Commissioner of Income-tax Vs. Maddi Sudarsanam - Court Judgment

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direct taxation - unspent travelling allowance - sections 2 (24), 10 (14) and 260 (1) of income tax act, 1961 - under section 10 (14) income tax officer included unspent travelling allowance in assessee's total income - record did not contain information about total income of traveling and other allowance paid, extent of expenditure incurred therefrom and balance - direction issued to tribunal to examine particulars. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it shows that when an insurer is impleaded and has been given notice of the case, it is entitled to defend the action only on grounds enumerated in sub-section (2) of section 149 of the act, and no other grounds are available to it. the insurer is not allowed to contest the claim of the injured or heirs of the deceased on other grounds, which are available to the insured. if insurer is permitted to contest the claim on other grounds it would mean adding more grounds of contest to the insurer and will be negation of the intention of the legislature and annihilate mandate of the provisions of sections 170 and 149 of the act. the insured can pursue appeal only after giving up the insurer as the appellant and not otherwise. in the instant case, the insurer has not withdrawn from party array but has remained prosecuting the appeal with the insured on the grounds which are available only to the insured. therefore, the joint appeal as filed by the insured and the insurer is not maintainable. section 166: [v. gopala gowda & jawad rahim, jj] claim for compensation accident due to mechanical defect in the vehicle held, it is not in dispute that the claimant suffered injuries in an accident, which occurred during the course of his employment, albeit due to his negligence but law does not render him remediless. statutory right is conferred on him, accruing by virtue of his employment under insured to claim compensation under workmens compensation act. the insurer is statutorily duty bound to discharge the liability of the owner of the vehicle, to pay such compensation to the employee, as mandated under the provisions of section 149 of the act. the right of an injured employee or his dependents as the case may be to be compensated, when injury is suffered or death occurs during his employment, is recognised not only under workmens compensation act, but also under benevolent provisions under section 166 and 167 of the m.v. act. the right of driver to seek compensation is not restricted only to the workmens compensation act, it has been enlarged to enable such person to seek just compensation (sections 166 and 168), conferring upon him the right of election engrafted under section 167 of the act to choose either of the two forum. the only defence which the insurer could take is limit of its liability as enumerated under section 147 of the act, leading to contest, inter alia, only between insured and insurer and does not impact claimants right to recover the compensation determined by the tribunal which crystallizes into enforceable right against both. in the instant case, the claimant/driver has exercised right of election under section 167 of the act to seek compensation under section 166 of the act resulting in award passed by the tribunal. therefore, the insured and the insurer have no escape but to discharge the said award as directed. undisputedly, in this case as deduced for proved facts, the vehicle in question was not properly maintained by the owner and despite faulty brake system, the claimant had undertaken the hazardous journey to his peril at the behest of and at the instruction of the owner. the owner is therefore, tortfeasor. section 168: [v. gopala gowda & jawad rahim, jj] insurers limit of liability - held, it is well settled that the liability of the insurance company for payment of compensation can be statutory or contractual. is for the insurance company to show that the insurance policy was a statutory policy and not a contractual policy to restrict its liability. that issue was neither raised before the tribunal nor is raised in this appeal requiring decision. thus, if at all the insurer has any valid ground to restrict its liability, it can proceed against the insured but firstly it has to discharge the award as required under section 149 (1) of the act. where the owner/insured has failed to maintain the vehicle as per prescribed safety standards and has caused the claimant to drive the vehicle with mechanical defects, the owner would be the tortfeasor and the claimant can maintain a petition seeking compensation under the provisions of the act, instead of seeking compensation under the workmens compensation act. on facts, held, the material evidence on record, particularly, with regard to the income of the claimant, his age, medical evidence and the evidence relating to pecuniary loss has not been considered by the tribunal in the correct perspective, which has resulted in passing of the impugned award, disproportionate to the pecuniary loss and the loss of future income of the victim. the settled principles governing determination of compensation has been given a go-bye. compensation of rs.4,15,150/- awarded by the tribunal was enhanced to rs.8,20,000/-. - 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. 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. 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. 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.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.