TMI Blog2010 (2) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... e expression “of profit” qualifies only “employment” and does not qualify “office - In the case of an MLA, he may not be holding an employment of profit but he is certainly holding an office of MLA and as such whatever allowances or benefit granted to it to meet the particular expenses, he is entitled for exemption upto the applicability of section 10(14) Act to the allowances granted to the assessee-MLAs whether the special allowances or the benefits other than the perquisites, forms part of the total income defined in section 2(24) of the Act - all allowances section 10(14) can be invoked subject to proof of the expenditure to be incurred in respect of that purpose to which the allowances are given, there would be no need to make a necessary amendment time to time in section 10(17) - only those allowances are to be exempted from the total income of the assessees which are specified in these sections or Rule 2BB of the IT Rules - In the result, appeals of the assessees are partly allowed for statistical purposes - ITA NOS. 264 (VISK.) /2006 & 381 TO 385/2008 - - - Dated:- 9-2-2010 - Sunil Kumar Yadav, B.R. Baskaran, JJ. C.V.S. Murthy and G.V.N. Hari for the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government officers in high positions, the MLA also needs a clerical assistance for his work. In view of these facts that the assessee had to necessarily incur so much of expenditure and the Government is granting various allowances to meet such expenditure by fixing certain limits. It means that Government while granting fixed allowances itself is aware that immediate expenditure that one has to incur for the said purposes that were mentioned above. In fact, in most of the cases, such allowances granted by the Government are not sufficient to meet the said expenses and sometimes own funds besides various allowances granted by the Government to be utilized to keep up the reputation and future position in the constituency of an MLA. It means that the assessee had to incur and has incurred so much of expenditure and such expenditure was being reimbursed in the form of allowance by the Government. 5. The Ld. Counsel for the assessee further contended that under the identical circumstances, when reimbursement towards medical expenditure to an MLA was brought to tax by treating it as a perquisite by the assessing authority, the Hon ble High Court of Rajasthan in the case of CIT v. Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the allowances with regard to which exemption is to be granted. Initially, they allowed the exemption of the daily allowances and other allowances not exceeding Rs. 2000 p.m. to the MLAs but after receiving representation from various State Governments, the Parliament has made the necessary amendments by inserting clause 3 with effect from 1-4-2007 and granted the exemption of the constituency allowance given to the MLAs like the MPs. When specific provision is there to grant the exemption of particular type of allowances, the general provision of section 10(14) cannot be invoked. Accordingly, he placed heavy reliance upon the order of the CIT(A). 9. We have heard the rival submissions and carefully perused the orders of the authorities below and various orders/judgments referred to by the assessees. We have carefully examined the various orders of the Tribunal passed on this subject and we find that different benches of the Tribunal have held in one voice that the salary given to the MLAs cannot be assessed under the head salary . It is rather an income from other sources. The issue regarding nature of receipt was examined by the Rajasthan High Court in The case of Shiv C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , necessarily and exclusively incurred in the performance of duties of an office or an employment of profit would be exempt. The section 10(14) does not use the expression office of profit . The expression used is office or employment of profit . The expression of profit qualifies only employment and does not qualify office . It is enough if a person is holding an office and for the purpose of performing the duties associated with his office is granted an allowance or benefit specifically to meet the expenses. In the case of an MLA, he may not be holding an employment of profit but he is certainly holding an office of MLA and as such whatever allowances or benefit granted to it to meet the particular expenses, he is entitled for exemption upto the applicability of section 10(14) Act to the allowances granted to the assessee-MLAs. There is no difference in any of the aforesaid orders of the Tribunals with regard to applicability of section 10(14) of the Act. 11. The only difference of the opinion is with regard to the allowability of the expenses. In the case of Shri N. Indrasena Reddy (supra), the Tribunal has held that the MLA is holding an office though not an office of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of rule 2B as under:- 2BB(1) For the purposes of sub-clause (i) of clause (14) of section 10 prescribed allowances, by whatever name called, shall be the following, namely:- (a) any allowance granted to meet the cost of travel on tour or on transfer. (b) any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty; (c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit: Provided that free conveyance is not provided by the employer. (d) any allowance granted to meet the expenditure incurred on a helper where such helper is engaged for the performance of the duties of an office or employment of profit; (e) any allowance granted for encouraging the academic, research and training pursuits in educational and research institutions, (f) any allowances granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit. Explanation F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed to the extent to which such expenses are actually incurred for that purpose. The sub clause (ii) grants exemption in respect of any allowance granted to the assessees either to meet his personal expenses at the place where the duties of his office or employment of profit or ordinarily performed by him or the place where he ordinarily resides or to compensate the assessees for the increased cost of living. The allowances shall be one which is prescribed and the exemption shall be to the extent as may be prescribed. Rule 2BB has prescribed the allowance as well the amount exempt under section 10(14)(ii). From 1-4-1989 to 30-6-1995 the said allowances had to be one specified by the Central Government and quantum of exemption was to the extent specified in the concerned notification. Section 14 deals with 2 types of allowances (1) such allowances or benefit not being the nature of the 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 an employment of profit as may be prescribed to the extent to which such expenses are actually incurred for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situated at another place. He was paid a certain monthly salary including travelling allowances and all other allowances. The Gujarat High Court held that assessee was not entitled to claim exemption under section 4(3)(vi) of 1922 Act [corresponding to section 10(14) of the Income-tax Act, 1961], as it felt that the said travelling allowance was not a special allowance or benefit granted to the assessees, much less specifically granted to meet the expenses of travelling. 16. We are therefore of the view that while dealing with the issue of special allowances given to the assessees one has to examine the provision of sections 2(24) and 10(14) of the Income-tax Act and rule 2BB of the Income-tax rules. As per section 2(24) all allowances forms part of the income of the assessees. Section 10(14) deals with the exemption of certain special allowances and Rule 2BB identify the allowances and their limit of exemption from tax. 17. So far as proof of actual expenditure of the allowances are concerned, we have examined the various judgments including the judgment of the Apex Court in the case of CIT v. Tejaji Farashran Kharwalla Ltd. [1968] 67 ITR 95 in which it has been observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through various judicial pronouncements it has been held that the MLAs are entitled to take the benefit of section 10(14) also. We therefore of the view that according to the rule 2BB read with section 10(14) of the Act, only the conveyance allowance or the clerical allowance are required to be exempted, subject to proof that it was incurred in performance of duties of an office. So far as the telephone allowance and constituency allowance are concerned, we do not find any specific clause in Rule 2BB(1) of the Income-tax rules. Thus these allowances cannot be allowed under section 10(14) of the Income-tax Act. With regard to the medical allowances the complete facts are not available on record whether it was a reimbursement or it was an allowance like other allowances granted to the MLA. If it is a reimbursement of the medical expenditure, it can be allowed in the light of the judgment of the Rajasthan High Court in the case of Shiv Charan Mathur (supra). Otherwise no deduction can be allowed as it does not find place in Rule 2BB(1) of the IT Rules. 19. We do not agree with the proposition of the Ld. Counsel for the assessee that all types of allowances granted to the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption of particular type of allowances from the total income of the MLAs or MPs. Had it been a case that for all allowances section 10(14) can be invoked subject to proof of the expenditure to be incurred in respect of that purpose to which the allowances are given, there would be no need to make a necessary amendment time to time in section 10(17). We therefore, of the view that while dealing with the issue of special allowances granted to the MLAs or MPs one has to keep in mind both the provisions of sections 10(17) and 10(14) of the Act and only those allowances are to be exempted from the total income of the assessees which are specified in these sections or Rule 2BB of the IT Rules. Under section 10(17), the Legislature has prescribed a particular limit upto which the allowances are to be exempted from the total income of the assessees but section 10(14) is to be read with rule 2BB of the IT rules and only those allowances are to be allowed to be exempted from the total Income of the assessees which are specifically mentioned in rule 2BB subject to proof of its being spent for the purpose to which it is received or granted. We therefore, order of the CIT(A) and restore th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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