TMI Blog1995 (12) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the assessee to its employees, it has not taken into account conveyance allowance, medical reimbursement, and leave travel allowance paid by the assessee to its employees. As regards the conveyance allowance, it was the claim of the assessee that the amount incurred by the employees for coming to their office and going back would qualify for exemption under section 10(14) of the Income-tax Act. The Assessing Officer, observing that as per the provisions of section 10(14) of the Act, any allowance necessarily and exclusively incurred in the performance of duties of an office or employment or profit would only qualify for exemption, held that since the amount incurred by the employees was for the purpose of coming to their office from residences and for going back, the expenses so incurred could not be treated an expenditure incurred necessarily and exclusively for the purpose of business of the assessee. Further, since Standard Deduction is allowed under section 16(i) of the Act to salaried tax payers, the expenditure of the nature noted above would come under the umbrella of Standard Deduction itself. He therefore, held that no separate deduction could be allowed for the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to verify the tickets/receipts in support of the expenditure incurred towards the journey. He accordingly held that the amounts disbursed by way of L.T.A. which had been excluded from the purview of taxable salary were to be subjected to tax, and as such tax should have been deducted at source in respect thereof. On appeal, the CIT(A), considering the provisions of section 10(5), wherein the emphasis was on the amount of expenditure actually incurred for the purposes of such travel, confirmed the view taken by the Assessing Officer. 6. Aggrieved by the orders of the lower authorities with regard to short deduction of tax under the head 'salaries', assessee came up in appeal on that aspect. 7. Reiterating the contentions urged before the lower authorities, the learned counsel for the assessee submitted that the conveyance allowance paid and incurred by employees for coming to office and going back to residences would qualify for exemption under section 10(14) of the Act; that reimbursement of medical expenses qualify under the proviso to section 17(2) of the Act; and that leave travel allowance paid did fall for exemption under section 10(5) of the Act. With regard to reimbursem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us that assessee has been making payment of conveyance allowance to its employees in fixed sums, with no bearing on the actual expenditure incurred by them, and the same has been paid basically to enable the employees to perform the journeys to come to the work-place and to go back to their residences. It has been the contention of the assessee right from the beginning that the conveyance allowance paid to employees for coming to office from residence and returning thereto does qualify for exemption under section 10(14) of the Income-tax Act. Provisions of section 10(14) read as follows--- " (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 the Central Government may, by notification in the Official Gazette, specify 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed). The LTA and Medical Allowance paid to the four levels are- LTA (Rs. Ps.) Medical Allowance (Rs. Ps.) Level I - General Manager 9,000 9,000 Level II - Manager 4,596 2,400 Level III - Senior Executive 5,069 2,400 Level IV - Assistant 1,923 2,400 (Note: None of the employees receive medical reimbursement in excess of Rs. 10,000). B. LEAVE TRAVEL CONCESSION All the employees of the company are eligible for one month Basic + Special Allowance + Personal pay towards LTA. While calculating the employees taxation the allowance is being considered as income of the employee in alternative years. As employee surrender the tickets at the time of exit from the station, the company is relying on a declaration from the employee that he had spent the amount towards LTA. (A copy of the declaration is herewith enclosed). " Thus, the amounts that have been paid by the assessee by way of medical reimbursement and Leave Travel Allowance are on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eave Travel Allowance reads as follows---- " (5) in the case of an individual, the value of any travel concession or assistance received by, or due to, him--- (a) from his employer for himself and his family, in connection with his proceeding on leave to any place in India; (b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service. subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government; Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel...." The proviso to section 10(5) makes it abundantly clear that the exemption under this clause shall in no case exceed the actually incurred expenses in connection with the travel. So, before granting the exemption in respect of any leave travel concession or assistance, one has to restrict the same to the actually incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gdish Mills Ltd.; of the Gujarat High Court in Petlad Turkey Red Dye Works Co. Ltd. v. CIT [1965] 55 ITR 532; and in Kathiawar Coal Distributing Co. v. CIT [1958] 34 ITR 182; of the Bombay High Court in Hira Mills Ltd. v. CIT [1965] 57 ITR 103; and of the Supreme Court in CIT v. Patney Co. [1959] 36 ITR 488, it was contended before the CIT(A) on appeal that what is to be looked into is whether there is an express or implied request from the payee that the payment should be effected through a particular mode and whether the mode of payment actually resorted to is in conformity with the general business usage. Inviting attention to the various agreements, it was argued before the CIT(A) that in all these cases, there was no express or implied request from the agents to the effect that the post office or the courier should be construed as their agent for the purpose of commission payments. The CIT(A) observing that even though there is no request from any of the agents that payments should be sent through drafts purchased at Hyderabad, it has to be reasonably presumed that such is the intention between the assessee-company and its agents that commission payments would be effected th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s pointed out that M/s. Astras Ltd., showed that the agent shall be entitled to a commission of 3% on C F values for supplies made to M/s. Square Pharmaceuticals Ltd., Dhaka, whereas the agreement with M/s. Mika Enterprises, Dhaka stipulates that for the services rendered to the assessee company, the agent would be entitled to commission on all direct and indirect sales and that the commission would be settled on mutual agreement, and whereas the consignment agreement with MED Export Service vide clause 5.6 thereof shows that the commission due to the consignee for the products sold during the current period would be paid by the consignor to the consignee within 14 days from the date of receipt of the monthly payment from the consignee. Thus, in the agreements with M/s. Astras Ltd., M/s. Mika Enterprises and M/s. MED Exports the learned counsel for the assessee pointed out that there was no stipulation with legard to the mode of payment. As regards the agreement with M/s. A.P.C. Pharmaceuticals and Chemicals Ltd., Hongkong, though the agreement indicated the mode of payment that it shall be effected 'by telegraphic transfer through banking channels', it was argued, that it was de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Departmental Representative, on the other hand, placing strong reliance on the decisions of Supreme Court in Ogale Glass Works Ltd.'s case ; Jagdish Mills Ltd.'s case and Kirloskar Bors. Ltd.'s case strongly supported the orders of the lower authorities. 17. We have considered the rival submissions and perused the orders of the lower authorities, judicial pronouncements relied upon by both sides and other papers filed before us. It is an admitted fact that the payments in respect of all the agents have been made by obtaining drafts at Hyderabad on the branches of the banks at other countries, and the same have been remitted from Hyderabad either through the postal channel or through couriers. It is the contention of the assessee that since the commission payments have been received by the agents at other countries and not in India, merely because the drafts were obtained at Hyderabad (India) or remitted from Hyderabad, the payments cannot be held to have been in India, and as such no tax could be deductible at source in respect of those payments, more so, when those agents have not insisted on payments through drafts or through postal or any particular channel. On the other h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less the collection charges, and the assessee credited the account of the Supply Department and made corresponding debits to the bank's account and bank charges account. The assessee sent its formal stamped receipts to the Government of India only after the receipt of the cheques and not along with the bills submitted by it. On these facts, the stand of the Department was that the assessee received income, profits and gains in British India within the meaning of section 4(1)(a) of the Indian Income-tax Act, 1922, on the ground that the encashment of the cheques in Bombay amounted to receipt of income in British India. It was also contended before the High Court and the Supreme Court that the posting of the cheques at Delhi operated as a payment in British India. On these facts, the Supreme Court held that in one view of the matter there was, in the circumstances of this case, an implied agreement under which the cheques were accepted unconditionally as payment, and, on the other side, even if the cheques were taken conditionally, the cheques not having been dishonoured but having been cashed, the payment related back to the dates of the receipt of the cheques and in law the dates o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tish India, the quest on resolves itself into a narrow one, namely, whether the post office acts as the agent of the assessee or of the British Indian Buyers. If the post office acts as the agent of the assessee, as soon as the cheques and hundis are posted by British Indian buyers in British India, the title to the cheques and hundis passes to the assessee and the assessee receives the cheques and hundis in British India. If, on the other hand, the post office acts as the agent of the British Indian buyers, there will be no receipt of the cheques and hundis by the assessee until the cheques and hundis reached their destination. In order to determine the place where payment can be said to have been received by a creditor from the debtor when such payment is made by post, the court must first inquire whether there is any agreement between the parties. If there is an agreement between the parties, it must determine the place of payment and in such a case there is no room for implication. If there is no agreement between the parties in regard to the place of payment, the court must see whether the cheque or hundi was posted by the debtor pursuant to a request made by the creditor to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of New Jehangir Vakil Mills Ltd., the Bombay High Court held that mere posting of the cheque from British India was not sufficient to hold that the cheques were posted in pursuance of an implied request made by the assessee to send them by post. 23. In the case of Hira Mills Ltd. the assessee, a non-resident company carrying on the business of manufacturing cotton textiles in Ujjain in a Native State outside British India, sold its products to buyers in British India pursuant to contracts entered into in Ujjain under which delivery was to be F.O.R. Ujjain. In submitting the bills in the prescribed form, the assessee wrote the instruction as to payment as follows--- " Please pay by cheque to the Imperial Bank, Indore". The Bombay High Court in that case held that the instruction as to payment merely constituted the Imperial Bank at Indore a nominee of the assessee to receive payment on its behalf, and the words "at Indore" did not have the effect of constituting Indore the place of payment. As the assessee had instructed that the payment be made by cheques and the normal course of sending the cheques was by post, there was an implied request to send the cheques by post and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or implied authority to send by post; but if there be no such authority, the post office is the agent of the sender. 27. In the case of ESI Corpn., dealing with the obligations of a debtor to a creditor to pay his debt, held inter alia in para-17 as follows--- " The common law rule is a reasonable rule and it is in conformity with justice and equity because it recognises the obligation of the debtor to pay his debt and that obligation can only be discharged by the debtor going to his creditor and repaying the amount, and the common law rule imposes this obligation only when there is no express contract to the contrary: Bharumal v. Sakhawatmal AIR 1956 Bom. 111. The principle is that when a man agrees to do any particular thing, he must do all that is necessary. If it be to pay money to A, on a particular day, he must seek A: Soward v. Palmer (1818) 129 E.R. 390. Section 49 of the Indian Contract Act does not preclude the application of the rule of English Common law that the debtor must seek out his creditor and pay his debt where the creditor happens to reside, unless there is an arrangement to the contrary; Ramalinga Iyer v. Jayalakshmi AIR 1941 Mad. 695, Annamalai Chettyar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... draft, sent through post, the post office would not constitute the agent to the payee, and the property in the cheque or draft would pass to the addressee/payee, when it is received by him, and in such an event the place of payment would also be the place of receipt of the cheque/draft by the payee, and not the place where the cheque or draft has been obtained or posted. 30. A perusal of the agency agreements in the case on hand, copies of which are also filed before us in the paper-book, except in the case of assessee's agreement with A.P.C. Pharmaceuticals and Chemicals there was no indication whatsoever with regard to the method or manner in which payment of commission was expected to be made by the assessee. The agreements are silent on that aspect. Thus, there was no express request by the said foreign agents for making remittance of the commission in a particular manner. There is nothing on record to suggest that the said agents, by their subsequent conduct, impliedly requested the assessee to make remittance through post or through any other particular means. As held by the Gujarat High Court in the case of Petlad Turkey Red Dye Works Co. Ltd., from the mere fact that com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for making remittance of commission to those agents, at their express or implied request in that behalf, and as such having not proved that the office of the courier or post office in India constituted the agent of those foreign agents who received the commission, and consequently that those foreign agents have received the payments of commission in India through such constituted agents viz. post office, courier office, etc. the commission payments cannot be brought to tax in India, and as such assessee was not liable to deduct tax in respect of those commission payments. 31. Now dealing with the assessee's agreement with M/s. APC Pharmaceuticals, Hongkong, a copy of which is filed at pages- 110 111 of the assessee's paper-book, clauses 4 and 6 deal with 'collection of money' and 'Agency commission', and they read as follows--- " (4) Collection of money: The Agent shall see all the money relating to the supplies made against orders placed by the customers are resulted directly to the principal and the agent shall not collect any amount from the customer for the orders placed by them. (6) Agency commission: The agent shall be paid a commission of maxi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer through Banking channels' the assessee made remittance of the same by obtaining Drafts from Canara Bank and Bank of Baroda, Hyderabad on the Bank of New York, New York, and State Bank of India, Hyderabad on its New York Branch, New York. Thus, the remittance was made otherwise than 'telegraphic transfer through banking channels' payable at Hongkong. The banks from which the assessee obtained the drafts for making remittance of the commission to the foreign agent, would have constituted the 'agent' of the said foreign agent, viz. APC Pharmaceuticals, only if the remittance was made through that agent by 'telegraphic transfer through banking channels' payable at Hongkong, as per the request of the said foreign agent. Since those banks merely issued drafts to the assessee, for passing on the same to the foreign agent, they cannot be the agents of APC Pharmaceuticals, since the Banks were not engaged for making any 'telegraphic transfer' payable at Hongkong, as desired by the said APC Pharmaceuticals by the terms of the agency agreement. In this view of the matter, since the Banks in India, which issued the drafts in respect of commission payments to M/s. APC Pharmaceuticals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad voluntarily deducted tax amounting to Rs. 54,872 on the component of salaries and filed a revised return on 20-6-1994. It was on scrutiny of the said revised return, the Assessing Officer noticed that apart from the component of salaries, the assessee-company had disbursed Special Allowance, House Rent Allowance and Conveyance Allowance, which had not been considered for the purposes of T.D.S. He noted the Revenue's contention that till the passing of the order under section 201, assessee had never disputed the chargeability or otherwise of the salaries paid to its employees at Moscow and that the ground taken in the course of the appellate proceedings by the assessee-company that salary paid to non-resident employees at Moscow should not be brought to tax under section 195 was a new ground and should not be admitted in the light of Rule 46A of The I.T. Rules. The CIT(A), observing that there was a master-servant-relationship subsisting between the appellant company on the one hand and its employees on the other; that the employees were rendering services to the assessee-company and received the allowance as a compensation for such services rendered; and that there was no disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it came up with the plea that the employees were rendering services to the assessee-company and received the allowance as a compensation for such services rendered, and as such the salary paid to non-resident employees at Moscow for the services rendered by them at Moscow should not be brought to tax under section 195 in India; and that when something was not chargeable under provisions of the Income-tax Act, the question of applying section 195 would not arise, and as such neither section 195 nor section 192 would apply. Because the assessee deducted the tax amounting to Rs. 54,872 on the component salary and filed a revised return on 20-6-1994 immediately on receipt of intimation from the Department, and when questioned about non-deduction of tax with regard to special allowance, came up with the pleas regarding the very assessability of the incomes of those non-resident employees to tax in India, the lower authorities confined themselves to the question of allowability of exemption in respect of special allowance, mechanically rejecting the other contentions of the assessee relating to the very assessability of the income of those employees in India. The learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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