Commissioner of Income Tax vs K. Balasubramaniam

B.P. Saraf, J.—By this reference, at the instance of the Revenue, the following question of law has been referred by the Income Tax Appellate Tribunal, Mumbai, to this court for opinion u/s 256(1) of the Income Tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the amount of house rent allowance received by the assessee from his employer to each of the accounting years relevant to the assessment years 1980-81 and 1981-82 was not liable to be included in the total income of the assessee for those two assessment years u/s 10(13A) of the Income Tax Act, 1961, even though the assessee resided in his own house in those two years ?"

The assessee is an individual. The assessment years involved in this reference are 1980-81 and 1981-82, the relevant accounting years being the years ended on March 31, 1980, and March 31, 1981, respectively. In each of these two accounting years, the assessee received a sum of Rs. 4,800 as house rent allowance from his employer. The assessee claimed that the above amount was not liable to be included in the computation of his income from salary in view of the provisions of Section 10(13A) of the Income Tax Act, 1961 ("the Act"). The Income Tax Officer rejected this claim of the assessee on the ground that during the relevant period the assessee resided in a flat owned by him and did not pay any rent to anyone. The assessee appealed to the Appellate Assistant Commissioner of Income Tax, who, relying on the decision of the Punjab and Haryana High Court in Commissioner of Income Tax Vs. B.R. Tuli, Ex-Judge, Punjab and Haryana High Court, , accepted the claim and allowed the appeal of the assessee. The appeal of the Revenue against the above order of the Appellate Assistant Commissioner was rejected by the Income Tax Appellate Tribunal. Hence, this reference.

We have heard Mr. R. V. Desai, learned counsel for the Revenue, who submits that the controversy now stands resolved by insertion of the Explanation to Clause (13A) of Section 10 of the Income Tax Act, 1961, with retrospective effect from April 1, 1976, by the Taxation Laws (Amendment) Act, 1984. The assessee, though served, is not represented. We have considered the submission of Mr. Desai. Section 10(13A) of the Act exempts any allowance specifically granted to an employee by his employer to meet expenditure actually incurred by him on payment of rent for residential accommodation occupied by him to the extent prescribed, subject, however, to a ceiling of four hundred rupees per month. Section 10(13A), at the material time, stood as follows :

"10. Incomes not included in total income.--In computing the total income of a previous year of any person, any income falling within any of the following Clause s shall not be included-- . . .

(13A) any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent (not exceeding four hundred rupees per month) as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations."

There was a divergence of opinion in regard to the interpretation of the above Clause (13A) of Section 10 of the Act. In Commissioner of Income Tax Vs. Justice S.C. Mittal, , the Punjab and Haryana High Court held that exemption under Clause (13A) was available even to an assessee who occupied his own house. This decision was followed by the same High Court in Commissioner of Income Tax Vs. M.S. Gujral, Chief Justice, Sikkim High Court, . A contrary view was taken by the Delhi, Karnataka and Andhra Pradesh High Courts ( All India Lakshmi Commercial Bank Officers'' Association Vs. Union of India and Others, ; Patil Vijaykumar and Others Vs. Union of India and Another, ; M. Krishna Murthy and Others Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad and Others, . It was held by these High Courts that an assessee who was residing in his own residential flat was not eligible to claim exemption u/s 10(13A) in respect of house rent allowance received by him from his employer. The Tribunal in the instant case followed the Punjab and Haryana High Court decision.

This controversy has, however, now been set at rest by insertion of the following Explanation to Clause (13A) by the Taxation Laws (Amendment) Act, 1984, with retrospective effect from April 1, 1976 :

"Explanation.--For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply in a case where--

(a) the residential accommodation occupied by the assessee is owned by him ; or

(b) the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him."

This Explanation, for the removal of doubts, declares in clear terms, that nothing contained in Clause (13A) shall apply in a case where the residential accommodation occupied by the assessee is owned by him or the assessee has not actually incurred any expenditure on payment of rent in respect of the residential accommodation occupied by him. In view of the above amendment, even the decisions Of the Punjab and Haryana High Court cited above are not applicable to assessments for the assessment year 1976-77 and onwards.

In the instant case, the controversy pertains to the assessment years 1980-81 and 1981-82. The admitted position is that the accommodation occupied by the assessee was owned by him and he did not incur any expenditure on payment of rent in respect thereof. In that view of the matter, the assessee was not entitled to the benefit of Clause (13A) of Section 10 of the Act and the amount received by him from his employer as house rent allowance was liable to be included in his income.

We, therefore, answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee. Reference stands disposed of accordingly with no order as to costs.