The Life Insurance Corporation of India, Southern Zonal Office, L.i.C. Building, 102, Anna Salai, Chennai-2 and Another Vs. Commissioner of Income Tax, Tamil Nadu -v, Chennai-34 and Seven Others - Court Judgment

Excerpt:
direct taxation - additional conveyance allowance - section 10 (14) of income tax act, 1961 and rule 2bb of income tax rules, 1962 - assessee paid additional conveyance allowance to its officers to meet expenses incurred in performance of duties - whether additional conveyance expenses allowable expenditure - as per rule 2bb allowance can be granted to meet expenses incurred on conveyance in performance of duties of office - additional conveyance allowance deductible expenditure. - - therefore, i am of the view that the respondents have overlooked rule 2bb prescription and failed to consider the eligibility of the officers for the deduction. 3797, of 2000, it will be in the interests of the petitioners as well as the department to apply the law as interpreted by this court.order1. writ petition no.3797 of 2000 is filed by the life insurance corporation of india, southern zonal office against the proceedings of thecommissioner of income tax holding that the additional conveyance allowance is taxable as part of salary income. 2. writ petition no.5987 of 2000 is filed by the association consisting of development officers in the office of life insurance corporation of india praying for the issue of a writ of mandamus to forbear the respondents and other assessing authorities under the income tax act from levying, assessing and demanding income tax from the members of the petitioner association in respect of additional conveyance allowance. 3. the officers of the life insurance corporation of india are paid additional conveyance allowance as part of their.....

Judgment:
ORDER

1. Writ Petition No.3797 of 2000 is filed by the Life Insurance Corporation of India, Southern Zonal Office against the proceedings of theCommissioner of Income Tax holding that the additional conveyance allowance is taxable as part of salary income.

2. Writ Petition No.5987 of 2000 is filed by the Association consisting of Development Officers in the office of Life Insurance Corporation of India praying for the issue of a writ of mandamus to forbear the respondents and other Assessing Authorities under the Income Tax Act from levying, assessing and demanding income tax from the members of the petitioner Association in respect of additional conveyance allowance.

3. The officers of the Life Insurance Corporation of India are paid additional conveyance allowance as part of their remuneration. According to the petitioners, this allowance is specifically granted to meet the expenses wholly, necessarily and exclusively incurred, in the performance of the duties. On the basis of the demands made and after prescribing certain norms for the eligibility, additional conveyance allowance was granted. On the basis of the advice given and their belief that they are not liable to be included as part of their salary for deduction of tax at source, the annual return was filed by the Chennai Division of the Corporation on that basis. However, the Income Tax Officer took the view that the additional conveyance allowance is liable to be included as part of the salary. According to the Income Tax Department, it was not covered by Section 10(14) of the Income Tax Act 1961 read with Rule 2-UB and consequently not eligible for exclusion. The said order was challenged by way of revision before the Commissioner who, by an order dated 25.11.99, rejected the revision confirming the order of the Income Tax officer. They have followed the decision of this court in C.I.T. v. Rajendran, 235 I.T.R. 515. The writ petition is filed against this order in revision. The argument and the point raised were considered in reference to the additional conveyance allowance. The stand of the Department is mainly based on the judgment of our High Court in Rajendran's Case, 235 I.T.R. 515 referred to above.

4. Learned senior counsel appearing on behalf of the petitioners submitted that the judgment rendered by this court was in reference to Section 10(14) of the Act whereas the Notification dated 21.2.89 which is essentially different from Rule 2BB. According to him, the law has changed subsequent to the amendment and in the changed circumstances, the said decision cannot be invoked.

5. Chapter III of the Income Tax Act, 1961 provides for incomes which do not form part of total income. Under Section 10, income falling under the clauses set out thereunder shall not be included in computing the total income of the previous year. Sub-section (14) deals with special allowance. The said provision was amended by Direct Tax Laws (Amendment) Act, 1987 with effect from 1.4.89. There was a further amendment by Finance Act of 1995 with effect from 1.7.95 which, substituted the words

'As may be prescribed' for the expression. 'As the Central Government may, by notification In the official gazette, specify'

Pursuant to the aforesaid provision, Rule 2BB of the Income Tax Rules was inserted by the Income Tax (VIII Amendment) Rules, 1995 with effect from 1.7.95. The relevant portion Insofar as this case is concerned is extracted below:

'2BB (1) For the purposes of sub-clause (i) of Clause (14) of Section 10, prescribed allowance, by whatever name called, shall be the following, namely:-

........ .......... ............

(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.'

6. It is seen that Section 10(14) was amended by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1.4.89 and again by Finance Act 1995 with effect from 1.7.95. Consequent on the aforesaid amendment, the special allowance of benefit which is eligible for relief under Section 10(14) is to be prescribed by framing rules in this regard. It is pursuant to these provisions that Rule; 2BB has been enacted. As per this prescription, the allowance should be granted to meet the' expenditure incurred on conveyance in performance of the duties of an office. This excludes the employee provided with free conveyance. The respondents have to look into the question whether the expenses had been incurred in conveyance in performance of their duties and the claim is justified or not. The rule that has been prescribed imposes an obligation on the Department to look into the claim and grant it if it comes within the four comers of the prescription.

7. The contention of the learned Standing Counsel is that the judgment in Rajendran's case, 235 I.T.R. 515 referred to earlier covers the filed and that the additional conveyance allowance shall qualify for deduction only when there is a reimbursement. Insofar as the first point is concerned, the Division Bench did not consider the prescribed Rule 2BB. The Division Bench was dealing with Section 10(14) and noted the argument on behalf of the Department that to enable the assessee to take advantage of Section 10(14) of the Act, there must be a notification by the Central Government specifying the extent to which the expenses are allowable. The Division Bench observed as follows:

'Till now, no such notification was issued by the Central Government and therefore, the deduction under Section 10(14) of the Act cannot be claimed.'

In reference to the question of reimbursement, the Division Bench observed as follows

'Even according to this notification, unless the allowance is notified under Section 10(14)(i) of the Act, no portion of it can qualify for tax exemption.'

It is further stated that such portion of the incentive/bonus which is actually spent by the Development Officers for duties of office can still be exempted from tax, if the Life Insurance Corporation of India makes the paymentagainst expenses incurred by -the Development Officers by way of reimbursement of expenses and such reimbursements will not form a part of the salary of the Development Officers. In the present case, there is no reimbursement of the expenditure incurred by the Development Officers' and therefore, the expenditure incurred by the Development officers by themselves cannot qualify for exemption under Section 10(14)(i) of the Act. Relying on the Circular of the Central Board of Direct Taxes, it was held that only when there is reimbursement of expenditure incurred, deduction under Section 10(14) can be claimed. The import of Rule 2BB was not at all considered by the Division Bench.

8. A Division Bench of the Bombay High Court, in L.I.C. Class-1 Officers' Association v. L.I.C. of India, 1988 (229) I.T.R 511, while construing Rule 2BB of the Rules, held that to claim exemption, the conveyance allowance must be necessarily expended for meeting expenses wholly and necessarily, incurred or to be incurred in the performance of duties of an office. The assessee must satisfy two tests namely that they are expenses of which it can be said at the least that they are wholly and unnecessarily incurred in the performance of duties of the office and secondly, the expenses were also expenses which the assessee is required, by the conditions of his service, to incur out of his remuneration.

9. Therefore, when such of these allowances or benefits which are considered to be exclusively incurred in the performance of duties of an officer has been prescribed, then the Income Tax Department is bound by the law as prescribed. It is not open to the Department not to take into account Rule 2BB (c) in considering the additional allowance. Therefore, I am of the view that the respondents have overlooked Rule 2BB prescription and failed to consider the eligibility of the officers for the deduction. Hence, the petitioners are entitled to succeed and a Mandamus as prayed for wilt have to be issued.

10. Learned Standing Counsel objected to the maintainability of the writ petitions filed by the Association since each of the members have effective alternative remedies of appeals against the assessment orders, and they must exhaust the same. All the assessment orders are stereotyped orders disallowing the additional allowance on the basis of the Division Bench judgment. In the light of the view I have taken in W.P. No. 3797, of 2000, it will be in the interests of the petitioners as well as the Department to apply the law as interpreted by this Court. Hence, this being a pure question; of law, the writ petition filed by the Association is also to be allowed.

11. Accordingly, both the writ petitions are allowed as prayed, for Consequently, the respondents are directed to re-consider and pass fresh orders on the claim of additional conveyance allowance in the tight of Rule 2BB of the Rules, expeditlously. No costs consequently, W.M.P. Nos.5843 and 8998 of 2000 are closed.