Standard deduction for pension income allowed where pension is statutorily treated as salary from former employment.

Pension received by a retired Government servant is included in "salary" under section 17(1), and section 15 charges it as salary from a former employer. Reading sections 15, 16 and 17 harmoniously, the standard deduction under section 16(i) was treated as available where pension flows from the employment relationship and the statutory scheme gives full effect to the deeming inclusion of pension in salary. The deduction was therefore held allowable against pension income.

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Issues: Whether standard deduction under section 16(i) of the Income-tax Act, 1961 is admissible against pension received by a retired Government servant assessable under the head "Salaries".

Analysis: Pension is included within the definition of "salary" under section 17(1), and section 15 charges salary due from a former employer. The deduction provision in section 16(i), as applicable for the year in question, referred to expenditure incidental to the employment of the assessee and salary derived from such employment. Reading sections 15, 16 and 17 together, and keeping in view the status character of Government employment, pension was treated as flowing from the employment relationship even after retirement. The Court also noted that a pensioner incurs expenditure in connection with receipt of pension and that the statutory scheme must receive a harmonious construction so that the deeming inclusion of pension in salary is given full effect.

Conclusion: Standard deduction under section 16(i) is allowable against pension income. The issue is answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Where pension is statutorily included in "salary", the deduction provisions applicable to salary income must be construed harmoniously to extend the benefit of standard deduction to pension received from former employment.

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