2006 (8) TMI 136 - HC - Income Tax

Residing in own house without rent doesn't qualify for tax exemption under Income-tax Act

The High Court of ALLAHABAD ruled in favor of the Revenue, holding that the assessee residing in his own house without paying rent was not entitled to ... Exemption under section 10(13A) – ITO did not accept the claim of exemption u/s 10(13A) on the ground that the assessee was residing in his own house and was not paying any rent - From a reading of the clauses (a) and (b) of the Explanation referred to above, it is absolutely clear that in order to claim deduction under clause (13A) of section 10 of the Act, the assessee should not reside in the accommodation which is owned by him and further the expenditure should have been actually incurred on payment of rent. – since assessee was residing in his own house, there was,no payment of rent, the provisions of clause (13A) of section 10 of the Act were not attracted - held that in view of the introduction of the Explanation to section 10(13A) of the Act, with retrospective effect from April 1, 1976, the assessee was not entitled to claim the benefit of section 10(13A). Issues:1. Entitlement to exemption under section 10(13A) of the Income-tax Act, 1961 for an assessee residing in his own house.Analysis:The High Court of ALLAHABAD was presented with a reference from the Income-tax Appellate Tribunal regarding the entitlement of an individual assessee to exemption under section 10(13A) of the Income-tax Act, 1961. The case involved the assessment years 1978-79 and 1979-80. The assessee, residing in his own house, claimed exemption under section 10(13A) for an amount of Rs. 4,800. The Income-tax Officer initially rejected the claim, citing that the assessee was not paying any rent due to residing in his own property.Upon appeal to the Commissioner of Income-tax (Appeals), the claim of the assessee was accepted, allowing the exemption under section 10(13A) for the said amount. The Income-tax Officer then appealed to the Tribunal, where the assessee's counsel referenced rulings from the High Court of Punjab and Haryana to support the claim of exemption. The Tribunal, considering the absence of contrary rulings, upheld the Commissioner's decision, stating that the exemption was admissible under section 10(13A).However, the High Court analyzed the provisions of section 10(13A) in detail, particularly focusing on the Explanation inserted by the Taxation Laws (Amendment) Act, 1984. The Explanation clarified that the exemption under section 10(13A) does not apply if the residential accommodation is owned by the assessee and no rent expenditure is actually incurred. Citing a precedent from the Madras High Court, the High Court of ALLAHABAD concluded that as the assessee was living in his own house without paying rent, the provisions of section 10(13A) were not applicable.Therefore, the High Court ruled in favor of the Revenue, stating that the Tribunal erred in granting the exemption under section 10(13A) to the assessee. The judgment highlighted the importance of the Explanation in determining the eligibility for exemption under section 10(13A) based on actual rent expenditure and ownership of the residential accommodation.