1978 (8) TMI 55 - HC - Income Tax

City compensatory allowance not tax exempt under Income-tax Act: High Court ruling

The High Court of Allahabad held that city compensatory allowance received by the assessee was not exempt from tax under section 10(14) of the Income-tax ... City compensatory allowance - interpretation of section 10(14) of the Income-tax Act - special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties - allowance to meet personal expenses at the place where the duties are ordinarily performed - retrospective Explanation to clause (14) of section 10City compensatory allowance - special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties - allowance to meet personal expenses at the place where the duties are ordinarily performed - retrospective Explanation to clause (14) of section 10 - Tribunal's holding that the city compensatory allowance was exempt from tax under section 10(14) of the Income-tax Act is incorrect. - HELD THAT: - Parliament, by the Finance Act No. 25 of 1975, inserted an Explanation to clause (14) of section 10, stated to be retrospective, which declares that any allowance granted to meet an assessee's personal expenses at the place where his duties are ordinarily performed or where he ordinarily resides shall not be regarded as a special allowance for meeting expenses wholly, necessarily and exclusively incurred in the performance of duties. The city compensatory allowance in this case was granted with reference exclusively to place of posting (Kanpur) to meet personal expenditure occasioned by higher cost of living and not with reference to the nature of duties performed. Applying the Explanation, such an allowance cannot be treated as covered by clause (14) on the ground that it meets expenses wholly, necessarily and exclusively incurred in performance of duties. Consequently the Tribunal's view that the allowance was exempt under section 10(14) cannot be sustained.Referred question answered in the negative; the city compensatory allowance is not exempt under section 10(14) in the circumstances found.Final Conclusion: The court answered the reference in the negative, holding that the city compensatory allowance granted to meet personal expenses by reason of place of posting is not exempt under section 10(14) in view of the Explanation inserted by the Finance Act, 1975; order made in favour of the department and against the assessee, with no order as to costs. The High Court of Allahabad held that the city compensatory allowance received by the assessee was not exempt from tax under section 10(14) of the Income-tax Act. The Explanation added by the Finance Act of 1975 clarified that such allowances granted to meet personal expenses at the place of duty are not deductible. The court ruled in favor of the department and against the assessee.