1. As a result of the difference of opinion between the members of the Delhi Bench 'B' who heard this appeal, the following question has been referred to me as third member under Section 255(4) of the Income-tax Act, 1961 ("the Act").
Whether, on the facts and in the circumstances of the case, the amount of Rs. 900 received by the assessee as City Compensatory Allowance can be assessed as income in the hands of the assessee in the years 1973-74 and 1974-75 2. The facts relevant for this controversy are that the assessee, who is an officer of the Indian Revenue Service, filed his returns of income for the assessment years 1973-74 and 1974-75, showing the city compensatory allowance of Rs. 900 received by him in Part III of the return, as being exempt under Section 10(14) of the Act. The ITO completed the assessments under Section 143(1) of the Act but, in the process, he treated the city compensatory allowance as part of the assessee's salary for both the years.
3. Instead of seeking a reopening of the assessments under Section 143(1), by taking recourse to the provisions of Section 143(2A), the assessee filed applications under Section 154, claiming that the taxing of the City Compensatory Allowance as salary was a mistake apparent from the record and that it was liable to be deducted as an expenditure under Section 16(v) of the Act. The ITO rejected the above applications by his order dated 19-11-1976, holding that there was no mistake apparent from the record. Besides, he pointed out that the assessee had not claimed deduction of the said amounts under Section 16(v), while filing his returns.
4. On appeal by the assessee, the AAC reversed the ITO's orders and directed him to exclude the amounts in question from the assessee's taxable income. In giving the said direction, the AAC relied on the order dated 13-9-1977 of the Delhi Bench 'A' (Single Member Bench) in the case of ITO v. Jawahar Singh. Aggrieved by the above orders of the AAC, the revenue filed appeals before the Tribunal, in which two contentions were raised as follows : On the facts and in the circumstances of the case, the learned Appellate Assistant Commissioner of Income-tax erred in- a. holding that the deduction on account of City Compensatory Allowance claimed by the assessee under Section 10(14) validly disallowed by the Income-tax Officer at the time of original assessment, was allowable under Section 16(v) of the Income-tax Act ; and b. accepting the assessee's claim that the said deduction/exemption was allowable under Section 154 of the Income-tax Act and thereby directing the Income-tax Officer to exclude the same from the taxable income of the assessee.
On behalf of the revenue, it was pointed out that non-allowance of the assessee's claim under Section 10(14) was not a mistake apparent from the record, in the light of the Explanation to that section. The assessee, who argued his case before the Tribunal, submitted that, for invoking the ITO's power under Section 154 of the Act, he was not relying on the provisions of Section 10(14) but was relying on the provisions of Section 16(v). The learned Judicial Member, after setting out the provisions of Section 16(v), pointed out that the deduction under that section could be claimed only when the amount in question is shown to have been actually expended. Further, in order to succeed in the claim, the assessee had to show that by the conditions of his service, he was required to spend such amount out of the remuneration paid to him by his employer. He came to the conclusion that the assessments made by the ITO under Section 143(1) did not contain any mistake apparent from the record as claimed by the assessee.
5. The learned Accountant Member, after setting out the relevant facts, has referred to various orders of the Appellate Tribunal wherein it has been held that the city compensatory allowance should not be included in the total income, by way of salary, as it is to be presumed that such allowance is also expended for purposes of employment and that the amount should be treated as an admissible deduction under Section 16(v). In the result, he was of the opinion that the claim could not be said to be debatable, as the orders of the Tribunal in the case of Shri A.A. Oazi, on a similar point, has been accepted by the department.
Accordingly, he held that the appeals are to be allowed. Apparently what he means is that the appeals filed by the revenue should be dismissed in the light of the discussion preceding his conclusion. It is as a result of the above difference of opinion between the two members, that the matter has now been referred to me as third member.
6. The learned counsel for the assessee argued at great length on the basis of the earlier decisions of the Tribunal that Section 16(v) was clearly applicable to the city compensatory allowance received by the assessee. The short question for consideration is whether this is a matter which is susceptible of being rectified under Section 154. It is now well settled that only a patent error as to fact or as to law, contained in the order of the ITO could be rectified by him under that section. I do not agree with the observations of the learned Accountant Member that the issue involved here is not debatable. City compensatory allowance given to an officer is of the nature of a receipt in his hands. To say that it should be presumed that it is fully expended and expended in the course of the performance of his duties is nothing more than presumption and does not follow directly from the provisions of the statute. There could reasonably be two views as to the deducibility of the city compensatory allowance, since, as stated earlier, it is clearly of the nature of income. To convert it to a claim for expenditure deductible under Section 16(v), it is for the assessee to show that the conditions laid down in that section are satisfied. When this had not been done before the ITO and the claim was based on Section 10(14), it could not be said that the ITO committed a mistake apparent from the record when he did not consider the assessee's claim under Section 16(v). Thus, on this short point, the assessee's case before the AAC should have failed. If it was not a case under Section 154 but was a claim in the course of the assessment, the position might have been different, having regard to the view taken by the Tribunal in some other cases. However, that is not the case in the present reference.
7. Accordingly, I agree with the view expressed by the learned Judicial Member that the orders of the AAC accepting the assessee's appeals are wrong and have to be set aside.
8. The case will now go back to the Bench, which heard the appeal, for final disposal in the light of the above discussion and conclusion.