V.v.s.rao, J v. R.kantha Rao, J

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.55 of 1999 Dated:20.12.2011 Between: Commissioner of Income Tax,Visakhapatnam. …Applicant and Sri Y.V.Ramachandra Rao,Kaikaluru. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.55 of 1999 ORDER:(Per Hon’ble Sri Justice V.V.S.Rao) The Commissioner of Income Tax, Viskhapatnam, got thefollowing two questions referred to the opinion of this Court under Section 256(1) of the Income Tax Act, 1961. 1. Whether on the facts and in the circumstances of the case,the Income Tax Appellate Tribunal was right in holding that theadditional conveyance allowance received by the assesseefrom his employer was entitled to exemption under Section10(14) of the Income Tax Act? 2. Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was justified in law inholding that the assessee, a salaried employee of L.I.C., was entitled to deduction at 40% on the incentive bonus receivedfrom his employer? The brief fact of the matter is as follows. Therespondent/assessee at the relevant time was DevelopmentOfficer. For the relevant assessment year, he received incentivebonus from the Life Insurance Corporation of India. He was alsopaid additional conveyance allowance. In his return of income heclaimed deduction of 40% of the incentive bonus under Section10(14) of the Act. Insofar as the additional conveyance isconcerned, he claimed the entire amount as deduction. TheIncome Tax Officer disallowed the deductions. The assessee wassuccessful before the Commissioner of Income Tax (Appeals). Aggrieved, the Revenue went in further appeal, and the Tribunalupheld the order of the first appellate authority. Feeling aggrieved,the Revenue sought reference under Section 256(1) of the Act. Insofar as the first question is concerned, it is squarelycovered by an unreported decision of this Court in Commissionerof Income Tax, Visakhapatnam v P.V.Narasimaha Rao,Visakhapatnam(Referred Case No.117 of 1992, dated10.10.1996). Considering the similar question, this Court held asunder. … In our view where amounts are paid to theemployees by an employer to meet expenses wholly,necessarily and exclusively for the performance of the duties,such amounts can be exempted to the extent it is shown thatit has been incurred for the purpose for which it was granted. In the case of employees of the State or Corporations,whether statutory or otherwise, where the employer afterhaving surveyed the actual expenditure necessary forperformance of the duty, grants monthly allowance generallyto all the employees, it is to be presumed that the entireexpenditure has been incurred for the purpose for which it hasbeen granted, for it is not incurred for which it has been given,it would entail disciplinary action against the employee. Unless such a case has been initiated against an employeeby an employer, the said presumption that the employee hasincurred the expenditure for which it is granted, will apply and it will not be necessary for the employees to submit accountsevery month to the employer and along with return to theassessing authority. If, in such matters, filing of the accountsand vouchers/receipts are insisted upon to claim exemptionunder Section 10(14) of the Act by the Income-tax authorities,it will lead to voidable waste of time and expenditure andwould serve no useful purpose but on the contrary it would becounter productive. In this view of the matter, we hold that theadditional conveyance allowance is exempt under Section10(14) of the Act. … Insofar as the second question is concerned it is alsosquarely covered by a judgment of Division Bench of this Court inCommissioner of Income Tax v B. Chinnaiah[[1]], wherein it washeld as under. it will not be necessary for the employees to submit accountsevery month to the employer and along with return to theassessing authority. If, in such matters, filing of the accountsand vouchers/receipts are insisted upon to claim exemptionunder Section 10(14) of the Act by the Income-tax authorities,it will lead to voidable waste of time and expenditure andwould serve no useful purpose but on the contrary it would becounter productive. In this view of the matter, we hold that theadditional conveyance allowance is exempt under Section10(14) of the Act. … Insofar as the second question is concerned it is alsosquarely covered by a judgment of Division Bench of this Court inCommissioner of Income Tax v B. Chinnaiah[[1]], wherein it washeld as under. … In view of the above judgments, it cannot but beheld that “incentive bonus”, whether treated as part of thesalary or perquisite, is taxable under the head “Salary” and thepermissible deductions under the said head are as specifiedunder Section 16 of the Act. It is nobody’s contention that 40percent of the bonus, deducted by the assessee asexpenditure and upheld by the Tribunal, falls under any of theitems under section 16. Thus the expenditure is other thanpermissible deduction under section 16 of the Act. It hasalready been observed above that the only permissibledeductions under the head “Salary” are those mentioned insection 16 and if any expenditure does not fall within themeaning of section 16, it cannot be allowed. … Following the above, the first question is answered in theaffirmative in favour of the assessee and against the Revenue,and the second question is answered in the negative in favour ofthe Revenue and against the assessee. The Referred Case is accordingly disposed of without anyorder as to costs. _______________ (V.V.S.RAO, J) 20.12.2011 vs [1](1995) 214 ITR 368 ____________________ (R.KANTHA RAO, J)