House rent allowance exemption under tax law applies within statutory limits and is construed favourably to the assessee.

House rent allowance is described as exempt from taxable income under section 10(13A) where it is a special allowance granted to meet rent-related expenditure actually incurred for residential accommodation, subject to the prescribed limits. Rule 2A is treated as supplementary to the section and not as restricting the exemption when the allowance remains within the statutory ceiling. The note also states that even a person occupying a self-owned house, or a house in which there is an ownership interest and rent is paid, may still incur qualifying expenditure. Where two constructions are possible in a taxing provision, the interpretation favourable to the assessee prevails.

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Issues: Whether house rent allowance received by a judge was exempt from inclusion in taxable income 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 a special allowance granted by an employer to meet expenditure actually incurred on rent for residential accommodation occupied by the assessee, subject to prescribed limits. The allowance is compensatory in nature, and the provision was applied to hold that a person occupying his own house, or a house in which he has an ownership interest and for which rent is also paid, may still incur expenditure for the purpose of the exemption. Rule 2A was treated as supplementary to the section and was not regarded as restricting the exemption where the allowance remained within the prescribed ceiling. The Court also applied the settled rule that where two interpretations are possible in a taxing statute, the construction favourable to the assessee must prevail.

Conclusion: The house rent allowance was not taxable and was exempt under section 10(13A) subject to rule 2A, in favour of the assessee.

Ratio Decidendi: House rent allowance paid to meet rent-related expenditure is exempt when the allowance falls within the statutory limits, and a taxing provision admitting two reasonable interpretations must be construed in favour of the assessee.

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