Tuesday, March 7, 2000,
Chandigarh, India


M A I N   N E W S

DA, HRA, CCA taxable: SC

NEW DELHI, March 6 (UNI) — In a significant judgement adversely affecting millions of employees both in the public and private sectors, the Supreme Court has held that the dearness allowance (DA), city compensatory allowance (CCA) and the house rent allowance (HRA) given to them would be “taxable income.”

“There is no question of referring to the fundamental rules, framed by the Central Government or by the statutory authorities, for the payment of the CCA, HRA or other such allowances for reimbursing the expenditure incurred by the employees.

Further, equity or hardship would hardly be a relevant ground for interpretation of tax law. It was for the government or the statutory authorities to do the needful. However, equitable it might be that the CCA could not be held to be “profit” in the hands of the assessee or it was not a share out of profit, yet it could not be helped in view of inclusive and exclusive meaning given under the Income Tax Act, 1961,” the court observed. 

The ruling was handed down by a Division Bench comprising Mr Justice D.P. Wadhwa and Mr Justice M.B. Shah while allowing appeals filed by the revenue, General Insurance Corporation and others, and dismissing those filed by the Karmchari Union, Agra and the All India Defence Accounts Association, Pune, and others.

The appeals were directed against the judgements of the High Courts of Allahabad and Calcutta. While the Allahabad High Court had held that the CCA, HRA and DA would be taxable income, the Calcutta High Court had come to the conclusion that these allowances did not have the character of income within the meaning and scheme of the Income Tax Act.

The Supreme Court in its judgement said that in view of the amendment with effect from April 1, 1962, of Clause (24) Section 2 of the Act, it would be difficult to say that the amount received as the CCA or the HRA would not be covered by the inclusive definition of the word “income.” 

In view of the amendment to the definition of the word “income” the court pointed out, any special allowance or benefit, specifically granted to an assessee to meet expenses wholly, necessarily and exclusively for the purpose of the duties of an office would be included in the word “income”.

“It has also been pointed out that under sub-clause (IIIB) of Clause (24) of Section 2 of the Act, any allowance granted to an employee-assessee either to meet his personal expenses at his place of work or his place of residence or to compensate him for the increased cost of living is also to be included in income.

“Therefore, it is conceded that the payment of the HRA or the CCA would be covered by the word “income”. Hence, the basis of the decision rendered by the Calcutta High Court would not survive,” the court held.

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