Judgment:
Y.V. Anjaneyulu, J.
1. This reference relating to the income-tax assessment year 1979-80 consists of the following two questions referred by the Income-tax Appellate Tribunal at the instance of the Commissioner of Income-tax :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the receipts were not taxable and were exempt under section 10(14) of the Income-tax Act, 1961
2. Whether, on the facts and in the circumstances of the case, the savings of travelling allowance and sitting fees would not. constitute income under section 2(24)(iv) of the Income-tax Act, 1961 ?'
2. It would appear that the assessee was a director of about nine companies. In some companies he was nominated by the Andhra Pradesh State Financial Corporation and in some other companies he was a director on his own. The Income-tax Officer found that out of the travelling expenses and other allowances paid by the companies to the assessee whenever he attended meetings, there was a saving. The total extent of such savings was reckoned at Rs. 5,203 (Rs. 5,153 + Rs. 50). The Income-tax Officer sub-jected this so-called surplus to tax on the alleged ground that section 10(14) of the Income-tax Act, 1961 (herein referred to as 'the Act'), authorises levy of tax on the amount remaining unspent.
3. It appears. this question first arose in connection with the assessment year 1973-74 and taking the same view, the Income-tax Officer included in the assessee's total income unspent travelling allowance and other allowances, acting under section 10(14) of the Act. The first appellate authority as well as the Tribunal disagreed with the Income-tax Officer in the view that he had taken and held that the amount was not taxable. It does not appear that the Tribunal's view for the assessment year 1973-74 was contested by the Revenue by filing a reference application under section 256 of the Act.. In any event, it has not been pointed out to us that the matter concerning the assessment year 1973-74 was the subject-matter of consideration by this court.
4. The Tribunal also observed in its order that the same question arose in the assessee's case for yet another assessment year and in its order in ITA No. 502/Hyd/1977-78 dated August 25, 1978, the Tribunal had taken the view that the unspent allowances cannot be taxed as the assessee was not holding any 'office of profit'.
5. When the same dispute came up before the Tribunal for the assessment year 1979-80, which is now under consideration, the Tribunal followed its earlier view and rejected the Revenue's plea that the unspent travelling allowance and other allowances could be assessed under section 10(14) of the Act. The Tribunal took the view that, in the facts and circumstances, it could not be said that the assessee was holding an office of profit and, consequently, there is no conferment of power to tax the unspent allowance granted specifically for a particular purpose.
6. Section 10(14) of the Act 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 incurred for that purpose, would be exempt. In other words, the extent of expenses not actually incurred for the purpose would not earn exemption.
7. In the present case, the assessee was paid travelling allowance by companies in order to enable him to attend the meetings of the board of directors. From the order it is not clear whether the sitting fees paid to the assessee by the companies were also the subject-matter of consideration but the Tribunal refers to only 'travelling allowance and other allowances'. We, therefore, proceed on the assumption that there is no dispute about the assessability of the sitting fees received by the assessee. The question is whether the savings made by the assessee, out of the amounts paid towards travelling and other allowances, could be subjected to tax The Tribunal does not state anything particular in the order relating to the assessment year under consideration. It merely refers to the order passed for the assessment year 1973-74 which is part of the record. In the order relating to the assessment year 1973-74, the Tribunal observed :
'It may be that a director holds an office but the moot question is whether he holds an 'office of profits.'
8. It seems to us that the Tribunal was in error in considering that a person should hold an office of profit for the purpose of section 10(14) of the Act. The language of section 10(14) would clearly show 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 an employment of profit, would be exempt. 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, in our opinion, 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, he is granted an allowance or benefit specifically to meet the expenses. In the present case, the assessee is a director of nine companies. There is no doubt that being a director i6 an 'office' held by the assessee within the meaning of section 10(14) of the Act. in fact, the Tribunal concedes this in its order for the assessment year 1973-74. What the Tribunal thought was that an assessee should not only hold an office but should hold also an office of profit. In that view, the Tribunal came to the conclusion that being a director, the assessee is not holding an office of profit. It is not necessary to examine the question whether the 'director' is an 'office of profit'; it is undoubtedly an 'office', and the travelling allowance and other allowances are admittedly paid to him for the purpose of meeting expenses in connection with his travelling to attend the meetings of the board of directors. Therefore, the allowance is paid for a specific purpose and would be exempt under section 10(14) of the Act to the extent to which the allowance was spent for the said purpose.
9. Mr. Swamy, learned counsel for the assessee, submits that there was in fact no surplus or savings. The travelling and other allowances paid to the assessee, according to Mr. Swamy, were so nominal that they were hardly sufficient for meeting the expenditure. Learned counsel states that cheques issued by the companies were put in the assessee's bank account and not all the expenditure incurred in connection with the attendance at the meeting of the boards was accounted, as the assessee had spent cash out of his pocket. Mr. Swamy urges that this submission had been made before the Tribunal; but, unfortunately, no reference thereto was made by the Tribunal.
10. The record does not contain information regarding the total amount of travelling and other allowances paid and the extent of expenditure incurred. It is not clear how the surplus of Rs. 5,153 was arrived at. Apparently, the Tribunal was guided by the view taken in connection with the earlier assessment years that the assessee was not holding an office of profit and, therefore, section 10(14) was applicable. Apparently, it escaped the Tribunal's notice that if section 10(14) was not applicable, then the claim for exemption would totally fail and it would not be open to the assessee to claim exemption of the expenditure up to the extent to which it was incurred. The finding that section 10(14) of the Act, in the facts and circumstances, would have no application frustrates the very claim of the assessee for exemption. Unless the claim can be maintained under section 10(14) of the Act, the question of exemption does not arise. It seems to us that the Tribunal did not look into the fact, especially taking into consideration the fact that the same view expressed by the Tribunal in connection with the two earlier assessments was accepted by the Revenue without any contest. In our opinion, it is necessary for the Tribunal to examine the question and ascertain the total amount of travelling and other allowances paid, the extent of expenditure incurred therefrom and the balance. A clear explanation should be obtained from the assessee as to whether the balance represented savings or it was covered by expenditure otherwise met from out of the cash available with the assessee, as now contended before us. An inference that there was a saving cannot possibly be drawn from the fact that the expenditure incurred fell short of the amount received if the assessee explains that the balance amount also was spent from out of the cash available with him. The acceptability or otherwise of that explanation has to be examined before coming to a conclusion that there is any saving.
11. Ordinarily speaking, no surplus is left out of the travelling allowance paid as the amount of travelling allowance paid would cover actual expenses. We had not come across any case where the Revenue had made any endeavour to ascertain, where travelling allowances were paid, if there is any surplus left. While the tax officer may perhaps be justified in making an enquiry, experience shows that tax authorities do not involve themselves in these small exercises and show some benevolence in assuming that the entire allowance paid was spent. It is not clear in what circumstances, in the present case, a conclusion was drawn that there was a saving - we are not certain whether the saving was declared by the assessee himself or whether the Revenue drew the inference that there was a saving from out of the information available regarding the extent of allowance paid to the assessee and the expenditure incurred by the assessee therefrom. We do not think that in a case like this the Revenue should resort to meticulous accounting in order to subject to tax some small surplus left.
12. From what we have stated above, it is clear that we cannot answer question No. 1 without the particulars about which we have made a comment. It is for the Tribunal to examine these particulars while passing an order conformably to this judgment under section 260(1) of the Act. We, accordingly, decline to answer question No. 1 and direct the Tribunal to examine the matter afresh bearing in mind the principles we have set out above.
13. In view of what we have stated concerning question No. 1, it would not be proper to answer question No. 2, unless there is a surplus as ascertained by the Income-tax Officer after considering the explanations offered by the assessee. We decline to answer question No. 2 also for this reason.
14. The reference is accordingly disposed of. There shall be no order as to costs.