Disability pension exemption upheld: exempt armed forces pension could not be taxed and excess tax had to be refunded.

Disability pension received by a disabled officer of the Indian Armed Forces was treated as exempt from income tax, including both the disability element and the service element. The relevant CBDT circular was read as confirming that the entire disability pension retains its exempt character, so it should not be included in taxable income. On that basis, tax recovered on the exempt pension was not legally payable and had to be refunded, and procedural or technical objections could not defeat the relief. The order also directed payment of interest on the excess tax recovered.

---

---

Issues: Whether disability pension received by a disabled officer of the Indian Armed Forces was exempt from income tax and whether the excess tax recovered on that account was liable to be refunded.

Analysis: The relevant CBDT circular reiterated that the entire disability pension, comprising both the disability element and the service element of a disabled officer of the Indian Armed Forces, continues to be exempt from income tax. On that footing, the amount included in the petitioner's taxable income on account of disability pension ought not to have been subjected to tax. Once the exempt character of the receipt was clear, the department was bound to refund the excess tax recovered and could not deny relief on procedural or technical grounds.

Conclusion: The issue was answered in favour of the assessee. The respondent was directed to refund the tax recovered on the exempt disability pension, together with interest as specified in the order.

---