Exemption u/s 10(14) allowed to development officers of LIC for conveyance allowance and allowance for procuring new business
ABCAUS Case Law Citation:
ABCAUS 2993 (2019) (06) ITAT
Important Case Laws Cited/relied upon by the parties:
Ramayya & Others (214 ITR 368)
K.Pullarao Vs. ITO
Various assessees had filed the instant appeal against the orders of the Commissioner of Income Tax (Appeals) [CIT(A)]
All the assessees were development officers in Life Insurance Corporation of India. They have filed the returns of income claiming exemption u/s 10(14) of the Income Tax Act, 1961 (the Act) in respect of fixed conveyance allowance, conveyance expenditure and allowance for procuring new business.
The Assessing Officer (AO) observed that the above amounts were paid by LIC as salary or profits in lieu of salary and the LIC of India had also deducted the TDS on the amounts as they are taxable.
Considering the above payments as taxable, the AO reopened the assessments u/s 147 by issue of notice u/s 148 of the Act and taken up the cases for reassessment.
During the reassessment proceedings the assessees filed the reply stating that the exemption was claimed u/s 10(14), since, the amounts were wholly and exclusively spent on tour and travelling for mobilizing the business and are exempt under rule 2BB(1)(c) of the I. T. Rules.
The AO not being satisfied with the explanation, held that the assessees did not satisfy the following conditions required to be satisfied for allowing exemption u/s 10(14)
(i) The amount in question is in nature of a special allowance or benefit
(ii) The special allowance or benefit is not in the nature of perquisite within the meaning of section 17(2)]
(iii) Such amount is specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties of an office or employment of profit
(iv) Such amount should be specified and notified in the official gazette by the Central Government.
According to the AO, all the above conditions were required to be satisfied cumulatively, to be entitled for exemption u/s 10(14) of the Act and also there must be a notification issued by the Central Government.
In the absence of notification and the assessee not being satisfied with the conditions as above, the assessees were held to be not entitled for exemption u/s 10(14) of the Act. Accordingly, the AO made the additions to the returned income.
The CIT(A) dismissed the appeal of the assessee holding that exemption u/s 10(14) r.w. Rule 2BB is not applicable. It was observed from the foot note of Rule 2BB that additional conveyance allowance and incentive bonus paid to LIC officers are not covered u/s Rule 2BB of Income tax Rules. Accordingly, the CIT(A) confirmed the addition made by the AO and dismissed the appeal of the assessees.
Before the Tribunal the assessee argued that the said allowances were fixed allowances and paid by the employer after being satisfied that the amounts were spent wholly for the purpose of carrying out the duties.
The assessee also submitted in his explanation that the allowances were received for the purpose of tours and the amounts spent on tour and travelling was more than the allowances received and argued that since the entire amounts were paid wholly and exclusively on tour travelling, the same may be allowed as deduction.
It was further argued that the AO had reopened the assessment taking support from the order of the Hon’ble jurisdictional High Court wherein the issue involved was incentive bonus, but not the allowances which were incurred for the purpose of carrying out the duties. Therefore, it was argued that the case law relied upon by the CIT(A) or AO was not applicable in the assessee’s case and the assessee’s case was squarely covered for exemption u/s 10(14) r.w. Rule 2BB.
The assessee also relied on the decision of the Coordinate Bench wherein the Tribunal had followed the decision of the Hon’ble Jurisdictional High Court and requested to follow the same.
The Tribunal noted that on identical facts the Coordinate Bench of ITAT allowed the appeal of the assessee following the order of the Hon’ble Jurisdictional High Court. In the said case, the Tribunal held that in the case of employees of the State or Corporations, whether statutory or otherwise, where the employer after having surveyed the actual expenditure necessary for performance of the duty, grants actual allowance generally to all the employees, it is to be presumed that the entire expenditure has been incurred for the purpose for which it has been granted, for if it not incurred for which is has been given, it would entail disciplinary action against the employee.
The Tribunal had opined that unless a disciplinary case has been initiated against an employee by an employer, the said presumption that the employee has incurred the expenditure for which it is granted, will apply and it will not be necessary for the employees to submit accounts every month to the employer and along with return to the assessing authority.
The Tribunal had categorically stated that If, in such matters, filing of the accounts and vouchers/receipts are required by the Income-tax authorities, it will lead to voidable waste of time and expenditure and would serve no useful purpose but on the contrary it would be counter -productive.
The Tribunal observed that in the given case, the Department did not bring any other case law to controvert the above decisions.
In view of the fact being identical, following the ratio laid down by the decision of Hon’ble jurisdictional High Court and the order of Coordinate Bench of Tribunal, the orders passed by the CIT(A) was set aside and the appeals filed by the assessees were allowed.