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Case law › Circulars › 1972 › Circular No. 89
CBDT circular 23 June 1972

Circular No. 89

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

What this is

Circular No. 89 was issued by the Central Board of Direct Taxes on 23 June 1972. Its subject is 80. City compensatory allowance - Whether exempt under clause (14).

This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.

What it does

Directs that city compensatory allowance paid to a Government servant continue to be treated as assessable. The Bombay Bench of the Tribunal had held in D.R. Pathak v. ITO, by order dated 29-12-1971, that the allowance is exempt under section 10(14) read with section 16(v). On legal advice the Department has not accepted that decision and has appealed, and until a judicial verdict is available employees and employers deducting under section 192 are to proceed on the footing that the allowance is taxable.

Why it was issued

A Tribunal decision had gone against the Department's view and the Board wished field practice and salary deduction to stay unchanged while the appeal was pending.

Who it reaches

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.
Under the 1961 ActNow
s.10s.11, s.19

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

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.

What to watch

Where you meet it

On an old salary assessment or TDS query where exemption is claimed for city compensatory allowance.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

← Circular No. 90  ·  Circular No. 87 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.