KARAMCHARI UNION, AGRA versus UNION OF INDIA AND ORS.

Citation: [2000] 2 S.C.R. 33 · Decided: 29-02-2000 · Supreme Court of India · Bench: M.B. SHAH · Disposal: Case Partly allowed

Judgment (excerpt)

'' 
KARAMCHARI UNION, AGRA 
V. 
UNION OF INDIA AND ORS. 
FEBRUARY29, 2000 
[D.P. WADHWAAND M.B. SHAH, JJ.] 
Income Tax Act, 1961 : Sections 17 and 2(24). 
Income Tax-DA, CCA and HRA-Taxability of-Held: DA, CCA and 
HRA are income under the head 'salary' and hence taxable-Contention that 
holding such allowances as taxable would result in hardship to honest employ-
ees, rejected. 
Income Tax-"Profits in lieu of salary "-Night allowance, tuition fee, 
leave encashment linked with leave travel concession, running allowance etc.-
A 
B 
c 
Taxability of-Question left open. 
D 
Income Tax Act-Nature of-Held: Is a self-contained Code-Taxability 
of an allowance has to be determined on the basis of the meaning given to the 
words or phrases in the Act. 
Interpretation of Statutes : 
Taxing Statutes-Equity or hardship-Relevancy of-Held: Not relevant 
for interpretation of tax law. 
Words and Phrases: 
E 
"Salary"-Meaning of-Jn the context of S.17( 1) of the Income Tax A.ct, 
F 
1961. 
"Profits in lieu of salary "-Meaning of-In the context of S.17( 3) of the 
Income Tax Act, 1961. 
"Income" -Meaning of-In the context of S.2(24) of the Income Tax Act, 
G . 
1961. 
"Profits"-Meaning of 
The appellants were paid apart from their salary and other perqui-
sites, allowances in the form of City Compensatory Allowance (CCA), 
H 
33 
34 
SUPREME COURT REPORTS 
(2000) 2 S.C.R. 
A 
Dearness Allowance (DA) and House Rent Allowance (HRA). The appel-
~~ 
B 
c 
D 
E 
F 
lants filed a writ petition before the High Court challenging the inclusion 
of these allowances in their income for the purpose of income tax under the 
Income Tax Act, 1961. The High Court dismissed the petition holding that 
these allowances were taxable income. Hence these appeals. 
On behalf of the appellant-assessees it was contended that CCA and 
HRA could not be included in the word 'salary' as defined in Section 17 of 
the Act; that if the Legislature wanted to include any payment received by 
the employee in its widest sense, there was no necessity to give such an 
exhaustive definition of the word 'salary' in Section 17 of the Act and to 
connect it with 'profits in lieu of salary'; that if such a simple definition 
that 'salary' includes 'any payment' received by the employee from the 
employer was intended to be given, the legislature would not have given 
inclusive meaning to the expression 'profits in lieu of salary' and the 
phrase 'any payment received by the employee' would be sufficient for all 
the purposes; that the legislature could have easily avoided giving of not 
only such exhaustive definition but number of amendments and additions 
to the said Section; that the expression "any payment'' occurring in Sec-
tion 17(3)(ii) received by the employee was relatable to the profits of the 
employer and that payment out of profit was considered to be the salary by 
the inclusive definition thereof, that there was no question of payment of 
CCA or HRA out of 'profits' earned by the Government or statutory , 
corporations, receipt of such amount would not be covered by the phrase 
'profit in lieu of salary'; that the word 'profit' should be understood under 
the Act in its natural and proper sense as is evident from Section 28 of the 
Act; that CCA could not be termed as 'profits' by any standard because 
the amount was calculated in such a manner that it reimbursed less than 
extra cost incurred by the employees at a station where they were posted; 
and that by including these payments as taxable it would cause hardship to 
the honest employees. 
On behalf of the respondent-Revenue it was contended that ''salary" 
G 
includes profits in lieu of salary and "profits in lieu of salary" include' any 
payment' received by the assessee fi:om the employer except which are 
excluded and, therefore, CCA, DA and HRA were taxable income. 
Disposing of the appeals, this Court 
H 
HELD: 1.1. The Income Tax Act, 1961 is a self-contained Code and 
--
KARAMCHARI UNION v. U.O.I. 
35 
the taxability of the receipt of any amount or allowance is to be determined 
on the basis of the meaning given to the words or phrases in the Act. 
·Section 2(24) of the Act gives wide inclusive definition to the word 'in-
come'. Similarly, for levying tax on salary income, exhaustive definition is 
given under Section 17, which includes perquisites and profits in lieu of 
salary. The only exclusion provided under Section 17(3) is any payment 
referable to clause (lO)[clause (10-A)], [clause lO(B

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