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Judgment
Heard Sri Rakesh Ranjan Agarwal learned counsel for the appellant and Sri Dhananjay Awasthi learned counsel appearing for the respondent-department. This is an appeal filed u/s 260A of the Income Tax Act 1961 against the judgment and order dated 18th June, 2003 of the Income Tax Appellate Tribunal in I.T.A. No. 458 (Alld) /1998 for the assessment year 1996-97.
The background facts of the case giving rise to this appeal are, that the Assessing Officer while scrutinising Form-24 and Form-16 submitted by the Life Insurance Corporation of India after issuing a notice to the responsible officers of Life Insurance Corporation of India created a demand of Rs. 1,06,800/- on the ground that the responsible officers of the LIC have wrongly allowed deduction of conveyance allowance and additional conveyance allowance which resulted in short deduction of tax. The shortfall and interest u/s 201 was computed and arrived at. The appeal was filed by the Life Insurance Corporation of India before the Commissioner of Appeal, Income Tax who held that the responsible persons of the Corporation have incorrectly allowed deduction for conveyance allowance and additional conveyance allowance suo motu which was beyond the purview of their jurisdiction. The Appellate Authority affirmed the order of the Assessing Officer against which the appeal was filed before the Income Tax Appellate Tribunal which too has been dismissed by the order which is impugned in this appeal.
The Appellate Tribunal insofar as the amount regarding recovery of tax is concerned directed the Assessing Officers to re-investigate into the matter after giving reasonable opportunity of being heard to the assessee and direct to produce the evidence of payment of tax by the Development Officers on the matter in question and to give finding thereafter. Insofar as the interest part was concerned, the appeal of the LIC was rejected. The assessee has come up in the appeal.
Sri Rakesh Ranjan Agarwal learned counsel for the appellant in support of the appeal contended that conveyance allowance and additional conveyance allowance were permissible deduction u/s 10 (14) of the Income Tax Act and they were paid to Development Officer against the expenses actually incurred on duty as per the rules and circulars of the Life Insurance Corporation. It is submitted that the said allowance which was directly proportionate to the expenses incurred while performance of duty was clearly deductible, hence there was no occasion to deduct any tax at source. He submits that the relevant certificate under pro forma-24 as required by Income Tax Rules, was submitted giving details and there was no error in the certificate and the order of the Assessing Officer creating demand was wholly erroneous. He submits that the conveyance allowance and additional conveyance allowance has already been held to be permissible deduction u/s 10(14) by different High Courts. He has referred to the judgment of the Rajasthan High Court in Life Insurance Corporation of India Vs. Union of India (UOI) and Others, judgment of Punjab and Haryana High Court in Commissioner of Income Tax Vs. Branch Manager, LIC of India, and the judgment of Madhya Pradesh High court in Gwalior Rayon Silk Co. Ltd. Vs. Commissioner of Income Tax, . He submits that there was no liability of the Corporation of deduction of tax at source with regard to the conveyance allowance/additional conveyance allowance and the Assessing Officer has erred in creating the demand against the Corporation. In alternative it is submitted that in event the said allowances were not deductible, the appropriate decision could have been taken against the Development Officer in the assessment proceeding pertaining to their claim of deduction of allowances as conveyance allowance or additional conveyance allowance and it was open for the Assessing Officer to have determined the question in the appropriate proceedings against the Development Officer and he submits that the ultimate liability of claiming exemption and proving the same was on the employee assess (i.e. Development Officer) which has already been laid down by the Rajasthan High Court in Life Insurance Corpn. of India''s case (supra). Hence any demand created against the Corporation was not justified. "
Sri Dhananjay Awasthi learned counsel for the respondent-department refuting the submission of learned counsel for the appellant contended that question whether the Development Officers were entitled for any deduction towards conveyance allowance or additional conveyance allowance was in the domain of the Assessing Officer and the Life Insurance Corporation or its responsible officers had no authority or jurisdiction to claim or show any deduction towards conveyance allowance or additional conveyance allowance. He submits that unless the Assessing Officer approved any deduction in the proceeding of assessment, LIC authorities had no jurisdiction suo motu to claim any deduction or show any deduction in Form-24. Sri Dhananjay Awasthi has placed reliance on the judgment of Kerela High Court in Franco John and Others Vs. Union of India (UOI) and Others, as well as the judgment of the Bombay High Court in Life Insurance Corporation Class-i Officers (Bombay) Association Vs. Life Insurance Corporation of India and another, . He submits that the said two authorities have clearly laid down that the conveyance allowance and additional conveyance allowance cannot ipso facto be claimed as permissible deduction and unless the two conditions as laid down in the judgment of Kerela High court in Franco John''s case (supra) is proved, the deduction cannot be claimed. He further submits that in the present case there was no relevant document or certificate produced by the Life Insurance Corporation to satisfy the Assessing Officer that the deductions were permissible u/s 10(14) of the Act. Section 10(14) of the Act provides as follows:-
[(14) (i) any such special allowance or benefit, not being in the nature of a 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 [as may be prescribed], to the extent to which such expenses are actually incurred for that purpose;
(ii). any such allowance granted to the assessee either 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, or to compensate him for the increased cost of living, [as may be prescribed and to the extent as may be prescribed];]
[Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence;]
Section 10 enumerates the incomes which are not included in total income of an assessee. Clause 14 of Section 10 is one of the categories under which the income is not to be included. The definition of Section 10(14) clearly specifies that income does not include any special allowance or benefit, not being in the nature of 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 officer or employment of profit.
Sri Dhananjay Awasthi further submits that Rule 2BB was inserted by income tax eighth amendment on 1 July, 1995 is applicable which provides as follows:-
2BB. (1). For the purposes of sub-clause (i) of clause (14) of section 10, prescribed allowances, by whatever name called, shall be the following, namely:-
(a). any allowance granted to meet the cost of travel on tour or on transfer;
(b). any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;
(c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit:
Provided that free conveyance is not provided by the employer;
(d).... incurred on a helper where such helper is engaged for the performance of the duties of an office or employment of profit;
(e)............ granted for encouraging the academic, research and training pursuits in educational and research institutions;
(f)................. granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit.
(2)............................
We have considered the submissions and perused the records.
The case of the Corporation is that the conveyance allowance and additional conveyance allowance is allowance paid to the Development Officer against actual expenses incurred by the Development Officer in performance of their duties and the reimbursement is granted accordingly. It is submitted that the certificate-24 is only a pro forma in which the details are submitted as required by Rule 37 of the Income Tax Rules. It is submitted that the fact that conveyance allowance and additional conveyance allowance has been allowed by the competent authority of the LIC who is employer itself presupposes that the said conveyance allowance/additional conveyance allowance has been paid to meet expenses in actual performance of duties and the said allowance is clearly deductible u/s 10(14) and due to which there was no occasion for deduction of tax at source. In the present case both the Assessing Officer and the Appellate Authority as well as the Tribunal have proceeded on the premise that the officers of the Corporation cannot suo motu allow any deduction towards conveyance allowance or additional conveyance allowance and this was in the domain of the Assessing Officer. The very premise on which the authorities have proceeded is unfounded. It is the employer who makes the payment of conveyance allowance or additional conveyance allowance to its employee as per the rules or the procedure regulated by it for payment of conveyance allowance or additional conveyance allowance. Insofar as the Development Officers of the LIC are concerned conveyance allowance and additional conveyance allowance are paid against the actual expenses towards performance of duty. Monthly payment reflecting the said payment in form-24 is only the details of the payment made in the entire previous year for the purposes as required by Income Tax Rules. There is no question of not showing the aforesaid payment and the deductions claimed by the assessee i.e. Development Officer. There is any occasion for not submitting the form and to wait till the Assessing Officer of the Income Tax decides whether deduction is permissible or not. Rajasthan High Court has held in the case of Life Insurance Corpn. of India (supra) as follows:-
...The ultimate liability of claiming exemption and proving the same is on the employee-assessee (Development Officers). The exemption limit is restricted by the instructions issued by the Central Board of Direct Taxes from time to time. Therefore, we hold that the Development Officers in the Life Insurance Corporation are entitled to claim exemption u/s 19(14) of the Act in respect of conveyance allowance/additional conveyance allowance upon satisfying the conditions that such allowances have actually been spent for the purpose for which they were given wholly, necessarily and exclusively in the performance of duties. Therefore, the Life Insurance Corporation cannot be insisted for deduction of tax to be deducted at source to the extent such conveyance allowance/ additional conveyance allowance is exempt under rule 2BB and further such minimum limit is set from time to time. The ultimate liability of claiming exemption and proving the same is on the employee-assessees, i.e. the Development Officers.....
The ultimate responsibility being of the assessee i.e. Development Officer it is for the income tax authorities while computing the income of the Development Officer to allow or disallow the particular deduction claimed as conveyance or additional conveyance allowance but, due to above reason it cannot be said that the Form-24 which has been submitted by the LIC is incorrect or an obligation is cast on the Life Insurance Corporation of India to deduct the tax at source. In case the allowances were of such a nature which could not have been claimed as deduction u/s 10(14), obviously, the statutory liability would have been thereof the Corporation to deduct the tax at source but present is not a case of such an allowance where it was obligatory for the Corporation to deduct the tax at source. The Punjab and Haryana High Court in Branch Manager, LIC of India (supra) has also taken the same view after following the judgment of Rajasthan High Court. The Punjab and Haryana High Court was also considering the case of conveyance allowance and additional conveyance allowance received by the Development Officer of the Life Insurance Corporation of India. It is useful to quote the following observation made by the Punjab and Haryana High court:-
...... It is, thus, evident that the conveyance allowance and the additional conveyance allowance are paid to the Development Officers for meeting actual expenditure incurred by them in discharge of their field duties and, thus, wholly, necessarily and exclusively for meeting such expenditure, the allowance is being exempt as per the norms set out in the Life Insurance Corporation circular dated August, 3, 1987, referred to in the preceding para. It appears that the Life Insurance Corporation has, worked out the additional conveyance allowance to the Development Officers considering the probable expenditure for procuring the business. The Life Insurance Corporation appears to have devised the general formula having a reference to the parameters of the business and, thus the payment of additional conveyance allowance is a reimbursement for actual expenditure incurred by the Development Officers on account of conveyance in relation to performance of their duties and the said expenditure has a direct nexus with the performance of duties for development of the insurance business by way of meeting several people and to enrol new life insurance agents and to meet the insurance persons for encouraging them to take insurance policies. Naturally, in such circumstances, touring expenses are incurred on conveyance. Such conveyance expenses are reimbursed by the employer as per the prescribed norms in the name of additional conveyance allowance. The certificate is given by the LIC employer of the minimum amount which the Life Insurance Corporation certifies that it is the amount actually spent by the Development Officers in the performance of their duties. The ultimate liability of claiming exemption and proving the same is on the employee-assess (Development Officer). The exemption limit is restricted by the instructions issued by the Central Board of Direct Taxes from time to time. Therefore, we hold that the Development Officers in the Life Insurance Corporation are entitled to claim exemption u/s 10(14) of the Act in respect of conveyance allowance/additional conveyance allowance upon satisfying the conditions that such allowances have actually been spent for the purpose of which they were given wholly, necessarily and exclusively in the performance of duties. Therefore, the Life Insurance Corporation cannot be insisted for deduction of tax to be deducted at source to the extent such conveyance allowance/additional conveyance allowance is exempt under Rule 2BB and further such minimum limit is set from time to time. The ultimate liability of claiming exemption and proving the same is on the employee-assessee, i.e. the Development Officers.
The Tribunal after detailed discussion on the contentions of the parties and also keeping in view the fact that the Revenue had not challenged the earlier orders passed by the Tribunal on the same issue, pertaining to different offices of the LIC, upheld the order passed by the Commissioner of Income tax (Appeals) and dismissed the appeal of the Revenue.
The reasons given above and respectfully concurring with the view taken by the Rajasthan High court in Life Insurance Corporation of India Vs. Union of India (UOI) and Others, , we do not find any reason to differ with the view taken by the Tribunal and hold that no substantial question of law arises in the present case.........
The next judgment which has been relied by the learned counsel for the appellant in Gwalior Rayon Silk Co. Ltd. which also supports the case of the appellant.
Now the judgment which have been relied upon by the learned counsel for the respondent has to be looked into. Judgment on which much reliance has been placed is judgment in " Franco John (supra) and " Life Insurance Corpn. Class I Officers (Bombay) Association (supra). In the Bombay judgment the facts on which the conveyance allowance was claimed was in terms of Rule 9B and there was material i.e. an affidavit filed on behalf of the LIC that conveyance allowance is not reimbursed for expenditure incurred on conveyance in performance of duties of office and the said allowance was paid to all employee whethere as on duty or not irrespective of place of residence. The following is the reason and finding in the said judgment while rejecting the claim of the " Life Insurance Corpn. Class I Officers (Bombay) Association (supra). It is useful to quote the conclusions of the judgment which are in following words:-
....... In the instant case, the affidavit filed on behalf of the respondent No. 1 clearly demonstrates that the conveyance allowance in terms of rule 9(b) of the Rules is not reimbursement for expenditure incurred on conveyance in performance of duties of office. It is an allowance paid to all employees whether on duty or not irrespective of his place of residence and the place of his work and also irrespective of whether he is posted in any of the 2,000 offices of respondent No. 1. Clearly, therefore, there is no doubt whatsoever that the said allowance would not be exempt u/s 19(14) of the Income Tax Act, 1961, read with Rule 2BB(1)(c) of the income tax Rules, 1962.
Thus, the judgment of the Bombay High Court was on the premise that in the said case by virtue of rule 9B, the conveyance allowance was not reimbursement for expenditure incurred on conveyance in performance of duty but the said allowance was irrespective of the duty or not. The said is the main distinguishing feature in the present case hence, the above judgment was on its own fact and does not help the department in the present case.
In Franco John''s case (supra) the petitions were filed by Association of Officers challenging the periodical circulars issued by LIC providing guidelines for deduction of income tax at source on additional conveyance allowance. The Kerela High Court considered the provisions of Section 10(4) of the Income Tax Act and Rule 2BB of the Income Tax Rules. After considering the aforesaid provisions, it was held that actual expenditure incurred by the employee and reimbursed by the employer on being satisfied that expenditure is incurred towards conveyance in the performance of duty of office shall not attract income tax. Thus, the judgment of Kerela High Court in Franco John''s case (supra) do support the appellant''s case that conveyance allowance and additional conveyance allowance having been granted to the Development Officer as reimbursement for expenses incurred while on duty. There was no occasion for deduction of tax at source. It is useful to quote the following observation of the Kerela High Court:-
The exemption provided u/s 10(14) is not limited to additional conveyance allowance or conveyance allowance. It provides for exemption for special allowances other than perquisites defined u/s 17(2) of the income tax Act, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit. Of course the exemptions are subject to a ceiling that has been prescribed under the rules. Rule 2BB(1)(c), insofar as conveyance allowance is concerned, provides for exemption of only allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit. There is a further limitation that no exemption is available to an employee in a case where the employer is providing free conveyance to the employee. On a reading of the section the rule prescribed thereunder, namely, rule 2BB(1)(c) is absolutely consisted with the section. The exemption contemplated is only in respect of expenditure for conveyance incurred by the employee and the reimbursement by the employer. The position therefore is that actual expenditure incurred by the employee and reimbursed by the employer on being satisfied that the expenditure is incurred towards conveyance in the performance of duty of office shall not attract income tax.
The Kerela High Court considering the provisions of Income Tax Specially Section 197 had also observed that it is for the assessee to appear before the assessing authorities and make individual application before the Assessing Officer in terms of Section 197 and obtain certificate which was to be followed by LIC in regard to the tax deduction at source. In the said judgment it was also laid down by the Kerela High Court that deduction is to be as per circular issued and covered by Central Board of Direct Taxes and the non-statutory guidelines issued by the LIC shall not govern the field. There cannot be any dispute to the above proposition, in the said judgment the guidelines circulars issued by the LIC directing for deduction at source were held to be non-statutory and Court was of the view that it is circulars of Central Board of Direct Taxes which will govern the field. The said case also clearly said that assessee concerned ought to have obtain necessary certificate and due to said reason, the Court refused to interfere with the guidelines issued by the LIC in that context. It is also relevant to note that Rule 2BB (1)(c) was also considered in the said case referring to the Bombay High Court judgment as noted above. It is useful to quote the following observations in the said judgment made by Kerela High Court:-
...These circulars or guidelines are not statutory and have no force of law. It only serves as guidelines from management to subordinate officers; particularly to salary disbursing department and can neither bind the income tax Department, nor the LIC Development Officers. The administration of the income tax Act is by statutory authorities, who have been given definite powers. While the Central Board of Direct Taxes has jurisdiction u/s 119 to issue circulars for the administration of a statute, it cannot authorise employers to issue circulars on behalf of the Central Board of Direct Taxes. The circulars issued by the Executive Director of the LIC do not have the force of circulars issued by the Central Board of Direct Taxes u/s 119 of the Act. Of course, since the LIC has operations all over India, it is up to them to approach the Central Board of Direct Taxes who are free to issue any circular which will have binding force on the subordinate officers. So far as deduction of income tax at source is concerned, especially pertaining to an item of income, which is claimed as exempt by the employee, I find section 197 grants specific power to the Assessing Officer on an application by the assessee to issue certificate authorising payment without deduction of tax or on deduction of tax at rates below the prescribed limit, if the Assessing Officer is satisfied that the assessee is eligible for exemption full or partial. Therefore the normal procedure under the Act is for each and every LIC Development Officer to approach the Assessing Officer with an application u/s 197 and demonstrate that the additional conveyance allowance is exempt fully or partly and on being satisfied the Assessing Officer has to necessarily issue the certificate. On the other hand, if deduction is made, it is for the assessee to claim exemption in the assessment by filing returns and claim refund of tax wherein also the Assessing Officer will consider the eligibility for exemption in the assessment, and if the assessee is aggrieved, he is free to file appeal before the appellate authority and get the matter settled. It is therefore either for the LIC to take up the matter before the Central Board of Direct Taxes for appropriate circulars u/s 119 of the income tax Act and in that event the Central Board of Direct Taxes will issue circular, or otherwise, since all the LIC Development Officers are assessees they are free to make individual applications before the Assessing Officer concerned in terms of section 197 and obtain certificate which will be followed by the LIC in regard to tax deduction at source. I do not think there is any need for this court to go into the correctness of the two impugned circulars issued by the Executive Director of the LIC of India on deduction of income tax, which as already held serves only as guidelines to subordinate officers. It is for the income tax Department to scrutinise the correctness of TDS made either while considering the LIC''s TDS returns or while assessing the income of the LIC development officers. Going by the interpretation placed on section 10(14) and rule 2BB(1)(c) by this court above, exemption on additional conveyance allowance has to be considered with reference to the proved facts of each assessee (LIC Development Officer) and therefore the issue cannot be decided by this court in Ops filed by representative bodies....
We are of the view that the view taken by the Assessing Officer and confirmed by the appellate authority and the Tribunal that there was statutory obligation of the Corporation to deduct the tax at source in respect of conveyance allowance and additional conveyance allowance cannot be supported and we are of the view that in the facts and circumstances of the case, conveyance allowance and additional conveyance allowance received by the Development Officers of the Corporation was permissible deduction u/s 10(14) of the Income Tax Act. We answer the said question in favour of the assessee with one rider that it is always open for the department while considering the claim of the individual assessee i.e. Development Officer to consider and decide whether the deductions claimed as conveyance allowance or additional conveyance allowance are permissible deduction or not.
In view of the above, this appeal is allowed answering the above question in favour of the assessee as above. It goes without saying that we having already answered the question that the conveyance allowance or additional conveyance allowance was permissible deductions, the order of the Tribunal confirming the liability of interest also deserve to be set aside. The appeal is allowed accordingly.