Commissioner of Income Tax vs Branch Manager, Life Insurance Corporation of India

Rajesh Balia, J.—Heard learned counsel for the parties.

This is an application u/s 256(2) of the Income Tax Act, 1961 (for short "the Act of 1961"), for directing the Income Tax Appellate Tribunal to raise two questions of law said to be arising out of the order of the Tribunal in ITA No. 490/JP of 1997 for the assessment year 1995-96, in view of the fact that Reference Application No. 41/Jodhpur of 1997 has been refused by the Tribunal vide its order dated March 5, 1998. The questions of law proposed by the Commissioner of Income Tax for the purpose of making reference to this court for its opinion are as under :

"1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in cancelling the demands raised under Sections 201(1) and 201(1A) of the Act ?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the principal officer (DDO) was justified in not deducting tax at source from conveyance allowance and additional conveyance allowance without certifying and verifying that the amount of these allowances had been actually incurred wholly, necessarily and exclusively for the performance of the duties of office ?"

The respondent is an employer within the meaning of the provisions of the Income Tax Act requiring him to deduct tax at source from salary payable to its employees. The respondent is a branch manager of the Life Insurance Corporation of India at Bhinmal. While disbursing the emoluments to the employees of the Life Insurance Corporation, deduction has not been made in respect of conveyance allowance and additional conveyance allowance paid to various officers or employees of the Life Insurance Corporation without certifying and verifying that the amount of these allowances had been actually incurred wholly, necessarily and exclusively for the performance of the duties of office and which were not. The notice having been issued for raising demand under Sections 201(1) and 201(1A) of the Act, the respondent took the plea that the amount so paid to the employees was exempt from being included in the taxable income of the employees u/s 10(14) of the Act of 1961 and therefore could not be considered in the computation of income from salary for the purpose of computing deduction to be made at source. This plea did not find favour with the Assessing Officer as well as the Commissioner of Income Tax (Appeals).

However, on second appeal the Income Tax Appellate Tribunal held in favour of the respondent and it cancelled the demand raised under Sections 201(1) and 201(1A) of the Act of 1961.

The Tribunal observed that the Life Insurance Corporation has devised its own productivity parameters and to ensure that expenses claimed have been incurred. It has also referred to the requirement of evidence to that effect which is necessary while considering the claim under Sections 10(13A), 80CCA, 80CCB, etc., in considering the claim for exemption u/s 10(14)(i) and also the earlier decision of the Tribunal rested on the fact that the principal officer could not have legally and as a matter of right insisted on production of detailed account of the expenditure incurred by the office and relating to that earlier decision the Tribunal has refused to refer the questions raised by the Revenue to this court for its opinion on that ground.

We have heard learned counsel for the parties and are of the opinion that the order of the Tribunal rejecting the application u/s 256(1) is erroneous. The question whether the payments made on account of conveyance allowance and additional allowance without certifying and verifying that the amount of these allowances has been incurred wholly, necessarily and exclusively for the performance of the duties of office can be subjected to exemption u/s 10(14), is a question of law inasmuch as it requires not only the consideration as a fact whether conveyance allowance and additional allowance as has been paid wholly to the employees for reimbursing such expenses incurred wholly, necessarily and exclusively for the performance of the duties of office, but also the provisions of the Act and Rules governing the mode of proof of fulfilment of the requirements for the purpose of claiming exemption u/s 10(14) and the effect of its failure to do so.

It has been pointed out by learned counsel for the Revenue that as a matter of fact, at least three decisions of different High Courts here accepted the plea of the Revenue that like amounts paid by the Life Insurance Corporation to its officers forms part of salary income and liable to be subjected to deduction of tax at source.

Accordingly, this application u/s 256(2) is allowed and we direct the Tribunal to state the case and refer the aforesaid two questions which are questions of law arising out of the Tribunal''s order for the opinion of this court.