Employment-related receipts and allowances taxable as salary unless exempted; leave encashment, HRA, and parking compensation also taxed.

Receipts arising from employment were treated as taxable salary unless specifically exempted. Dearness allowance and city compensatory allowance were held to form part of salary income, and encashment of earned leave was treated as profits in lieu of salary. House rent allowance was held not exempt because the statutory conditions, including actual rent expenditure and non-ownership of the accommodation, were not satisfied. Professional tax was not allowed as a deduction from salary income. Compensation for use of a parking lot was assessed as income from other sources.

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Issues: (i) Whether dearness allowance and city compensatory allowance formed part of taxable salary income; (ii) whether encashment of earned leave was taxable as profits in lieu of salary; (iii) whether house rent allowance was exempt under the relevant salary exemption provision; (iv) whether professional tax was deductible from salary income; and (v) whether compensation for use of a parking lot was taxable.

Issue (i): Whether dearness allowance and city compensatory allowance formed part of taxable salary income.

Analysis: Salary under the Act is an inclusive concept and receipts arising from employment are taxable unless specifically exempted. Dearness allowance was treated as part of the recompense paid for services and not as a mere reimbursement of a specific expenditure. City compensatory allowance was also held to be an allowance linked to employment and not covered by any exemption, including the special allowance exclusion.

Conclusion: Dearness allowance and city compensatory allowance were held taxable as salary income, against the assessee.

Issue (ii): Whether encashment of earned leave was taxable as profits in lieu of salary.

Analysis: Leave encashment was treated as a receipt referable to employment and as part of the remuneration package. The relevant exemption was construed as limited to terminal payments at retirement, and not to amounts received during service by way of encashment of earned leave.

Conclusion: Encashment of earned leave was held taxable as profits in lieu of salary, against the assessee.

Issue (iii): Whether house rent allowance was exempt under the relevant salary exemption provision.

Analysis: The exemption for house rent allowance applies only where rent expenditure is actually incurred and the accommodation is not owned by the assessee. A member of a co-operative housing society allotted a flat was treated as owner for the purpose of the Act, and the payments to the society were held not to be rent but common charges. The statutory conditions for exemption were therefore not satisfied.

Conclusion: House rent allowance was held not exempt and was taxable, against the assessee.

Issue (iv): Whether professional tax was deductible from salary income.

Analysis: Deduction from salary income is confined to the amounts specifically permitted by the Act. Professional tax did not fall within the allowable deductions for salary income and the cited authority on incentive bonus expenses was inapplicable.

Conclusion: Professional tax was held not deductible from salary income, against the assessee.

Issue (v): Whether compensation for use of a parking lot was taxable.

Analysis: The amount was received at a fixed rate for permitting use of the parking space and was not brought within any exemption. It was therefore correctly assessed as income from other sources.

Conclusion: Compensation for use of the parking lot was held taxable as income from other sources, against the assessee.

Final Conclusion: The Department succeeded on all substantial issues, and the assessee failed on the cross objections; the taxable character of the impugned receipts was affirmed across the relevant assessment years.

Ratio Decidendi: Receipts arising from employment are taxable as salary unless specifically exempted; allowances paid as part of service remuneration, and payments not satisfying the statutory conditions for exemption, remain chargeable to tax.

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