Commissioner of Income Tax vs Bellien Michael Andresmant and Others

S.V. Maruthi, J.—At the instance of the Revenue, the following two questions were referred for the opinion of this court :

"1. Whether, on the facts and in the circumstances of the case and in law, the Appellate Tribunal was justified in holding that the living allowance granted to defray the expenses of purely personal nature is exempt u/s 10(14) of the Income Tax Act, 1961 ?

Whether, on the facts and in the circumstances of the case and in law, the Appellate Tribunal was correct in holding that the living allowance is a special allowance specifically granted to meet expenses incurred wholly, necessarily and exclusively in the performance of the duties of an office or employment ?"

The facts, in brief, are as follows : The assessment year involved is 1978-79. The assessees, who are five in number, are foreign technicians. They were employed by Messrs. L'' Air Liquide of France (hereinafter called as "foreign company"). Messrs. Bharat Heavy Plate and Vessels Ltd., Visakha-patnam (hereinafter called as "Indian company") entered into a collaboration agreement with the foreign company on February 13, 1971. The Indian company took a contract for setting up of air separation and nitrogen washing unit at Panipat. Services of these technicians were utilised for erection and commissioning of that unit. Clause (3) of the agreement dated February 13, 1971, which the Indian company entered into with the foreign company provides for payment of "living allowance" in addition to the daily fees at the following rates :

"(a) At Delhi/Bombay/Calcutta/Madras Rs. 220 per day ;

(b) At other places in India Rs. 150 per day plus transport to be provided free from place of residence to work site and back daily. BHPV will provide at cost to account of A. L. personnel further living accommodation with air-conditioner, refrigerator and electricity and water."

The amounts, which were received by each of these five assessees as living allowance while they stayed in India are as follows :

Sl. No. Name of the assessee along with I. T. A. No. Period of stay in India Amount of living allowance received by him

Rs.

B. M. Andresment ITA 388/83 I Spell 8-08-78 to 9-10-78 56,860

II Spell 21-11-78 to 31-3-79

H. A. Jean ITA 389/83 I Spell 1-4-78 to 15-8-78 56,796

II Spell 16-8-78 to 9-10-79

C. J. Pierra ITA 390/83 I Spell not available 84,144

M. J. Mason ITA 391/83 not available 87,908

F. A. J. Joseph ITA 392/83 not available 77,375

The assessees claimed exemption of these allowances u/s 10(14) of the Income Tax Act, 1961 (for short "the Act"). The Income Tax Officer did not agree with the claim of the assessees on the ground that the allowance is being granted to defray the expenses of purely personal nature. On appeal, the Commissioner of Income Tax (Appeals) held that a sum of Rs. 200 per day could be considered as expenses which each asses-see requires solely on account of the fact that he had to discharge his duties in a foreign country, and that the remaining amount of daily allowance will be treated as referable to purely personal expenses of each of the appellants before him. Holding as above, the Commissioner of Income Tax (Appeals) directed the Income Tax Officer to apportion the amount as directed by him. On further appeal to the Income Tax Appellate Tribunal, the Tribunal, following the judgment of the Gujarat High Court in Commissioner of Income Tax, Gujarat-III Vs. Nathalal Dahyabhai, , held that the living allowance paid to the assessee is a special allowance within the meaning of Section 10(14) of the Act and, therefore, exempt. However, at the instance of the Revenue, the questions set out in the earlier paragraph were referred for the opinion of this court.

In spite of service of notices on the respondents, none appeared for the assessees either in person or through counsel.

The main argument of learned standing counsel for the Revenue is that the Gujarat High Court in Commissioner of Income Tax, Gujarat-III Vs. Nathalal Dahyabhai, was considering the question whether living allowance paid is perquisite within the meaning of Section 17(2) of the Act and in that context the learned judges have held that (headnote) "the living allowance was given to the assessee as a reimbursement rather than as a personal advantage and hence was not a ''perquisite''. It was not salary because it was neither a fee, commission or perquisite nor profit in lieu of or in addition to salary or wages. The amount received as living allowance was not assessable". Learned standing counsel submits that u/s 10(14) of the Act any special allowance paid is exempt provided it has nexus with the duties to be performed by the assessee.

In order to appreciate the contention of learned standing counsel for the Revenue, it would be relevant here to extract Section 10(14) of the Act which is in the following terms :

"Any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite within the meaning of Clause (2) of Section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose.

Explanation.--For the removal of doubts, it is hereby declared that any allowance granted to the assessee to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides shall not be regarded, for the purposes of this clause, as a special allowance granted to meet expenses wholly, necessarily and exclusively incurred in the performance of such duties ."

There is no evidence on record to establish that the living allowance was paid to the assessees in connection with the duties to be performed by them. In the absence of evidence it cannot be held that the allowance paid is exempt u/s 10(14) of the Act.

We have already extracted Section 10(14) of the Act in the earlier paragraph. A reading of Section 10(14) of the Act makes it clear that it speaks of any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit to the extent to which such expenses are actually incurred for that purpose. In other words, there should be nexus between the special allowance paid and the performance of the duties of an office or employment or profit. The allowance granted should be to meet the expenditure incurred in the performance of duties of an office or employment of profit. According to the agreement, the assessees were paid daily fees and living allowance at the rates specified therein. In addition they were also provided with living accommodation with air conditioner, refrigerator and electricity and water, and free transport from place of residence to work site and back daily. In other words, in addition to daily fees they were paid a living allowance. From the agreement it is not clear as to for what purposes this living allowance was given, whether it is for the purpose of meeting the personal expenditure of the assessees or for the purpose of meeting expenditure incurred by them in the performance of the duties of an office or employment of profit. In other words, there is no material to hold that the living allowance paid is towards the expenditure incurred by the assessees in the performance of the duties of an office or employment of profit. In the absence of any material, the assessees are not entitled to claim the benefit u/s 10(14) of the Act.

The judgment of the Gujarat High Court in Commissioner of Income Tax, Gujarat-III Vs. Nathalal Dahyabhai, , on which reliance is placed by the Tribunal, in our view, has no application to the facts of the present case. In that case, as pointed out by learned standing counsel for the Revenue, the court was considering a case of payment of living allowance, whether it falls within the meaning of "perquisite" u/s 17(2) of the Act.

At this stage, we may also refer to the judgment of this court in Zdzizlaw Skakuz Vs. Commissioner of Income Tax, , wherein it was held (headnote) :

"...tHAT THE OUTSTATION ALLOWANCE AND HOTEL CHARGES WERE mereLY allowance granted to the assessee to meet his personal expenses at the place where the duties of his office were ordinarily performed by him. They were not exempt u/s 10(14)."

In Addl. Commissioner of Income Tax Vs. A.K. Misra, Income Tax Officer, , the Allahabad High Court held (headnote) :

"City compensatory allowance is granted to meet the personal expenditure necessitated by the high cost of living in big cities. The allowance is not granted with reference to the nature of duties but exclusively with reference to the place of posting, Such an allowance will, therefore, fall within the Explanation to Section 10(14) and is not exempt from tax."

In Commissioner of Income Tax Vs. Arthur Fuchs , the Patna High Court held (headnote) :

"A plain reading of Section 10(14) of the Income Tax Act, 1961, makes it clear that one of the preconditions for the claim of exemption is that the allowance in question should have been specifically granted to meet expenses wholly incurred in the performance of duties of office and the exemption is only to the extent such expenses were actually incurred."

It was further held (headnote) :

"In the instant case, there was no evidence to suggest that the whole or any part of the amount received by the assessee as living allowance represented expenses actually incurred by the assessee in the performance of duties of his office. One of the necessary ingredients of Section 10(14) being absent in this ease, the assessee could not claim any exemption in respect of the amount in question under that section."

In the light of the above discussion, we answer both the questions in the negative and in favour of the Revenue. The reference is accordingly answered.