2007 (1) TMI 155 - HC - Income Tax

Claimed exemption u/s 10(5) read with rule 2B of the Income-tax Rules 1962 - Expenses incurred by the employees on account of LTC - Orders passed u/s 201(1) and 201(1A) - HELD THAT -Tribunal has recorded a categorical finding that the assessee had reimbursed the expenses incurred by its employees for LTC after obtaining all the information in the prescribed pro forma then the assessee is entitled to exemption. Moreover the accounts were subjected to verification by the auditors appointed by the Comptroller and Auditor General of India and no discrepancy has been pointed out by the auditors. The Assessing Officer has failed to point out any specific instance where the expenses have been reimbursed to an employee on the basis of a fraudulent or wrong certificate given by him/her. Moreover there are categorical findings by the Tribunal that the exemption for LTC deserved to be granted to the assessee-company because the declaration filed in the prescribed pro forma by the assessee gives full details of the journey undertaken by the employee and the expenses actually incurred by them. The action of the assessee-company has been found to be bona fide. In view of the above we do not find that any question of law would arise warranting admission of the appeal because the fact as to whether an employee of the assessee-company had undertaken the journey to avail of LTC and has claimed the same bona fide is necessarily a question of fact. The Tribunal after going into the detailed certificate furnished on the prescribed pro forma by the employees of the assessee-company have found that full details of journey undertaken by them along with expenses incurred have been given. If that be so then no question of law would arise because these are pure questions of fact. Therefore both the appeals are decided against the Revenue and in favour of the assessee.

Summary

Issues:
1. Jurisdiction under section 260A of the Income-tax Act, 1961.
2. Exemption of LTC claimed by the assessee.
3. Treatment of LTC amount as part of salary for TDS purposes.
4. Interpretation of section 10(5) of the Income-tax Act, 1961.
5. Justification of the Income-tax Appellate Tribunal's decision.

Jurisdiction under section 260A of the Income-tax Act, 1961:
The Revenue invoked the jurisdiction of the High Court under section 260A of the Income-tax Act, 1961, challenging the order of the Income-tax Appellate Tribunal. The Tribunal had reversed the Assessing Officer's decision regarding the treatment of LTC amount as part of salary for TDS purposes.

Exemption of LTC claimed by the assessee:
The assessee, a Government enterprise, allowed its employees exemption in respect of LTC based on certificates provided by employees. The Assessing Officer contended that the assessee failed to prove that the LTC amount was utilized by the employees as per the Act's provisions, leading to TDS implications. The Commissioner of Income-tax upheld this view, but the Tribunal reversed it, emphasizing that the expenses were reimbursed after due verification and the action of the assessee was bona fide.

Treatment of LTC amount as part of salary for TDS purposes:
The Assessing Officer treated the LTC amount as part of salary for TDS purposes due to alleged lack of evidence of actual journey performance by employees. However, the Tribunal held that the assessee had reimbursed expenses for LTC to employees without fault, as the declaration filed by employees contained full details of the journey and expenses incurred, indicating a bona fide action.

Interpretation of section 10(5) of the Income-tax Act, 1961:
The issue revolved around the interpretation of section 10(5) of the Act, which provides for exemptions related to LTC. The Tribunal found that the assessee's actions were in compliance with the requirements of this section, as evidenced by the detailed certificates provided by employees regarding their LTC expenses.

Justification of the Income-tax Appellate Tribunal's decision:
The High Court upheld the Tribunal's decision, emphasizing that the Tribunal's findings regarding the reimbursement of LTC expenses after due verification and the absence of fraudulent actions by the assessee were crucial. The Court concluded that no question of law arose as the Tribunal's decision was based on factual assessments and compliance with relevant provisions.

In conclusion, the High Court dismissed the Revenue's appeal, upholding the Tribunal's decision in favor of the assessee based on the bona fide actions of the assessee in reimbursing LTC expenses and the compliance with relevant legal provisions.