TMI Blog1996 (6) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Allowance (ii)Telephone Allowance (iii)Compensatory allowance (iv)Special Travelling allowance (v)Additional Special Travelling allowance (vi)Stay over allowance (vii)Meal Allowance (viii)Light Refreshment allowance (ix)Entertainment Allowance 3. It was claimed by the assessee that the said allowances are not taxable and the Central Board of Direct Taxes had issued instructions to that effect. It was also claimed that whatever has been paid to the employees is nothing but reimbursement of the expenses incurred by them and as such nothing was taxable and for that reason no tax was deducted at the time of payment. The submissions of the assessee did not find favour with the Assessing Officer and he has observed that the instructions issued by the CBDT and relied upon by the assessee were issued before amendment of section 10(14)(i ) of the Income-tax Act, which amendment became effective from 1-4-1989. Thus it was held that the payment made by the assessee in respect of the said allowances is taxable. Therefore, the Assessing Officer computed the short deduction of tax at source and passed an order under section 201 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars/notifications issued by the CBDT under the said section cannot be applied. He observed that by way of amendment, the section underwent an important change with effect from 1st April, 1989. He came to the conclusion that after that amendment, allowances are exempt, only when notified by the Central Government and that too to the extent they are actually spent. He also did not agree that the various allowances were mere reimbursement of expenses. He also rejected the assessee s contention that the estimate of income as made by the assessee was bona fide. He observed that the assessee now accepts that it was liable to deduct tax at source from compensatory allowance and since no tax was deducted from such payment, it clearly shows that the assessee had not acted with due care and caution and thus the assessee s conduct can be said to be mala fide. Thus the CIT (Appeals) has concluded that the assessee had made short deduction of tax at the time of payment and as such the Assessing Officer was justified in passing an order under section 201(1) of the Act and raising demand for the short deductions. As regards quantum of the short deductions, the CIT (Appeals) directed the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction. (c)That in view of the provision contained in section 119(2)(a) of the Act, the Board can issue general or special orders in respect of any class of incomes or class of cases as to the guidelines, principles or procedures to be followed like other income-tax authorities in the work relating to assessment or collection of revenue. It was pointed out that section 192 falls in Chapter XVII of the Act, which relates to collection and recovery of tax. Since the CBDT had already issued instructions regarding collection of tax with regard to this class of income, the action of the assessee in not deducting tax in respect of the various allowances cannot be said to be wholly incorrect. (d)That the various allowances paid by the assessee are actually reimbursement of the expenses incurred by the employees and as such they do not form part of the income of the recipient and the amendment made in section 10(14) of the Act with effect from 1st April, 1989 does not bring about a change in the position as it existed prior to the said amendment. It was further submitted that the instructions/circulars issued by the Board prior to the said amendment had not been withdrawn. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the decisions of the Tribunal on which reliance has been placed by the assessee were considered by the Tribunal in a later decision dated 12-3-1996 rendered in the case of Peico Electronics Electricals Ltd. v. First ITO [IT Appeal Nos. 2483 to 2486 of 1990 dated 12-3-1996] and it was held that the Assessing Officer was justified in raising demand in respect of the short deductions made by the assessee. It was also stated that in their individual returns the recipients of these allowances did not disclose these receipts and the assessments were completed under section 143(1) of the Act and the returned income was accepted. According to him, all payments made to an employee falls within the definition of salary and no part thereof can be treated as exempt unless exemption is notified under section 10(14) of the Act. Strength for this proposition was drawn from the following decisions:- (1)K.A. Choudary v. CIT [1990] 183 ITR 29 (2)CIT v. Govind Chandra Pani [1995] 213 ITR 783 (3)CIT v. B. Chinnaiah [1995] 214 ITR 368 (AP). 8. In rejoinder, the learned counsel for the assessee has submitted that the annual salary return required to be filed in Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployer to employee, is taxable as income in the hands of the employee. The major exemptions allowed under the Act were also specified. In paragraph 3 of the circular, it was clarified that consequent to the amendment of section 10(14) with effect from 1st April, 1989, all circulars, instructions and clarifications issued by the Board regarding section 10(14) up to 31st March, 1989 ceased to have effect from the assessment year 1989-90 and onwards. This was only a clarification of the legal situation. It would be wrong to infer that through this circular the earlier instructions were withdrawn. 10. It is not in dispute that the assessee is assessed to tax for the last many years. Deduction out of the salary paid has to be made as per the provisions contained in section 192 of the Income-tax Act. The said section requires an employer to make deduction from the salary of an employee on the basis of the estimated income. If an employer has made a fair and honest estimate of the taxable salary and deducted and paid tax thereon, he cannot be treated as an assessee in default under section 201(1) of the Act even if the Assessing Officer ultimately assessed the salary at a higher figure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was honest and bona fide, we are of the opinion that the assessee cannot be treated in default. The reliance placed by the learned departmental representative on the decision of the Tribunal in the case of Peico Electronics Electricals Ltd. ( supra) is of little consequence. The decision rendered in that case does not alter the position. In the said case it was found that the assessee had failed to provide all the details necessitating him to go in for estimation of short deduction. On the facts of that case it was held that the assessee did not make bona fide estimates and as such the finding was delivered against the assessee. In the instant case, we find that the estimate made by the assessee was bona fide and, therefore, the revenue fails to draw any support from the said decision. 13. In view of the foregoing reasons, we hold that the revenue authorities had no jurisdiction under section 201 of the Act to demand further tax from the assessee in respect of the short deduction made concerning the special travelling allowance, additional special travelling allowance, stay over allowance, meal allowance, light refreshment allowance and entertainment allowance. C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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