Calcutta H.C : Whether any tax is liable to be paid on the city compensatory allowance received by the officers and staff of the bank

Counsel Appeared

S. Pal, for the Petitioners : Mihir Bhattacharyya, for the Respondent

AJIT KUMAR SENGUPTA, J. :

The short question involved in this case is whether any tax is liable to be paid on the city compensatory allowance received by the officers and staff of the bank. Since the question involved is purely a question of law, Mr. Bhattacharyya, learned counsel appearing for the respondents, has submitted that the IT Department has not used any affidavit-in-opposition. He has not, however, admitted the allegations contained in the petition which are contrary to the records. He has submitted that it is true that the point in issue is now fully concluded by the judgment of the Division Bench of this Court in the case of CIT vs. R. R. Bajoria (1988)67 CTR (Cal) 22 : (1988) 169 ITR 162 (Cal). He has, however, submitted on the basis of the written instructions that the Department has not accepted the said judgment of this Court and that steps have been taken to prefer an appeal before the Supreme Court. Mr. Bhattacharyya has further submitted that if the Court is inclined to follow the aforesaid judgment, in that event, the tax already deducted from the city compensatory allowance or to be deducted from such allowance be paid to the IT Department. If ultimately the Supreme Court affirms the judgment of the Division Bench of this Court, refund will be given to the concerned officers and staff of the bank.

2. In view of the judgment in the case of R. R. Bajoria (supra), the amount paid to officers and staff by the employer bank as and by way of city compensatory allowance does not come within the purview of the charging provisions under the IT Act, 1961. Similar view has been taken by the Bombay, Madhya Pradesh and the Gujarat High Courts as referred to in the aforesaid decision in R. R. Bajoria (supra).

In view of the judgment of the Division Bench of this Court in R. R. Bajoria (supra), this application is allowed. The bank is restrained from deducting any tax on the city compensatory allowance or any allowance in the nature of city compensatory allowance. Whatever tax has already been deducted during the financial year 1987-88 from the salaries of the officers and staff of the bank shall be refunded to each of them within four weeks from the date of communication of this order. If, however, in the meantime, the bank has already deposited the amount of tax deducted at source on the city compensatory allowance or similar allowance, the ITO shall refund the same or adjust the same against the tax payable by each of the officers and staff of the bank during the financial year 1988-89. In the event any decision is rendered by the Supreme Court setting aside the decision of this Court or any other Court taking similar view, the IT Department will proceed to recover the tax refunded to the officers and staff of the bank in terms of this order in accordance with law.

Parties will act on the signed copy of the operative part of this judgment.

[Citation : 176 ITR 223]