It was also held that where two interpretations are possible, the one favourable to the assessee must be adopted in a taxing statute.

Conclusion: The house rent allowance was not liable to be included in taxable income and was exempt within the statutory limits.

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