City compensatory allowance, house rent allowance and dearness allowance are taxable as they are in the nature of income and are chargeable to tax under the head "salaries" as defined by Section 17 of the Income-tax Act, 1961.

( 1 ) THE petitioners, broadly categorised as Central Government employees, employees of Central government undertakings, bank employees, State Government employees and General Insurance employees, dispute the taxability of various allowances, namely, dearness allowance, city compensatory allowance, house rent allowance, leave encashment linked with leave travel concession, running allowance, night allowance, etc. , in this batch of 20 writ petitions which, for the sake of convenience, are consolidated and disposed of together.

( 2 ) SRI V. B. Upadhyaya argued Writ Petition No. 328 of 1988 filed on behalf of the All India defence Accounts Association, Poona (Allahabad Branch), and a few other writ petitions on behalf of the petitioners. As he advanced arguments at great length in regard to dearness allowance and house rent allowance, his arguments relating to these allowances were adopted by the other learned counsel for the petitioners.

( 3 ) THE submission of Sri Upadhyaya is that these allowances do not amount to "income" under the provisions of the Income-tax Act, 1961 (hereinafter referred to as "the Act, 1961"), and, therefore, they are not liable to tax. Sri Upadhyaya being very firm in his submission that these allowances are not in the nature of income, no argument as an alternative was made to claim exemption under Section 10 of the Act, 1961, in respect of such receipts. So, the only question for consideration is whether the receipts on account of city compensatory allowance, house rent allowance and dearness allowance, are in the nature of income entailing tax liability.

( 4 ) WHAT is income ? Section 2 (24) of the Act, 1961, gives an inclusive definition of the word "income" and says, so far as relevant, that "income" includes"

" (i) Profits and gains ;. . . (iii) the value of any perquisite or profit in lieu of salary taxable under Clauses (2) and (3) of section 17 ;. . . "

( 5 ) SECTION 14 sets out heads of income. If any receipt is income within the meaning of Section 2 (24), then the same will be brought to tax under one of the heads enumerated under Section 14.

( 6 ) THE contention of the Revenue is that if these three allowances are held to be income under section 2 (24), then they wouldbe chargeable to tax under the head "salaries". Sri Upadhyaya submitted that the receipts in question could not be charged under the head "salary", as defined by Section 17. Section 15 defines what is chargeable to tax under the head "salaries". Section 16 refers to the deductions that may be claimed in the computation of income under the head "salaries". Section 17 bearing the caption "salary", "perquisite" and "profits in lieu of salary" defined, so far as relevant, says that for the purposes of Sections 15 and 16 and of this section,-

" (1) salary includes. . . (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages ;. . . (2) perquisite includes (i) the value of rent-free accommodation provided to the assessee by his employer ; (ii) the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer ; (iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases- -. . . (iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee ; and. . . (3) profits in lieu of salary includes- -. . . (ii) any payment [other than any payment referred to in Clause (10), Clause (10a), Clause (10b), Clause (11), Clause (12) or Clause (13a) of Section 10], due to or received by an assessee from an employer or a former employer or from a provident or other fund (not being an approved superannuation fund), to the extent to which it does not consist of contributions by the assessee or interest on such contributions. "

( 7 ) IF city compensatory allowance, house rent allowance and dearness allowance are