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TMI Blog2010 (2) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... (17) of the Income-tax Act. (herein after called as an Act) under the head 'income from other sources'. The assessee preferred an appeal before the CIT(A) with the submissions that once the income under the head 'salary and other allowances' are to be assessed to tax under the head 'income from other sources', the necessary expenditures incurred in earning that income is to be allowed and only a net profit is to be taxed and not the entire receipt. 3. The CIT(A) examined the issue in the light of various judgments but was not convinced with the contentions of the assessees and he confirmed the disallowance after having observed that the appellant has failed to establish any nexus that such expenditure has been incurred wholly and exclusively for the purpose of making of earning such income. 4. Now the assessee is before us. During the course of hearing of the appeal, the Ld. Counsel for the assessee has invited our attention to the fact that an MLA who is elected by the public has got a bounden duty to move from place to place in his constituency, enquire the difficulties of the people in order to recommend the necessary help or benefits to be done to the public in his constitue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 28-2-2008] (2) N. Indrasena Reddy v. ITO [IT Appeal Nos. 218 & 219 (Hyd.) of 2005 dated 31-1-2006] (3) P. Kista Reddy v. Dy. CIT [IT Appeal Nos. 377 & 378 (Hyd.) of 2008 dated 23-7-2009] (4) Y. Yella Reddy v. ITO [ITA Nos. 754 to 758 (Hyd.) of 2008, dated 4-7-2008] (5) R. Ravindranath Reddy v. ITO [ITA Nos. 1136 to 1139 (Hyd.) of 2008, dated 23-7-2009] (6) Jaswant Singh v. ITO [2005] 96 TTJ (Ind.) 660 (7) CIT v. Maddi Sudarsanam [1988] 174 ITR 659 (AP). 7. The Ld. Counsel for the assessee further contended that in the aforesaid orders, the Tribunal has repeatedly held following the judgment of jurisdictional High Court in the case of Maddi Sudarsanam (supra) that the MLA has to necessarily maintain his office and only for that purpose, the allowance has been granted to him for the day to day expenses that would certainly occur for any Legislature. It was accordingly held that he is entitled to benefit of exemption under section 10(14) of the I.T. Act. 8. The Ld. D.R. on the other hand has emphatically argued that only lose allowance given to the MLAs are exempted, which are specifically mentioned in section 10(17) of the Act. According to the section 10(17) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 15. Therefore, the remunerations received by the MLAs and MPs cannot be taxed under the head 'income from salary' but can only be taxed under the head 'income from other sources'. Therefore, there is no controversy in this regard and following the aforesaid orders, we hold that in the instant case, the revenue has rightly treated the remuneration received by the assessee-MLAs under the head 'income from other sources'. 10. With regard to another issue whether the provisions of section 10(14) of the Act can be invoked for other allowances given to the MLAs in the instant case, we find that the various benches of the Tribunals in the aforesaid cases have categorically held in one stream that assessee is entitled to the benefit of exemption under section 10(14) of the Income-tax Act following the judgments of the jurisdictional High Court in the case of Maddi Sudarsanam (supra) in which it has been held that section 10(14) provides that any special allowance or benefit specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order was followed by another bench in the case of Bijjam Parthasarathi Reddy (supra) but while allowing the entire claim, the bench has not discussed the provisions of rule 2BB as discussed by the Tribunal in its earlier order in the case of N. Indrasena Reddy (supra) and the Tribunal has directed the Assessing Officer to allow deductions in respect of the all allowances given to the assessees. Thereafter other order of the same bench was passed in the case of Shri P. Kista Reddy (supra) in which the Tribunal has followed the order of its bench in the case of B. Parthasarathi Reddy and allowed the entire claim of allowances given to the assessees without realizing as to why the provisions of rule 2BB are not applicable while granting the exemption under section 10(14). The similar was the position in the case of R. Ravindranath Reddy (supra) in which the SMC bench has also followed the case of R. Parthasarathi Reddy (supra). Whereas, the other SMC bench of the Tribunal in the case of Y. Yella Reddy (supra) has directed the Assessing Officer to verify the genuineness of the expenditure claimed by the assessee in connection with the performance of duties of his office as MLA and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of an office or employment of profit. In order to bring the special allowances within the fold of income, the sub clause (iiia) was inserted by the Direct Tax Laws Amendment Act, 1989 retrospectively with effect from 1-4-1962. This allowances which the legislature entitled to shower the beneficial treatment may be seen in section 10(14). Thus all those special allowances other than those specifically exempt would be taxed as an income of the assessees. We have also examined the provisions of section 10(14) and rule 2BB of the Income-tax Rules and we find that rule 2BB is supplement to section 10(14) of the Act and it puts a cap on the quantum of the allowance or benefit granted to the assessees. In section 10(14) a general reference was made with regard to the special allowances but the nature of the allowances were not spelled out in that section. This left over work is done by rule 2BB in which the special allowances were identified and their quantum of exemption from tax was also fixed to the extent as notified in the notification. These exemptions is in respect of aforesaid special allowances to the extent to which the said expenses are actually incurred in that purpose. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire allowance was spent or not for the purpose to which it was granted. 15. In the case of Coal Mines Officers Association of India v. Union of India [1990] 181 ITR 346 (MP) it was held that any particular allowance unless it is notified by the Central Government for its exemption under section 10(14), read with rule 2BB it cannot be allowed to be exempted. Meaning thereby that the allowance shall be one which is prescribed and the exemption shall be to the extent as may be prescribed. Rule 2BB has prescribed the allowances as well as the amount exempt under section 10(14)(ii) [From 1-4-1989 to 30-6-1995, the said allowance had to be one specified by the Central Govt. and the quantum of exemption was to the extent specified in the concerned notification.] It has also been clarified through various judicial pronouncements that in order to avail the exemption under this clause, the assessee has to prove that the expenditure in respect of which special allowance or benefit was granted, has been incurred wholly, necessarily and exclusively in the performance of his duties of an office or employment of profit. The requirement of 'wholly, necessarily and exclusively' is cumulative a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting the expenses does not bear the character of the allowances for the meeting expenses but for performing their duties of the office for employment. This would be so even if the employer has disabled himself from demanding refund of the amount not expended for meeting the expenses incurred or to be incurred in the performance of duties of office or employment of profit and the surplus remaining in the hands of the grantee acquires for the purpose of Income-tax Act the character of the additional remuneration. Meaning thereby, the onus is upon the assessee to place relevant evidence in order to prove that the allowances given to him are spent for the purpose to which it was granted. 18. Turning to the facts of the case, we find that the assessee was granted the constituency allowance, conveyance allowance, telephone allowance, clerical allowance, medical allowance and contingency allowance besides salary. During the relevant assessment year as per section 10(17) the MLAs are entitled for exemption of the daily allowances and all other allowances not exceeding Rs. 2000 p.m. Though with effect from 1-4-2007 MLAs are also entitled for exemption of any constituency allowance receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e through the history of provisions of section 10(17) of Act and we find that at the time of enactment of the Income-tax Act, 1961, only daily allowances received by the MPs or the MLAs or any member of the committee thereof are exempted from the total income. The scope of the exemption was widened time to time and by Taxation Laws Amendment and Miscellaneous Provisions Act, 1986 with effect from 1-4-1986, the amendment was made and besides the daily allowances, all other allowances upto Rs. 1250 p.m. in aggregate in the case of MP and Rs. 600 p.m. in the case of MLA were exempted from tax. Further amendment was made in this clause by the Finance Act, 1997 and the amount of Rs. 600 p.m. in case of MLAs was increased to Rs. 2000 p.m. Thereafter, further amendment was also made by the Finance Act, 2006 and like the MPs, the constituency allowance received by the MLAs was also made exemptive from the total income of the assessees. Amendment by Finance Act, 2006 was brought in order to bring the uniformity of constituency allowances allowed by different States through their independent notifications with respect to other allowances by amending clause 3 of section 10(17) and the Legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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