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Judgment
Dr. Satish Chandra, J.—By this petition, the petitioners have assailed the communication dated April 7, 2004, issued by the senior divisional manager of the Life Insurance Corporation of India (in short "LIC") (annexure No. 1), where a direction was issued to deduct the tax at source (in short "TDS") on conveyance/additional conveyance allowance to be paid to the field officers. Sri Prashant Chandra, senior counsel, assisted by Sri Shishir Jain, learned counsel for the petitioners, submits that the development officers are the members of the petitioners'' association. Being aggrieved by the action of their employer''s for deducting the tax at source (TDS) pertaining to the conveyance allowance which is being paid in lieu of actual expenditure incurred in procuring business for the LIC preferred the instant writ petition, inter alia, on the grounds that the said additional conveyance allowance does not come within the meaning of section 10(14)(i) of the income tax Act, under which the impugned demand notices have been issued by the Revenue. Learned counsel also submits that section 10(14) is applicable only in respect of a perquisite which has not been included or clarified in section 17(2) of the income tax Act and further the value of perquisite has been defined in rule 3 of the income tax Rules.
It is also a submission of the learned counsel that each field officer uses the vehicle "wholly and exclusively" for the official purpose and charges the allowance for which certificate is produced by the employee which on verification by the employer, the said allowance was reimbursed and as such the same is exempted as it is not covered u/s 10(14)(i) of the Act or rule 3 regarding the valuation of the perquisite. Thus, the additional conveyance allowance which is being paid for procuring the business for the LIC is exempted.
It is a submission of the learned counsel that no Act or rules provides that the Assessing Officer shall have any jurisdiction to review the decision of the LIC authorities or to scrutinize it. Once satisfaction is recorded by the officers of the LIC, nothing in the Act or the Rules framed thereunder; or even in the circular issued by the Central Board of Direct Taxes, even remotely empowers the Assessing Officer to sit in appeal over the assessment made by the senior officers of the LIC, which needless to say is the subjective satisfaction of the high ranking officers made on objective material. The sufficiency of material cannot be looked into by the Assessing Officer.
Learned counsel relied on the ratio laid down in the case of Topman Exports Vs. Commissioner of Income Tax, Mumbai, , where it was observed that (page 68 of 342 ITR):
It is a well-settled principle of statutory interpretation of a taxing statute that a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in Explanation (baa) to section 80HHC read with the words used in clauses (iiid) and (iiie) of section 28, the assessee was entitled to a deduction u/s 80HHC on export profits, the benefit of such deduction cannot be denied to the assessee.
Learned counsel, in support of his arguments, also relied on the ratio laid down in the following cases:
Vodafone International Holdings B.V. Vs. Union of India (UOI) and Another, ;
State of Himachal Pradesh v. Himachal Pradesh Nizi Vyavsayik Prishikshan Kendra Sangh [2011] 6 SCC 597;
Commissioner of Sales Tax, U.P. Vs. Sanjiv Fabrics, ; and
Judgment and order dated February 9, 2007, passed in SLP (C) Nos. 25058-59 of 2005.
It is also a submission of the learned counsel that the issue is squarely covered by the decision of the hon''ble High Court, Rajasthan in the case of Life Insurance Corporation of India Vs. Union of India (UOI) and Others, , which was upheld by the hon''ble apex court, vide order dated February 9, 2007 (copy on record) while dismissing SLP filed by the Department. In the said case, it was observed that:
It is, thus, clear that the Development Officers of the LIC are full time employees of the Corporation whose main task is to develop the business of life insurance. They are required to discharge the duties and obligations which, inter alia, include development of life insurance business of the Corporation. The very first duty enumerated for the development officer is to develop and increase the product on of new insurance business in the planned way, as far as practicable in the area that may be allotted to him from time to time. The other duties and obligations include the duty to supervise and to guide the activities of the agents placed under the supervision of the development officers; to recruit new agents so as to develop agency force; and to act generally in such a way as to activate existing agents and to motivate new agents and to render certain services to policyholders. The officer is also required to perform such duties that are entrusted and assigned to him from time to time.
Finally, in the said case, the hon''ble Rajasthan High Court has directed the Department not to insist upon the LIC to deduct the income tax at source in respect of conveyance and additional conveyance allowance paid by it to development officers. The Assessing Officer was directed to pass the fresh order in accordance with the law laid down in that case.
Lastly, learned counsel submits that a similar direction may kindly be issued to the LIC not to deduct the tax at source as the conveyance/additional conveyance allowance is not subjected to tax.
On the other hand, Sri Prashant Kumar, learned counsel for the Department has raised the preliminary objection about the locus standi of the assessee to challenge the notice issued to the LIC u/s 201 of the income tax Act. He also submits that it is always open for each of the development officers to approach the authority concerned and claim refund in accordance with section 237 of the income tax Act, 1961, inasmuch as it also includes tax paid on behalf of "any person'''' on the ground that the deductions being made by the LIC in respect of additional conveyance allowance was not taxable at all; and, therefore, the instant writ petition is misconceived.
Learned counsel also submits that the so-called "utilization certificate" given by the employer is nothing but only a subjective estimate of the amount that might have been forwarded by the development officers pertaining to the business brought by them. From a bare perusal of the circular dated April 24, 2004 (annexure 8 to the writ petition), it is clear that additional conveyance allowance is nothing but additional remuneration being paid to the development officers pertaining to their performance. There is no element of reimbursement. The Assessing Officer has rightly asked the proof of having incurred the expenditure but the same was never produced by the development officers.
In support his argument, the learned counsel relied on the ratio laid down by the hon''ble Karnataka High Court in the case of Commissioner of Income Tax Vs. M.D. Patil, , where it was observed that "incentive bonus" being linked to the quantum of business procured by the development officer amounts to salary which is taxable as such and the same does not amount to allowance. It was observed by the hon''ble Karnataka High Court that:
Therefore, in our considered opinion, incentive bonus/commission, is a production/business-oriented payment/income and it is not an allowance granted to meet any expense incurred by the development officer in the performance of his duties in that capacity. This inference of ours stands substantiated by the other provisions of the Third Schedule to the Regulations which apart from incentive commission ensures payments or reimbursement to a development officer of the amount spent in respect of travelling residential telephone, insurance premium and taxes on motor vehicles.
In the case of National Federation of Insurance Fields Workers of India and Another Vs. Union of India (UOI) and Others, , the hon''ble Jharkhand High Court observed that:
There is no question of LIC not deducting tax at source and if the assessee wish to lodge a claim for deduction or refund they may do so before the Assessing Officer after substantiating their case.
Similar propositions were expressed in the case of National Federation of Insurance Field Workers of India (Cuttack Divisional Association) Vs. Union of India (UOI) and Others, . According to the learned counsel the conveyance/additional conveyance allowance is an allowance and covered by section 17(2), Explanation 3 of the Act.
Lastly he made a request for dismissal of the writ petition.
Sri P.K. Khare, learned counsel for the LIC also justified the impugned order passed by the senior divisional manager. He submits that the LIC is deducting the tax as per the provisions of the income tax Act.
After hearing all the parties and on a perusal of the record, it appears that the development officers are salaried persons. For getting the business, they were paid conveyance/additional conveyance allowances and also incentive bonus.
It may be mentioned that the various kind of special allowance has been prescribed u/s 10(14) of the Act and also under rule 2BB of the income tax Rules. According to rule 2BB(10), transport allowance granting to an employee to meet the expenditure for the purpose of commuting between the place of his residence and the place of his duty, is prescribed at Rs. 800 per month. Rule 3 of the income tax Rules prescribed the value of the perquisite. Table II of rule 3 prescribed the value of the perquisite pertaining to the motor car owned or hired and used by the employee for personal/official or wholly official purpose. It is prescribed that the value of the perquisite shall be the amount calculated in respect of only one car. Further, it is prescribed that the employer has to maintain details of the journey undertaking for the official purpose which may include the date of journey, destination, mileage and amount of the expenditure incurred thereon. The employer shall give a certificate to this effect that the expenditure was incurred wholly and exclusively for the purpose of the official duty.
It may be mentioned that "perquisite" is excluded from the purview of section 10(14). "Perquisite" is defined u/s 17(2) of the Act. Explanation 3 u/s 17(2) clearly provides that:
salary includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called, from one or more employers, as the case may be....
In view of above, conveyance/additional conveyance allowance is covered by the word "perquisite" and the same is taxable.
Compartmentalization of income under various heads and computation of the taxable portion strictly in accordance with the formula of deductions, rebates and allowances are to be done only as per the scheme provided under the Act. As held by the hon''ble apex court in Karamchari Union, Agra Vs. Union of India and Others, , the income tax Act, 1961, is a self-contained code and the taxability of the receipt of any amount or allowance has to be determined on the basis of the meaning given to the words or phrases given in the Act. Thus, the hon''ble apex court do not agree with the view taken by the High Court of Gujarat in Commissioner of Income Tax Vs. Kiranbhai H. Shelat and Others, . The same does not lay down the correct principle of law.
In the light of above discussions and by considering the totality of the facts and circumstances of the case, it appears that in the instant case, the employer has issued the certificate pertaining to the conveyance allowance/additional conveyance allowance used exclusively and wholly for the official purpose, i.e., the procurement of business. The said certificate is issued by the employer after verifying the data. When it is so, then there is no reason for the Assessing Officer to reject the said certificate specially when the LIC is a statutory body and no private interest is involved. The LIC is not competent to determine the allowances which are exempted from the tax. This task will have to be performed by the Assessing Officer.
Thus, in view of the provisions of income tax Act, 1961, and its interpretation it is clear that the conveyance/additional conveyance allowance, and incentive bonus is taxable being perquisite as per the ratio laid down in the case of T.K. Ginarajan Vs. The Commissioner of Income Tax, and, therefore, the members of the petitioner federation are at liberty to lodge a claim for deduction or refund before the Assessing Officer after substantiating their claims.
Accordingly, the letter dated April 7, 2004, has rightly been issued by the senior divisional manager, LIC for deducting the tax at source from the amount paid pertaining to the conveyance/additional conveyance allowances incurred in the performance of duty as development officers for generating the business being a permissible deduction as the same is exigible to tax. The members of the petitioner''s association being salaried persons on furnishing their return of income return were assessed by the assessing authority and it is only after due assessment they are entitled for refund of the amount, if any, deducted by the employers conveyance allowance. The instant petition is devoid of merit. Accordingly, the same is hereby dismissed. No costs.