HRA benefit for twin accommodation

In this article, the author has discussed a very pertinent issue, namely, as to whether it is permissible under the law to have benefit of exemption under section 10( 13A ) for more than one accommodation, which raises its head after the decision of the Tribunal in N.G. Roa v. Dy. CIT [ITA No. 3985 of 2009, decided on 7-4-2010] (Delhi).

N.G. Roa’s case - Factual Matrix

1. In N. G. Roa v. Dy. CIT [ITA No. 3985 of 2009, decided on 7-4-2010] (Delhi), the assessee had taken two properties on a rent of ` 25,000 each and had claimed exemption under section 10( 13A ) for both the properties. The Assessing Officer, however, during assessment proceedings, held that exemption under section 10( 13A ) of the Income-tax Act, 1961 can be allowed in respect of only one property. He, thus, disallowed exemption claimed in respect of one such property at ` 2,30,100. The assessee did not challenge such order of the Assessing Officer.

In the second stage, the Assessing Officer alleged that the assessee had committed the default of concealing the particulars of his income as well as filing inaccurate particulars and, therefore, imposed penalty for concealment of ` 75,933. The assessee, however, challenged the penalty imposition before the Commissioner (Appeals) who did not give any relief to him.

Points raised by assessee by Tribunal

2. In proceeding further in appeal before the Delhi Tribunal, the assessee made the following points on merits of the case :

( i )That it remained undisputed that the assessee had in fact taken two accommodations on rent;

( ii )That the law does not prohibit the accommodation but only restrict the quantum or payment vide the Punjab & Haryana High Court’s ruling in CIT v. Justice S. C. Mittal [1980] 3 Taxman 221 .

Decision by Tribunal

3. The Delhi Bench of the Tribunal found good merits in this case as it read the section, being reproduced hereunder :

"S.10( 13A ) any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations :

Explanation .—For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply in a case where—

( a )the residential accommodation occupied by the assessee is owned by him; or

( b )the assessee has not actually incurred expenditure on payment of rent by whatever name called in respect of the residential accommodation occupied by him;"

From their reading of the section, the Bench instantly inferred the following :

"The ‘extent’ envisaged in section 10( 13A ) has been prescribed under rule 2A of the IT Rules, which talks of the quantum of exemption available.

8.1 As per Justice S.C. Mittal’s case ( supra ), it is the payment which is the main consideration. Law does not prohibit the extent of accommodation. This decision was cited by the assessee before the Assessing Officer in penalty proceedings. The Assessing Officer, however, distinguished the same observing that in the assessee’s case, the assessment order was not appealed against, showing that the assessee was convinced about the addition. This distinction, in our considered opinion, is not proper apropos, the penalty in question. The fact of the matter is that Justice S.C. Mittal’s case ( supra ) holds that the extent of the accommodation is not prohibited by the law and it is the payment which is the main consideration. This is also evident from rule 2A of the IT Rules, which prescribes the quantum of exemption available. No decision contrary to the decision in Justice S.C. Mittal’s case ( supra ) has been cited.

9. In view of the above, it is seen that the penalty was levied on a mere rejection of the assessee’s explanation, which was not found to be either unsubstantiated, or mala fide . It was in view of Justice S.C. Mittal’s case ( supra ), that the assessee harboured the belief that he was entitled to exemption under section 10( 13A ) with regard to both the residential accommodations held by him, whereas the interpretation of the Department is that the assessee was entitled to the exemption only qua one residential accommo-dation and that by claiming the unavailable exemption, he has become liable to levy of concealment penalty."

A critical analysis

4. The Delhi Bench, thus, held a prima facie view that the assessee had reasons enough to entertain the belief that it was entitled to the exemption claimed so that it found that there was no mala fide . The Bench regarded it as a mere difference in opinion so that no penalty was called for in such a case. The Bench, thus, quashed the penalty placing reliance on the Supreme Court’s decision in CIT v. Reliance Petroproducts (P.) Ltd . [2010] 322 ITR 158/ 189 Taxman 322.

Even when the penalty did not survive in this case, the question remains as to whether it is permissible under the law to have benefit of exemption under section 10( 13A ) for more than one accommodation. The word ‘assessee’ in section 10( 13A ) has reference to employee and further rule 3 targets to tax any benefit earned by the employee or any member of his household meaning; therefore, it is not necessary that all accommodations rented by the employee shall necessarily have to be occupied by him only. In other words, he may occupy one accommodation while the other could be occupied by other household members be it wife and children, parents etc. After the Delhi Bench’s decision, it may be possible to draw benefit of exemption under section 10( 13A ) for more than one accommodation.

In fact, the assessee in N.G. Roa ’s case ( supra ) may file a fresh appeal before the Commissioner (Appeals) seeking relief on the basis of two decisions of Punjab & Haryana High Court and Delhi Bench and cite lack of proper advice or wrong advice as the key reason for delay.