SC delivers a blow to working class

NEW DELHI, MARCH 6: The Supreme Court has rejected the plea of employees to exclude from the tax net income under the heads of Dearness Al...

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NEW DELHI, MARCH 6: The Supreme Court has rejected the plea of employees to exclude from the tax net income under the heads of Dearness Allowance (DA), City Compensatory Allowance (CCA) and House Rent Allowance (HRA).

Dismissing several petitions filed by employees of the central government, state government, central government undertakings, banking and other sectors, a division Bench comprising Justice D P Wadhwa and Justice M B Shah said, "We hold that DA, CCA and HRA would be taxable income."

However, Justice Shah, writing the judgement for the Bench, said, "since counsel for the employees did not make any submission with regard to other allowances like Night Allowance, Tution Fee, Leave Encashment linked with Leave Travel Concession, Running Allowance etc. we do not pass any order with regard to those allowances."

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Justice Shah said it might be true that government or statutory corporations do pay something less than what is required to be reimbursed and the receipt of CCA could not be termed as ‘profit’ in common parlance.

Referring to Tax provisions, the Bench said, "however equitable it may be that CCA cannot be held to be ‘profit’ in the hands of the assessee or it is not share out of profit, it cannot be helped (from being taxed) in view of the inclusive and exclusive meanings given under the Act."

Applying the general meaning of the word ‘profits’ and considering its dictionary meaning, given under Section 17(1)(iv) and 3(ii) of the Income Tax Act, Justice Shah said "advantage" in terms of payment of money received by the employee from the employer in relation or in addition to any salary or wages would be covered by the inclusive definition of the word ‘salary’.

"Because of the inclusive meaning given to the phrase, ‘profits in lieu of salary’ would include ‘any payment’ due to or received by an assessee from an employer, even though it has no connection with the profits of the employer," he said.

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The Court said because of this reason, it was not possible to accept the contention of the counsel for the employees that as the CCA amount was paid to meet the additional expenditure as contemplated by the statutory Service Rules, it could not be said to be profit, gain or additional salary.

Justice Shah said, "under the Act, such ‘income’ and as provided, it would be in addition to salary. Hence, it would be part and parcel of income by way of salary, which would be taxable one."

Refusing to refer to the Fundamental Rules framed by the Central Government or by statutory authorities for payment of CCA, HRA or other such allowance for reimbursing the expenditure incurred by the employees, the Bench said "equity or hardship would hardly be relevant ground for interpretation of tax law".