TMI Blog2003 (1) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... f conveyance and additional conveyance allowance, paid by it to its Development Officers. The assessment order is quashed and set aside. - - - - - Dated:- 22-1-2003 - Judge(s) : N. N. MATHUR., H. R. PANWAR. JUDGMENT The judgment of the court was delivered by N.N. MATHUR J.- The issue arising for decision in these two special appeals is whether the additional conveyance allowance paid by the Life Insurance Corporation of India (in short, "the LIC") to its Development Officers in terms of the norms of the business fetched by them as per circular dated March 3, 1987, issued by the Life Insurance Corporation is exempt under section 10(14) of the Income-tax Act, 1961, hereinafter referred to as "the Act of 1961", as special allowance or not? Since the learned single judge has disposed of the writ petitions by a brief order having found the controversy covered by an earlier decision of this court rendered in CIT v. Shiv Raj Bhatia [1997] 227 ITR 7, a brief resume of facts would be necessary for focussing the issue involved in these appeals. The appellant, Shivraj Bhatia, Development Officer with the Life. Insurance Corporation of India, during the assessment proceedings for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance Corporation of India, relying on the Board's circular, which is applicable only to Life Insurance Corporation agents and not to Development Officers and the case of Development Officers is governed by the Board's Instruction No. 1774." It is, thus, evident that the judgment in Shiv Raj Bhatia's case [1997] 227 ITR 7 (Raj) pertains to incentive bonus and not to conveyance or additional conveyance allowance. The instant writ petition was filed by the appellant Shivraj Bhatia in the year 1991 seeking direction to declare that the conveyance allowance and the additional conveyance allowance received by the petitioner is exempt from income-tax under section 10(14) of the Act. He also sought a direction to quash the assessment order dated November 27, 1990, pertaining to the assessment year 1990-91. The petitioner placed on record certain correspondence between the Life Insurance Corporation and the Central Board of Direct Taxes about the exemption of additional conveyance allowance from income-tax under section 10(14) of the Act, which indicates that the Central Board of Direct Taxes has taken a view that the additional conveyance allowance is exempt from income-tax under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he instant special appeal being D. B. Civil Special Appeal No. 406 of 2001, is against the aforesaid judgment of the learned single judge. After the judgment of the learned single judge, the Income-tax Officer (TDS), Jodhpur, served a notice on the Divisional Manager, LIC, Jodhpur, to deduct the income-tax at source in respect of the income of conveyance and additional conveyance allowance. The officers of the corporation have also been threatened with penalty, interest and prosecution under the Income-tax Act on failure to deduct the tax at source. This led to filing of another writ petition by none else than the Life Insurance Corporation itself, which was registered as S. B. Civil Writ Petition No. 700 of 2000-Life Insurance Corporation v. Union of India. It is averred that the Ministry of Finance, Government of India, through its Central Board of Direct Taxes Circular dated November 28, 1986, has accepted the position that the additional conveyance allowance would be treated as exempt under section 10(14) of the Act, provided that a certificate is issued by the Life Insurance Corporation to the effect that additional conveyance allowance was granted to the concerned Developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas the Board had required the D.D.Os. to satisfy themselves by insisting on production of evidence of making actual payment/expenditure, exemption in respect of which is claimed under sections, 10(13A), 80CCA, 80CCB, etc. of the Act, no such insistence was stressed by the Board in respect of a claim for exemption under section 10(14)(i) of the Act. Thus, the Income-tax Appellate Tribunal held that the principal officer was justified in not deducting tax at source from the conveyance and additional conveyance allowance received by the Development Officers. In view of this, the Income-tax Appellate Tribunal cancelled the demand raised by the Assessing Officer under sections 201(1) and 201(1A). The Revenue filed an application under section 256(1) of the Act for making a reference to this court for opinion on the following questions: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in cancelling the demands raised under sections 201(1) and 201(1A) of the Act? Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the Principal Officer (DDO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation v. Life Insurance Corporation of India [1998] 229 ITR 510, I am satisfied that the controversy involved in the present case is squarely covered by the aforesaid decision. I respectfully concur with the decision taken by the Division Bench of the Bombay High Court in the case of Life Insurance Corporation Class I Officers (Bombay) Association v. Life Insurance Corporation of India [1998] 229 ITR 510 and propose to decide the present writ petition in the terms and conditions of the aforesaid decision. As a result of aforementioned discussion, the present writ petition is dismissed in limine at the admission stage. The ad interim order is vacated. Both the parties are directed to bear their own costs." The learned single judge has found the controversy involved in the instant writ petition covered by the decision of the Bombay High Court reported in Life Insurance Corporation Class I Officers (Bombay) Association v. Life Insurance Corporation of India [1998] 229 ITR 510 without elaboration and further discussion. We have read the judgment of the Bombay High Court reported in Life Insurance Corporation Class I Officers (Bombay) Association v. Life Insurance Corporation of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the judgment in CIT v. E.A. Rajendran [1999] 235 ITR 514 (Mad) was with reference to section 10(14) of the Act. The court had no occasion to deal with the import of rule 2BB as the said rule was inserted by the Income-tax (Eighth Amendment) Rules, 1995, with effect from July 1, 1995. Thus, we are of the view that the learned single judge has wrongly placed reliance on the decision of the Madras High Court in CIT v. E. A. Rajendran [1999] 235 ITR 514. As far as the earlier decision of this court in CIT v. Shiv Raj Bhatia [1997] 227 ITR 7, is concerned, it is evident from the question of law referred, as extracted in the preceding para. that in the said case, the question involved was with respect to incentive bonus. A reading of the judgment further shows that after setting out the facts and the relevant provisions of law, the court posed the question for consideration as follows: "Whether the 'incentive bonus' earned by the assessee falls within the meaning of 'salary' or is a business or professional income and if so, the assessee is entitled to deduction on the amount of the part of the incentive bonus spent by the assessee for earning of the incentive bonus?" The instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lours pointing to different objectives. Section 10(14) reads as follows: "10. Incomes not included in total income.- In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-... (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure for the purpose of commuting between the place of his residence and the place of his duty. --------------------------------------------------------------------------- Thus, under section 10, income falling under the clauses set out therein, are excluded in computing the total income of the previous year. Clause (14) deals with the special allowance. In order to avail of exemption under clause (14), it is required to be established that- (i) the pavment has been made by way of special allowance or benefit, which is not a perquisite within the meaning of clause (2) of section 17 (ii) it has been granted to meet expenses "wholly, necessarily and exclusively incurred" in the performance of duties of an office or employment of profit; (iii) it has been exempted to the extent such expenses are actually incur red for the purpose. Thus, for enabling an assessee to take the benefit of section 10(14), it is imperative on his part to satisfy that the special allowance, benefit or per quisite in respect of which the claim is made, has been granted to him to meet expenses wholly, necessarily and exclusively incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corporation whose main task is to develop the business in 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 production 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. As per the practice, the Life Insurance Corporation has been giving the utilisation certificate for the purpose of income-tax as follows: "This is to certify that during the financial year......... (assessment year....... ), Shri..................... has been paid Rs......... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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. We may also deal with the cases referred to by learned counsel for the appellant. In CIT v. L. D. Satija [2000] 246 ITR 629, the Punjab and Haryana High Court held that the deduction of conveyance allowance and additional conveyance allowance could not be denied to the assessee without giving opportunity of hearing to him, therefore, the Income-tax Officer could not make addition of the same in the declared income while making the assessment under section 143(1)(a) of the Act. In CIT v. Nestle India Ltd. [2000] 243 ITR 435 (Delhi), the assessee-c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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