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Issues:
1. Whether gratuity and ex gratia payment received by the assessee should be considered for standard deduction under section 16(i) of the Income-tax Act, 1961. Detailed Analysis: The appeal before the Appellate Tribunal ITAT Madras-A concerned the deduction under section 16(i) of the Income-tax Act, 1961, in relation to the total amount assessed under the head 'Salaries'. The assessee, an individual who was an employee of a company and retired, received gratuity and ex gratia payment in addition to the salary. The Income Tax Officer (ITO) did not consider these amounts in computing the standard deduction allowable under section 16(i). However, the Additional Commissioner of Income Tax (AAC) allowed the deduction, stating that these amounts assessed under the head 'Salaries' should be included in the calculation of the standard deduction. The main contention raised by the revenue in the appeal was that although gratuity and ex gratia payments are chargeable to income tax as salary, they should not be considered for the deduction under section 16(i) as the assessee did not incur any expenditure to derive these amounts. The Tribunal rejected this argument, emphasizing that the deduction under section 16(i) is a percentage of the amount chargeable under the head 'Salaries'. The Tribunal highlighted that the gratuity and ex gratia payments were derived from the employment, making it illogical to deny the deduction on the grounds of not incurring expenditure to earn them. Moreover, the Tribunal referred to circulars issued by the Central Board of Direct Taxes (CBDT) which clarified that the standard deduction is to be allowed irrespective of whether any expenditure incidental to employment is actually incurred by the employee. The circulars also stated that the deduction will be available in respect of the entire amount chargeable under the head 'Salaries', including profits in lieu of or in addition to salary. The Tribunal noted that the concept of standard deduction was introduced to simplify the assessment procedure for salaried taxpayers. Ultimately, the Tribunal upheld the order of the AAC, confirming that the standard deduction under section 16(i) should be calculated on the entire amount chargeable to tax under the head 'Salaries'. The Tribunal criticized the revenue's attempt to complicate the matter, stating that the order aligns with the government's policy as reflected in the circulars issued by the CBDT. The appeal was dismissed, affirming the allowance of the standard deduction on the total amount assessed under the head 'Salaries'.
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