Judgment:
ORDER
N. R. PRABHU, A. M. :
These two appeals relate to the asst. yrs. 1989-90 and 1991-92. Common contentions have been raised. The appeals, which are against the order passed by the ITO under S. 201/192, are heard together and are being disposed of by this consolidated order.
2. The only grievance of the assessee in these appeals is that the Commissioner (A) was in error in treating the conveyance allowance paid by the assessee to the employees and also the payment received by the children of the staff members under the revised education benefit scheme as part of thee salary of the employees.
3. It is contended on behalf of the assessee that the view taken by the ITO is totally untenable. The immediate provocation for treating these two amounts as part of the salary was the amendment brought about by the Finance Act, 1988 to the provisions of S. 2(24) by insertion of a new sub-section, namely 2(24)(iiia) of the IT Act. It has been the age old practice of the assessee to grant the employees conveyance allowance at a fixed rate. This was mostly to meet the expenditure incurred by the employees of the assessee for commuting from their residence to the office and back to the residence. It is well-known that Bombay is a city of distances and people from far off places do have to commute a long distance to reach their offices. It is with a view to mitigating this hardship and with a view to meeting a part of the expenditure incurred by the employees that the scheme for the grant of conveyance allowance was introduced. In the asst. yr. 1989-90, the total number of the employees, who had received conveyance allowance of various kinds was 823 and those in the asst. yr. 1991-92 was 1021. Conveyance allowance at a uniform rate of Rs. 150 per month was paid to those employees drawing a minimum salary of Rs. 2,500 per month, in the asst. yr. 1989-90. Those who were owning two wheelers were entitled to an additional amount of Rs. 150 per month towards the cost of petrol and repairs and those, who owned cars, were entitled to draw a sum of Rs. 550 per month, which had two components, viz., Rs. 350 for petrol and Rs. 200 for repairs and maintenance. This scale was in force right from the year 1986. Due to the escalating cost of petrol and also the periodic hikes in bus and railway fare there was a revision in the asst. yr. 1991-92 and the revised scale of conveyance allowance was as under :
(i) Conveyance allowance to people not owning any vehicle - 20% of the basic, subject to ceiling of Rs. 600;
(ii) Reimbursement of expenses incurred on vehicles -
(a) Two wheelers Rs. 225;
(b) Cars Rs. 700.
In fixing this conveyance allowance the assessee was led only by the fact that the employees had to incur substantial expenditure for commuting from the home to the office and from the office to the home. This was not a tax planning scheme at all. Similarly, under the revised education benefit scheme, each child of the employee was entitled to get some scholarship from the assessee-company subject to a ceiling of Rs. 4,500 per annum.
It is contended that the expenditure incurred for commuting from home to the office and back home is an expenditure incurred in the course of discharge of the official duties has been accepted even by the CBDT, which is the apex body of the Revenue Department. In this connection, our attention is invited to Circular No. 97, dt. 14th Dec., 1972 wherein the Board has stated that even in the case of a temporary non-user of a conveyance standard deduction under S. 16(iv) could be claimed. Our attention is also invited to Circular No. 10, dt. 26th March, 1969. That Circular deals with the conditions for admissibility of standard deduction under S. 16(iv) of the IT Act. The Board has clarified in the said circular that standard deduction under S. 16(iv) could be claimed by an employee who owns a conveyance in his own name. The Board has further clarified in Circular No. 15 dt. 8th May, 1969 that since the phrase used for the purpose of employment had not been defined in the statute a declaration from the employee that the conveyance is owned by him and is being used by him for the purpose of employment may be considered adequate by the disbursing officer for the purpose of calculation of tax deductible at source under S. 192. The effect of this Circular, according to the assessee, is that the standard deduction could be availed of by an employee and there would be no obligation on the part of the disbursing officer to treat the same as income by way of salary on which tax is deductible if the claim is backed up by a declaration made by the employee. In the Circular No. 23, dt. 9th July, 1956, as corrected by Circular No. 37, dt. 21st Sept., 1956, the Board has left nobody in doubt that trips between the residence and office or regular place of work, to and fro, will be regarded as being for the purpose of employment. The assessee further relies on the Boards Circular No. 196, dt. 31st March, 1976. In paragraph 3 of the said Circular the Board has clearly laid down that if the disbursing authority is satisfied that the conveyance allowance granted to the employees is covered by S. 10(14) then the obligation to deduct tax thereon may not arise. The insertion of a new sub-clause namely, 2(24)(iiia), on which a lot of store is laid by, can in no way help the Departmental position. The new sub-clause reads as under :
'Income includes -
(iiia) any special allowance or benefit, other than perquisite included under sub-cl. (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit.'
This section is to be r/w S. 10(14) of the IT Act, which lays down that any such special allowance, or benefit, not being in the nature of a perquisite within the meaning of cl. (2) of S. 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 Govt. may, by notification in the Official Gazette, specify, to the extent to which such expenses are actually incurred for that purpose would not partake the character of income. The Government, of this purpose, has issued a Notification, which reads as under :
'In exercise of the powers conferred by sub-cl. (i) of cl. (14) of S. 10 of the IT Act, 1961 (43 of 1961), the Central Govt. hereby specifies any allowance granted to meet the expenditure incurred on conveyance in the performance of the duties of an office or employment of profit, for the purposes of the purposes of the said sub-clause for the asst. yr. 1989-90 and subsequent assessment years.'
It would be clear from the above notification that an allowance granted to meet expenditure incurred on conveyance for the purpose of the duties of an office or employment of profit would be exempt even under the amended section. The earlier dispensation of the Board that trips between the residence and the office or regular place of work, to and fro, would be regarded as being for the purpose of employment had not been rescinded. Our attention is thereafter drawn to the provisions of Expln. 2 to S. 16(1) of the IT Act under which the use of any vehicle referred to therein for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence, shall not be regarded as the use of such vehicle otherwise then wholly and exclusively in the performance of his duties. This Explanation, which was omitted from 1st April, 1986, makes it very clear that where any motor car or other vehicle is provided to an assessee by his employer for use by the assessee, the use of the vehicle for journeys from the residence to the office would be regarded as use of such vehicle exclusively in the performance of his duties. When such is the position in regard to a vehicle provided by the employer, there cannot be a different treatment in regard to a vehicle owned by an employee and used for journeys between the residence and office and back. This interpretation, according to the assessee, is fortified by the Expln. to S. 17(2), which reads as under :
'For the removal of doubts, it is hereby declared that the use of any vehicle provided by a company or an employer for journey by the assessee from his residence to his office or other place of work, or form such office or place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purposes of this sub-clause.'
This Explanation, which was introduced by the Finance Act, 1989, was only with a view to removing any doubt in this regard. The Position that would emerge from this statutory provisions and also the circulars issued from time to time, to which a reference has been made earlier is that any allowance paid to meet the expenditure for journey between the residence and place of work and from the place of work to the residence would have to be treated as reimbursement of expenditure incurred wholly for the purposes of performance of duties. Coming to the revised education benefit scheme to the children of the employees, it is submitted that such allowance was not salary under the terms of service. It is a scholarship granted by the assessee to the children of the employees and a scholar in this connection need not be regarded as a person of letters or a person of great learning. It is then submitted that even if the amount is held to be taxable the taxpayer in this case would be the children of the employees who are the recipients and not the employees themselves and in this connection our attention is invited to the decision of the Bombay High Court reported in CIT vs . M. N. Nadkarni : [1986]161ITR544(Bom) . In the said case, the Court had held that where the scholarship was paid entirely gratuitously by the company and in its sole discretion, the same was ever received by the employees, but the children concerned. The scholarship, therefore, did not partake of the character of perquisite received by the employees within the meaning of S. 17(2)(iii) of the IT Act. Further even if the amounts were taken as having been paid by the assessee, they would amount to scholarship and, hence, not liable to be included in the computation of the total income of the assessee under the provisions of S. 10(16) of the IT Act. It is submitted that the scholarship does not mean a bounty or amount given to a man of letter or a man of great learning in the literary or other spheres. A scholar, according to the dictionary meaning, is only one who is desirous of prosecuting studies or learning and, therefore, the payment, even if it is held to be received by the employees, would be exempt under S. 10(16) of the IT Act. A scholarship under S. 10(16) cannot be equated with merit scholarship. It would only mean a payment to a party for prosecution of study or for the advancement of learning.
4. As an alternate contention, it is submitted that under the provisions of S. 192 what the assessee is required to do is to deduct the tax on the estimated income of the employees. The tax deducted at source by the assessee was, in fact, on the estimated income of the employees and, therefore, for that reason also, the order passed by the ITO cannot be upheld. In this connection, our attention has been invited to the decision of the Madhya Pradesh High Court in Gwalior Rayon Silk Co. Ltd. vs . CIT : [1983]140ITR832(MP) . In the said decision, the Court has held that a duty is cast on an employer to form an opinion of the tax liability of the employees in respect of the salary income received by them, and further the employer is expected to act honestly and fairly. If these things are satisfied there would be not liability under S. 201 of the IT Act. This decision squarely covers the case of the assessee. The assessee then submits that once a regular assessment of the employee has been completed and the amount of tax was fully paid by him there is no jurisdiction for the Revenue under S. 201 of the IT Act to demand further tax from the employer in respect of the tax alleged to have been short deducted at source. Such, according to the assessee, is the decision of the Madhya Pradesh High Court in the case of CIT vs . Manager, Madhya Pradesh State Co-operative Development Bank Ltd. : [1982]137ITR230(MP) . The assessee further relies on the decision reported in CIT vs . Divisional Manager, New India Assurance Co. Ltd. : [1983]140ITR818(MP) in support of this proposition.
5. The learned Departmental Representative, on the other hand, contends that the amount received by the employees by way of conveyance allowance from the assessee is taxable under S. 17(2)(iii) or 17(1)(iv) of the It Act. To constitute salary what is required is the factum of employment and the receipt following therefrom. The conveyance allowance is admittedly an ad hoc amount paid by the assessee. It is uniform for all the employees and in such circumstances it cannot be contended that it is in the nature of reimbursement of expenses incurred in the performance of duties. The learned Departmental Representative further contends that the scholarship paid to the children of the employees would be taxable under S. 17(2)(iv) of the Act. It is an obligation met by the employer by making the payment, which, but for the payment by the employer, would have been payable by the employees. The amount cannot be claimed as exempt under S. 10(16) of the Act because that section contemplates a situation where an amount is given to a deserving person or persons to prosecute his or their studies.
6. We have heard the parties to the dispute and, in our view, the conveyance allowance paid by the assessee to its employees cannot be regarded as part of the salary paid to them. There is considerable force in the submission of the assessee that this payment has been made to meet mostly the expenditure incurred by the employees for commuting between the residence and office or a regular place of work and back. That expenditure incurred for commuting between the residence and office and office and residence would not be in the nature of salary would be evident from the Circular No. 23(LVIII-8) dt. 9th July, 1956 issued by the Board. The Board has clarified that trip between the residence and the office or regular place of work, to and fro, would be regarded as being for the purpose of employment. This aspect has also been clearly brought out by the Expln. to the proviso to S. 16(1) which was omitted w.e.f. 1st April, 1989. The Expln. to S. 17(2) would dispel all the doubts in this regard as such Explanation clearly holds that the use of any vehicle provided by a company or an employer for journey from the residence to office or a regular place of work or from such officer or place of work to the residence would not be regarded as a benefit or amenity granted or provided to the employee free of cost or at a concessional rate. When such is the position in regard to a vehicle provided by the employer, expenses granted for the maintenance of a vehicle at a modest rate cannot but be regarded as in the nature of reimbursement and not as a benefit or amenity granted or provided free of cost or at concessional rate. The ITO or for that matter the Commissioner (A) who heard the first appeal have nowhere established that the scale at which conveyance allowance is paid to the employees is excessive or unreasonable. This is having regard to the escalating cost of travel by any mode of transport. The ITO would have been justified in treating part of the conveyance allowance as part of the salary of an employee only where the same was found to be excessive or where the salary has been paid in the garb of conveyance expense. Since this is not the case here, we are of the view that the assessee was under no obligation to deduct the tax at source on conveyance allowance.
7. As regards the payment under the revised education benefit scheme, we are of the view that the same also cannot be considered as a perquisite. An employee under the terms of his service cannot demand as a matter of right any payment from the assessee for meeting the cost of the education of his or her children. Though the payment is made to the children uniformly there is no vested right if the employee to claim the payment. There had also been instances, though very few, where such claim has been rejected by the company. The decision of the Bombay High Court in the case reported in : [1986]161ITR544(Bom) (supra) should set at rest all the controversies generated in this regard by the Revenue. That decision supports the view canvassed by the assessee before us. Even if the payment by way of scholarship is regarded as payment to the employees the same would still be exempt under S. 10(16) of the Act in view of the said decision. We in the circumstances uphold the contentions of the assessee.
8. In view of the foregoing, we do not consider it necessary to adjudicate on the alternate plea raised by the assessee in the course of the hearing as the assessee succeeds on its main thrust which is that conveyance allowance is not part of the salary of the employees and further payment by way of scholarship is also not salary or profit in lieu of salary.
9. In the result, the appeals are allowed.