The assessee has submitted Form 16 before the Assessing Officer where from Assessing Officer noticed that assessee has claimed exemption u/s 10(13A) for House Rent Allowance of Rs. 8,47,742/-. The details were asked regarding the rent paid and the calculation of the exemption u/s 10(13A) of the Act. In response, the assessee has stated that the total rent paid during the year was Rs. 8,20,000/- only. As per Form 16 assessee’s basic salary was Rs. 30,00,000/-. The assessee in reply to the query asked by the Assessing Officer has submitted written explanations before the Assessing Officer that for the purpose of calculations of exemption u/s 10(13A), salary will include only ‘basic salary’ and nothing else, and hence, rent paid over 10% of the basic salary that is Rs. 8,20,000/- minus Rs. 3,00,000/- (being 10% of Rs. 30,00,000) has to be allowed. However, the Assessing Officer noted that as per income tax rule read section 10(13A) which clearly stipulates that any commission or bonus linked to the turnover or the performance has to be treated as salary, and hence, ‘performance bonus’ definitely is covered under the term ‘salary’ as per the meaning assigned to the definition of ‘salary’ for the purpose of calculating exemption u/s 10(13A). AO held that the Income-tax Rules, 1962 read with section 10(13A) clearly stipulates that any commission or bonus linked with the turnover or performance to be treated as salary. ‘Performance Bonus’ received by the assessee cannot be comprehended as an allowance or perquisite as defined in Rule 2(h) of the Fourth Schedule to be excluded from the purview of ‘salary’.Thus, he denied the benefit of the exemption on the ground that the assessee’s salary inclusive of the performance bonus comes to an amount, 10% of which exceeds the actual rent paid by the assessee.
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the order passed by the Assessing Officer.
Kolkata ITAT bench led by A.T. Varkey, JM. & DR. A.L.Saini, AM. After hearing both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the CIT(A) and other materials available on record held that Kerala High Court in the case of CIT v. B. Ghosal (125 ITR 444) held that “the performance bonus doesn’t form part of the salary defined under rule 2A(h) for the purpose of section 10(13A).” The basic salary for the purpose of computation of HRA exemption shall not include performance bonus. The AO however in his impugned order held that the ‘performance bonus’ received by the assessee also formed part of ‘salary’ for the purposes of Section 10(13A) and accordingly re-computed the exemption available u/s 10(13A) thereby resulting in disallowance of the entire exemption claim of Rs. 8,47,742/-. Thus, the AO was directed to computing HRA without including the amount of ‘performance bonus’ as part of basic salary.
SUDIP RUNGTA vs. DEPUTY COMMISSIONER OF INCOME TAX
Decision in favour of: AssesseeIN THE ITAT KOLKATA BENCH ‘A’