B.S Dhillon, J.:— The following question of law has been referred to us for our opinion at the instance of the Commissioner of Income-tax, Patiala i
“Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the amount received by the assessee on account of HRA was not liable to be included in his taxable income?”
2. The assessee, Mr. Justice M.S Gujral, Chief Justice of the Sikkim High Court, was a judge of the Punjab and Haryana High Court at Chandigarh for the relevant period, i.e, the financial year ending 31st March, 1973. Since he was not allotted any Government accommodation, he was residing in his HUF bungalow No. 176, Sector 9. The HUF is headed by his father. The assessee received a sum of Rs. 1,960 as house rent allowance (hereinafter shortly called “the HRA”) which was claimed as exempt under s. 10(13A) of the I.T Act, 1961 (hereinafter referred to as “the Act”), read with rule 2A of the I.T Rules, 1962 (hereinafter referred to as “the Rules”), framed under the Act, on the ground that though there was no actual expenditure incurred in connection with the HUF which is the owner of the house of which the assessee was a coparcener he was deprived of the rental income and that the intention of s. 10(13A) of the Act cannot be that no exemption should be allowed where the expenditure is not incurred in cash. The assessee also stressed before the I.T authorities that HRA was granted by the Government under the Rules framed by the Finance Department and that the A.L.V of the HUF house was determined by the Public Works Department and only the amount in excess of ten per cent. of the salary was allowed in relation to the A.L.V of the HUF house.
3. The ITO turned down the claim of the assessee. However, on appeal, the AAC accepted ???he appeal holding that HRA was granted to all the Government employees including high dignitaries like judges irrespective of the fact whether any actual expenditure was incurred in cash and the assessee being one of the coparceners of the HUF which owned the house, non-payment of rent could not disentile the assessee from the exemption as provided under s. 10(13A) of the Act read with r. 2A of the Rules. The appeal of the revenue was dismissed by the Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as “the Tribunal”). The Tribunal held that the facts of the case were identical to those involved in I.T.A Nos. 153, 154, 493 and 494 of 1977-78, which cases were decided against the revenue and for the same reasons recorded therein, the appeal was liable to be dismissed.
4. A similar question came up for consideration before this court in CIT v. Justice S.C Mittal, [1980] 121 ITR 503 and CIT v. Shri B.R Tuli (I.T.R Nos. 58 to 61 of 1979) [1980] 125 ITR 460 (P&H) and this court, vide Bench judgments dated 21st November, 1979, answered the question against the revenue and in favour of the assessees. It was held in Justice S.C Mittal's case, [1980] 121 ITR 503 (P&H) as under (at p. 505):
“The provisions of section 10(13A) of the Act have been enacted to compensate the assessee regarding the expenditure incurred on payment of rent in respect of residential accommodation occupied by him. The main object for enacting this provision appears to be that in case an assessee actually suffers monetary loss by way of expenditure or otherwise in respect of residential accommodation occupied by him and if he is compensated by his employer in that case, subject to the limitations imposed under the Act and the Rules, the allowance paid to him by the employer, shall be exempt from income-tax. An assessee, who occupies his own house, has disentitled himself from the rent which he would have been entitled to if he had not occupied the same himself, and in that sense he suffered expenditure in that regard. In that sense, an assessee occupying his own house, if compensated by the employer by payment of a special allowance (HRA), subject to the restrictions as imposed under the Act and the Rules, the compensation paid to the assessee by his employer, cannot be subjected to tax. The Tribunal accepted the interpretation of the relevant provisions of the Act and we do not find any reason to take a different view than the one taken by the Tribunal.”
5. The Bench further recorded a finding in the following terms (p. 506):
“The matter can be looked at from another angle also. The provisions of s. 10(13A) of the Act and r. 2A of the Rules have to be given effect to. The Rules and the section are not in conflict with each other. Rather, the Rules are supplementary to the section. Even if the assessee's case is covered by the Rules, the assessee will be entitled to exemption. The Rules impose the maximum limit to the extent of Rs. 400 per month. Admittedly, the house rent allowance paid to Mr. Justice S.C Mittal during all the four relevant assessment years was below the maximum prescribed limit. It is equally well settled that even if two interpretations of a particular provision are possible, in that case, the I.T Act, being a taxing statate, one favourable to the assessee would be preferred. The view taken by the Tribunal in this regard is unexceptional.”
6. In view of the Bench decision in Justice S.C Mittal's case, [1980] 121 ITR 503 (P & H), we answer the question referred to us in the negative, i.e, against the revenue and in favour of the assessee. However, there will be no order as to costs.
Rajendra Nath Mittal, J.:— I agree.