HRA exemption computation excludes performance bonus from salary base, so the claim is recalculated on basic salary alone.

For HRA exemption under section 10(13A), salary is to be computed under the governing rule, and performance bonus is not included in that salary base where the rule excludes it. The note explains that the exemption therefore had to be worked out on basic salary alone, with the claim recomputed on the factual basis that rent paid exceeded 10% of basic salary. The practical effect is that only the salary components permitted by the rule are relevant for HRA exemption, and performance-linked bonus cannot be added unless the applicable definition expressly allows it.

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Issues: Whether performance bonus forms part of "salary" for computing exemption under section 10(13A) of the Income-tax Act, 1961, and whether the assessee was entitled to house rent allowance exemption on the basis of basic salary alone.

Analysis: The exemption under section 10(13A) is to be computed with reference to "salary" as understood under the relevant rules. The dispute centered on whether the assessee's performance bonus could be included in salary for that purpose. The Tribunal applied the rule defining salary for this computation and accepted the view that performance bonus, on the facts of the case, did not form part of salary for determining the eligible HRA exemption. On the facts found, the rent paid exceeded 10% of the basic salary, and the assessee's claim had to be recomputed accordingly.

Conclusion: Performance bonus was held not to be includible in salary for section 10(13A) computation, and the assessee was entitled to HRA exemption of Rs. 5,20,000.

Final Conclusion: The assessee succeeded in establishing that the HRA exemption had to be computed without adding performance bonus to salary, resulting in allowance of the claim to the extent determined.

Ratio Decidendi: For computing exemption under section 10(13A), performance bonus is not part of salary where the governing rule excludes it from the salary base used for HRA computation.

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