COMMISSIONER OF INCOME TAX Vs. KRISHNAN K S

JUDGEMENT

(1.) THE Tribunal has referred to this Court only one question of law, at the instance of the Department. The question reads thus :

(2.) IT is pointed out by Dr. Balasubramaniam, learned counsel for the Department, that this issue had come up for consideration before this Court in the case of CIT vs. D. R. Phatak (1975) 99 ITR 14 and that this Court held that the payment of compensatory (city) allowance was exempt under s. 10(14) of the IT Act, and was not a perquisite within the meaning of S. 17(2) of the IT Act, 1961. Dr. Balasubramaniam further pointed out that two questions were referred to this Court in that case : (i) whether the compensatory (city) allowance was exempt from tax under S. 10.(14) of the IT Act, 1961 ? (ii) whether the said allowance was deductible under S. 16(v) of the IT Act, 1961 ? On consideration of the arguments advanced, this Court answered the first question in favour of the assessee but did not answer the second question as it was considered unnecessary. It is contended that the Legislature, in its wisdom, introduced an Explanation to S. 10(14) of the IT Act, 1961, w.e.f. the commencement of the Act with the object of nullifying the effect of the above judgment. In response to a query from the Bench, he, however, fairly stated that, in this regard, the language of S. 10(14) and S. 16(v) as it stood during the relevant period was not materially different. While S. 10(14) provided for exemption, S. 16(v) provided for deduction. In the former case, the exemption was in respect of "any special allowance ... specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose". In the latter case, the deduction was in respect of "any amount actually expended by the assessee which, by the conditions of his service, he is required to spend out of his remuneration wholly, necessarily and exclusively in the performance of his duties." It is seen that this Court categorically held that the amounts given by the Government to its employees by way of compensatory (city) allowance are so regulated that the allowance is not at all a source of profit to the recipient. The amount received by a Government servant is much less than what he ordinarily spends by reason of his posting to a particular place and on account of which he becomes entitled to such a compensatory (city) allowance. Thus, the effect of S. 10(14) might have been nullified because of the insertion of Explanation by the Legislature. Sec. 16(v), as it was applicable to the relevant year, was admittedly neither modified nor amended. In this view of the matter, we have to hold that though the question as such was not answered, the observation of this Court holds good in regard to the provisions of section 16(v) also. In our view, we are fortified by the Calcutta High Court's decision in the case of CIT vs. R. R. Bajoria (1988) 67 CTR (Cal) 22 : (1988) 169 ITR 162, where, after discussing the entire case law then available on the issue, including this Court's judgment in CIT vs. D. R. Phatak (supra), the Court came to the same conclusion.