TMI Blog2006 (6) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... essee filed his income tax return for the assessment year 1997-98 declaring income of Rs. 29,45,670. This return was processed under section 143(1)(a) of the Act, and the income so returned by the assessee was duly accepted. Subsequently, however, the Assessing Officer noticed that the assessee had claimed a deduction of Rs. 3,82,184 under section 10(14) and the same was not considered by the employer at the time of deducting tax at source. In other words, this claim of deduction of Rs. 3,82,184 was over and above the exemption granted by the employer, while estimating income chargeable to tax, for the purpose of computing tax deduction at source. It was in this backdrop that the case of the assessee was reopened and. the assessee was called upon to substantiate the claim of exemption of Rs. 3,82,184. During the course of the ensuing assessment proceedings, the Assessing Officer took note of assessee's contention that the employer only provides for hotel and breakfast, during assessee's stay abroad and rest of the expenses are to be borne out of the allowances granted by the employer. It was also noted that several allowances have been merged into a consolidated flying allowance, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act." Having so upheld the contention of the assessee in principle, however, the CIT(A) observed that the assessee has not been able to furnish the copies of bills and vouchers for the actual expenses incurred abroad on lunch, dinner and other daily expenses. As to assessee's contention that it was not possible to keep meticulous record of all such expenditure, the CIT(A) added that "I am unable to agree with the contention of the appellant for the simple reason that the expenditure has been claimed by the appellant on actual basis and therefore it is the duty of the appellant to prove the expenditure by leading necessary evidence". A copy of dinner bill showing expenditure of US $ 40 on a single dinner was rejected by the CIT(A) on the ground that it did not pertain to the relevant previous year. The CIT(A) then concluded that in the absence of any other evidence of actual expenditure, the assessee should be entitled deduction to the extent of 50% of allowances received, or Rs. 50,000 - whichever is less. I the impugned order passed by the CIT(A), thus, it has been held that the allowances are exempt under section 10(14)(i) of the Act, but, in the absence of ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Ms. Shailaja Ramamurthy, I am of the opinion that the allowances paid outside the country, to the employees of Indian Airlines are within the scope of section 10(14)(i) and accordingly, in the absence of the evidence, 50% of the expenditure so incurred should be allowed as deduction, limited to Rs. 50,000...." 6. The revision order dated 24th May, 2002 passed by his predecessor, which has been referred to and concurred with in this order, is also relevant in this context. The said order reads as follows: "The assessee has, in this case, moved a petition under section 264 for the assessment years 1995-96 and 1996-97 with regard to claim of exemption under section 10(14)(i) of the Income-tax Act. It was contended that this claim has not been allowed by the Assessing Officer in the course of assessments. A reference in this connection was made by the authorised representative earlier on seeking clarification pertaining to the claim under section 10(14)(i). The CIT(A), while deliberating on this issue, had also opined that the allowances paid outside the country to the employees of Indian Airlines. are within scope of section 10(14)(i). Accordingly, an instruction of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one assessee, and appeal, against the identical judgment in the case of another. Their Lordships held that such a differential treatment on the same set of facts was not permissible in law, and observed that, "it is not open to revenue to accept the judgment in the case of the assessee in that case and challenge its correctness in the case of another assessee, without just cause." The same view was reiterated by the Hon'ble Supreme Court in the case of Berger Paints India Ltd. v. CIT [2004] 266 ITR 99, and followed by the Hon'ble Delhi High Court in the cases of CWT v. R.K.K.R. International (P.) Ltd. [2005] 198 CTR 567 and CIT v. NeoPoly Pack Pvt. Ltd. [2000] 245 ITR 492. When it is not possible for the revenue to challenge an order of the appellate authority in one case and when it has accepted identical order of the appellate authority in another case, it cannot at all be open to the revenue to challenge the order of the appellate authority on an issue on which relief has been given by Commissioner himself, in other cases, by way of exercising revision jurisdiction in other cases. For this reason alone, the grievance raised by the revenue is not maintainable in law and deserves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that exemption under section 10(14)(ii) is available. Therefore, even going by the logic of the Assessing Officer, exemption under section 10(14)(i) cannot be declined because, assessee, while flying on international sectors, cannot be allowed exemption under section 10(14)(ii). This stand, even after taking note of Tribunal's decision in the case of Capt. Harminder Singh, has not only been approved by another co-ordinate bench of the Tribunal in the case of Capt. V.K. Verma but has also been followed by the Commissioner in exercise of his revision jurisdiction by issuing orders under section 264 and in exercise of his supervisory jurisdiction by issuing administrative instructions. The very foundation on revenue's arguments in support of non-applicability of section 10(14)(i) is thus devoid of any legally sustainable basis. 11. The assessee, though working for an international carrier, operates on the domestic flights. The question then arises whether exemption under section 10(14)(i) is available in respect of the same allowances when the assessee has to stay in a place, outside his place of posting, in India. This takes us to an even more fundamental question and that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT XXVII/ITO, Wd. 11(3)/96/2001-02. It was contended by the AR that the CIT (Appeals), in the above order, has held that the allowances paid while operating international flights are covered by exemption under section 10(14)(i) read with notification No. SO 143(E), dated 28-2-1989 subject to verification of expenses actually incurred by the assessee while operating international flights. The assessee's AR has also filed a detailed note stating that Indian Airlines, employer, provides accommodation at foreign stations to the assessee on bread and breakfast basis. These are paid in local currency at foreign stations to meet out other expenditure on meals, refreshments; tea, transportation, telephone and other incidental expenses. It was claimed that these foreign allowances are in the nature of reimbursements and have been spent while performing official duties. The AR has further relied upon Instruction No. 1107, dated 5-10-1977 and letter dated 30-3-1990 issued by the CBDT in support of his contention that these allowances are exempt under section 10(14)(i). I have considered the submissions of the AR and details filed by him. I have also gone through the order of the CIT (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o shows that to the extent exemption under section 10(14)(ii) is not available in respect of the allowances, the field officers have considered the same allowances in respect of "food, beverage, telephone and transportation", as eligible for exemption under section 10(14)(i). The only reason for rejecting the exemption under section 10(14)(i) thus is availability of exemption under section 10(14)(ii) in respect of those allowances. This surviving reason for rejection of claim of exemption under section 10(14)(i), however, rests on the fallacious assumption that the provisions of section 10(14)(i) and section 10(14)(ii) do not operate in mutually exclusive fields. 14. We consider it necessary to reproduce the provisions of section 10(14) which are as follows: "10. 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: (i) any such special allowance or benefit, not being in the nature of a perquisite with the meanings of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties of an office or employment of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance eligible for exemption under that section are as follows: - the allowance or benefit should be specifically granted to meet expenses wholly, necessarily and exclusively incurred in connection with the duties of an office or employment of profit; - the allowance or benefit should not be in the nature of a perquisite as defined under section 17(2) of the Act; - the exemption of allowance is restricted to the extent to which such expenses are actually incurred for that purpose; - the allowance should be to meet ordinary daily charges on account of absence from normal place of duty. 17. As for the nature of allowance which are exempt under section 10(14)(ii) in terms of plain words of the statutory provisions under that section, the following conditions are required to be satisfied: - the allowance should be granted to meet personal expenses of the assessee or to compensate him for the increased cost of living; - in case the allowance is granted to meet personal expenses of the assessee, the allowance should be to meet his personal expenses at : (a) at the place where the duties of office or employment of profit are ordinarily performed; or (b) at the place where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f absence from normal place of duty when assessee goes on flying duties abroad, it cannot be open to revenue to contend that so far as allowances to visit domestic destinations are concerned, the eligibility of exemption under section 10(14)(i) is not available. The exemption under section 10(14)(i) has, however, been denied apparently on the ground that the exemption under section 10(14)(ii) read with rule 2BB(2)(iv) is available in respect of such allowances. 19. Section 10(14)(ii) read with rule 2BB(2)(iv), on the other hand, deals with the allowances which are granted to meet (a) increased cost of living; or to meet (b) personal expenses at the place where duties of office are performed or where the assessee ordinarily resides. An allowance can either be for personal expenses or for official expenses; it cannot be for official expenses as also for personal expenses at the same time. Therefore, once it is stand of the revenue that the allowances are granted to "meet expenses wholly, necessarily and exclusively incurred in connection with the duties of an office" since exemption under section 10(14)(i) read with rule 2BB(1)(b) has been granted in respect of such allowances by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laces not for performance of duties but in connection with performance of his duties. For example, if a Mumbai based commercial pilot has to stay in New Delhi overnight before he resumes or starts his flying duties on flights originating from there, he is to be treated as on tour to New Delhi in connection with his duties of office. The duties of his office include flying an aircraft, and he flies the aircraft at New Delhi also, but then his overnight stay in New Delhi cannot said to be for flying an aircraft but can only be in connection with flying an aircraft. The allowances granted to the assessee are not for being in New Delhi while flying the aircraft but for staying in New Delhi to enable him to fly from New Delhi. Therefore, the allowances cannot be said to be for the purposes of meeting personal expenses at the place where duties of office are performed. It also not the revenue's case that the allowances are granted to meet personal expenses where the assessee normally resides, because the question of these allowances comes into play only when the assessee goes out of the place where he normally resides. The allowances cannot, therefore, be said to have been granted for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a posting of the employee, by itself, entitles him the allowance and this is to meet the personal expenses of the employee. This allowance is therefore to meet personal expenses at the place of posting, as is the mandate of section 10(14)(ii). However, when the same employee travels back to mainland in connection with his duties and he gets and allowance to meet his ordinary daily charges on account of absence from normal place of duty, he will be entitled to exemption under section 10(14)(i) in respect of such allowances. In both the situations, allowance is to meet the personal expenses because, after all, ordinary daily charges are also personal expenses in nature but then personal expenses at the place of duty and personal expenses, necessitated by same is the case employee travels outside the place where he is posted and he gets an allowance to meet the costs of boarding and lodging, which is undoubtedly a personal expense in nature, the allowance so granted is treated as an to meet the ordinary daily charges incurred by an employee on account of absence from normal place of duty and thus "wholly, necessarily and exclusively incurred in connection with the duties of an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emption to the extent of 50 per cent of allowances of Rs. 50,000, whichever is lower. It is difficult to comprehend as to how the quantum of allowance can determine the amount actually spent by the employee, in fact, it is the other way round. It is understandable that actual expenditure by the employees influences the quantum of allowance fixed by the employer, but not vice versa. The ceiling of exemption to the extent of 50 per cent of allowances is, therefore, devoid of any rationale. Similarly, the monetary ceiling of Rs. 50,000 per annum on the exemption of allowances under section 10(14)(i) is even more unfounded. That would be equating expenditure incurred by an employee who is on tour for, say, 180 days with someone who has been on tour for, say, 8 days. The basis for adopting this figure of Rs. 50,000 is also far from clear, and appears to be arbitrary. The quantum of exemption of allowances, as decided by the CIT(A), therefore, does not meet our approval. 24. The issue regarding extent to which exemption can be granted in the absence of evidence of actual expenditure, also came up before a co-ordinate bench of this Tribunal in the case of one Madanlal Mohanlal Narang, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 ITR 260 wherein Their Lordships had held that exemption under section 4(3)(vi) was available even if portion of the allowance was not consumed and stood as surplus in the hands of the employees. Subsequently, though this decision was reversed by the Hon'ble Supreme Court in the case of CIT v. Tejaji Frasaram Kharwalla 67 ITR 95, not before section 4(3)(vi) was amended, with effect from 1st April, 1955, by Finance Act, 1955. This amendment, it appears, resulted in considerable apprehension amongst the salaried employees as to how can they be expected to maintain meticulous details and evidence of expenditure incurred by them for the actual usage of allowance. To allay these apprehensions, the Central Board of Direct Taxes on 1st August, 1955, issued a circular which is reproduced below for ready reference. ' Special allowance or benefit being reasonable and not disproportionately high - No details of expenses actually incurred need be asked for the purpose of granting exemption under section 4(3)(vi) of 1922 Act. The exemption under section 4(3)(vi) in respect of any special allowance or benefit will be available from the assessment year 1955-56 only to the extent of the sancti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, not the case of the revenue that the allowance granted to the assessee was unreasonable or excessive having regard to the salary of the assessee or the legitimate minimum requirement for the purpose for which the allowances were granted. We have also noted that the quantum of these allowances is prima facie reasonable vis-avis salary of the assessee and the purposes which the allowances were given....." It is thus dear that unless the quantum of allowances in respect of which exemption under section 10(14)(i) is claimed is found to be excessive or unreasonable, there cannot be any occasion for the Assessing Officer to call for the actual evidence of expenditure. 25. To demonstrate what can be considered reasonable allowance, learned counsel for the assessee has invited our attention to a copy of the circular Q/FD/695/1/90, dated 28th March, 1995 issued by the Government of India (Ministry of External Affairs) which sets out the rate at which a Government servant is entitled to daily allowance when he travels to various countries. The rate at which daily allowance is granted to the Government servants for some of the countries is as follows: Australia US $ 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aviation sector, as also keeping in mind the fact that aviation crew is generally required to stay in premium five star hotels where costs are high, we are of the considered view that the daily allowance at the rates prescribed for the Government employees which ranges between US $ 50 to US $ 75 per day (minus 10 per cent for the breakfast which is provided to the assessee by the airline employer), to meet the costs of meals beverages and other incidental expenses, cannot be said to be excessive or unreasonable allowance. To that extent, we accept the contention of the assessee. We direct the Assessing Officer to accordingly grant exemption under section 10(14)(i) to the allowances, by adopting daily rates so fixed by the Government of India as the maximum permissible rate eligible for exemption under section 10(14)(i) without productions of evidence of actual expenditure, out of the consolidated flying allowances received by the assessee. In case, however, the allowance actually received by the assessee for a particular day is less than the daily allowances fixed by the Government of India, the exemption will be restricted to the actual allowance received by the assessee. 27. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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