80. City compensatory allowance – Whether exempt under clause (14)

The Bombay Bench of the Income-tax Appellate Tribunal in their order, dated 29-12-1971 in the case of D.R. Pathak v. ITO held that the “city compensatory allowance” granted to a Government servant is exempt under section 10(14)/16(v).  On legal advice received, the Tribunal’s decision has not been accepted by the Income-tax Department and it has challenged in appeal.  Till a judicial verdict is available the city compensatory allowance may continue to be treated as assessable, the employee-assessees and employers responsible for deduction of tax at source from salaries paid may take note of this position accordingly.

Circular : No. 89 [F. No. 279/178/72-ITJ], dated 23-6-1972.

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