Rajasthan H.C : Whether the additional conveyance allowance paid by the Life Insurance Corporation of India (in short, “LIC”) to its Development Officers in terms of the norms of the business fetched by them as per Circular dt. 3rd March, 1987, issued by the LIC is exempt under s. 10(14)

High Court Of Rajasthan

Life Insurance Corporation Of India vs. Union Of India & Ors.

Sections 10(14), Rule 2BB

Asst. Year 1990-91

N.N. Mathur & H.R. Panwar, JJ.

Civil Special Appeal No. 413 of 2000

22nd January, 2003

Counsel Appeared : Vineet Kothari & Anjay Kothari, for the LIC of India : Sundeep Bhandawat & J.L. Purohit, for the Union of India

JUDGMENT

N.N. MATHUR, J. :

The issue arising for decision in these two special appeals is whether the additional conveyance allowance paid by the Life Insurance Corporation of India (in short, “LIC”) to its Development Officers in terms of the norms of the business fetched by them as per Circular dt. 3rd March, 1987, issued by the LIC is exempt under s. 10(14) of the IT Act, 1961, hereinafter referred to as “the Act of 1961”, as special allowance or not? Since the learned Single Judge has disposed of the writ petitions by a brief order having found the controversy covered by earlier decision of this Court rendered in CIT vs. Shivraj Bhatia (1996) 133 CTR (Raj) 379 : (1997) 227 ITR 7 (Raj), a brief resume of facts would be necessary for focussing the issue involved in these appeals. Appellant Shivraj Bhatia, Development Officer with the LIC of India, during the assessment proceedings for the year 1986-87, claimed 40 per cent deduction (Rs. 27,282) from a sum of Rs. 68,206 received as an incentive bonus from the LIC. The AO found that the incentive bonus being part of the salary, the deduction as claimed by the assessee, was not permissible. The AAC relying on a judgment of the Tribunal, Chandigarh, as well as the judgment of the Tribunal, Jaipur Bench, allowed the appeal and directed the ITO to allow deduction as claimed by the assessee. The Revenue preferred an appeal against the said judgment before the Tribunal, Jaipur. The Tribunal dismissed the appeal vide order dt. 19th Jan., 1990. The Revenue filed an application before the Tribunal to refer the question of law as mentioned in the application for the opinion of the High Court under s. 256(1) of the Act. The Tribunal by order dt. April, 1991, referred the following question of law for the opinion of this Court: “Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in directing to allow 50 per cent deduction of incentive bonus received by the assessee from the Life Insurance Corporation of India relying on Board’s Circular No. 14/9/65-IT (A-I), dt. 22nd Sept., 1965, which, in fact, is applicable to the Life Insurance Corporation agent and not to the Development Officer. The cases of the Development Officer are governed by the Board’s Circular F. No.200/127/84-IT(A), dt. 29th Sept., 1987/14th Oct., 1987?”

4. The Division Bench relying on judgments of the various High Courts i.e. (i) CIT vs. B. Chinnaiah (1995) 127 CTR (AP) 467 : (1995) 214 ITR 368 (AP) and CIT vs. Govind Chandra Pani (1995) 126 CTR (Ori) 359 : (1995) 213 ITR 783 (Ori), held that the incentive bonus paid to a Development Officer is a part of the salary and, thus, exigible to tax and the assessee is entitled to only standard deduction permissible under s. 16 of the Act. Thus, the question was answered by the Tribunal (Court) as follows: “We, therefore, answer the question in the negative, i.e., in favour of the Revenue and against the assessee, and it is held that the Tribunal, Jaipur Bench, Jaipur, was not justified in directing to allow 50 per cent deduction of the Incentive bonus received by the assessee from the Life Insurance Corporation of India, relying on the Board’s circular, which is applicable only to Life Insurance Corporation agents and not to Development Officers and the case of Development Officers is governed by the Board’s Instruction No. 1774.” It is, thus, evident that the judgment in Shivraj Bhatia’s case (supra) pertains to incentive bonus and not to conveyance or additional conveyance allowance.

5. The instant writ petition was filed by the appellant Shivraj Bhatia in the year 1991, seeking direction to declare that the conveyance allowance and the additional conveyance allowance received by the petitioner is exempt from income-tax under s. 10(14) of the Act. He also sought a direction to quash the assessment order dt. 27th Nov., 1990, pertaining to the asst. yr. 1990-91. The petitioner placed on record certain correspondence between the LIC and the CBDT about the exemption of additional conveyance allowance from income-tax under s. 10(14) of the Act, which indicates that the CBDT has taken a view that the additional conveyance allowance is exempt from income-tax under s. 10(14), provided a certificate was appended with the return of income filed by the Development Officers to the effect that the additional conveyance allowance received by him during the previous year was actually incurred by him as expenditure for performance of his duties. It is asserted that the certificate issued by the LIC to the effect that the additional conveyance allowance received by the petitioner was actually spent for performance, of his duties, was filed along with the return. It is also asserted that many of the Tribunals in the country have taken the view that the amount of additional conveyance allowance is exempt under s. 10(14) of the Act. It is further contended that the conveyance allowance and the additional conveyance allowance were received by the assessee from his employer-LIC as a reimbursement for actual expenditure incurred by him on account of conveyance in relation to the performance of his duties and the said expenditure has direct nexus with the performance of his duties in order to develop the insurance business by meeting several people and also to increase new life insurance agents. It is also asserted that the assessee is required to meet persons for encouraging them to take insurance policies and in this connection, he has to incur expenses on conveyance, which are reimbursed by the employer as per the prescribed norms. Thus, according to the assessee, the expenditure was incurred in relation to performance of duties and merely on technical reasons that the assessee had not produced any voucher in support of the said expenditure, that cannot be a valid reason to put him to tax. The learned Single Judge disposed of the writ petition by a brief order dt. 3rd Nov., 1999 [reported as Shiv Raj Bhatia vs. LIC & Ors. (2000) 160 CTR (Raj) 330—Ed.] as follows: “Learned counsel Shri Bhandawat states that this petition is squarely covered by the judgment of this Court delivered in S.B. Civil Writ Petition No.1355/97 [reported as General Insurance Employees Association vs. Union of India & Ors. (2000) 160 CTR (Raj) 327—Ed.] and the judgments in Life Insurance Corporation Class-1 Officers (Bom) vs. Life Insurance Corpn. of India & Anr. (1998) 229 ITR 510 (Bom) and CIT vs. E.A. Rajendran (1997) 142 CTR (Mad) 244 : (1999) 235 ITR 514 (Mad). In terms of the aforesaid judgments, this petition is dismissed and it is held that conveyance allowance and additional conveyance allowance are not exempted under s. 10(14) of the IT Act, 1961.” The instant Special Appeal being D.B. Civil Special Appeal No. 406/2001 is against the aforesaid judgment of the learned Single Judge.

6. After the judgment of the learned Single Judge, the ITO (TDS), Jodhpur, served a notice on the Divisional Manager, LIC, Jodhpur, to deduct the income tax at source in respect of the income of conveyance and additional conveyance allowance. The officers of the Corporation have also been threatened of penalty, interest and prosecution under the IT Act on failure to deduct the tax at source. This led to filing of another writ petition by none else than the LIC itself, which was registered as S.B. Civil Writ Petition No. 700/2000 “LIC vs. Union of India”. It is averred that the Ministry of Finance, Govt. of India, through its CBDT Circular dt. 28th Nov., 1986, has accepted the position that the additional conveyance allowance would be treated as exempt under s. 10(14) of the Act, provided that a certificate is issued by the LIC to the effect that additional conveyance allowance was granted to the concerned Development Officer to meet the expenses wholly, necessarily and exclusively for the performance of the duties of the office and had been actually incurred for that purpose. The said instructions are extracted as follows: “On a representation from the Life Insurance Corporation of India, the Board considered the question of taxability of the additional conveyance allowance received by the Development Officers of the Corporation with reference to s. 10(14) of the IT Act, 1961. It was stated by the Life Insurance Corporation that it has now devised a suitable internal system which will enable it to satisfy itself regarding the expenditure incurred by each individual Development Officer having regard to the details of his actual performance, type of vehicle used, areas of operation, etc. It has further been stated that the Life Insurance Corporation would now be in a position to append a certificate in the salary certificate to the effect that the additional conveyance allowance granted to the concerned Development Officer, was granted specifically to meet the expenses wholly, necessarily and exclusively for the performance of the duties of the office and had been actually incurred for that purpose. It has been decided that the exemption under s. 10(14) of the IT Act, 1961, in respect of the said additional conveyance allowance should be allowed in cases where the Life Insurance Corporation appends a certificate, as stated above, in the salary certificate.” In view of the circular of the Govt. of India, the central office of the LIC issued a Circular dt. 3rd March, 1987, which is extracted as follows: Still, the Department created a demand under ss. 201(1) and 201(1A) of the Act. The assessing authority in number of assessment proceedings took the view that a Branch Manager of LIC, who was the principal officer as well as the Drawing and Disbursement Officer having not deducted the amount of income-tax from the conveyance and additional conveyance allowance at source, committed default under s. 201(1). The Tribunal, Jaipur, disposed of number of appeals by a common judgment dt. 17th Sept., 1997, held that whereas the Board had required the DDOs to satisfy themselves by insisting on production of evidence of making actual payment/expenditure, exemption in respect of which is claimed under ss. 10(13A), 80CCA, 80CCB, etc. of the Act, no such insistence was stressed by the Board in respect to a claim for exemption under s. 10(14)(i) of the Act. Thus, the Tribunal held that the principal officer was justified in not deducting tax at source from the conveyance and additional conveyance allowance received by the Development Officers. In view of this, the Tribunal cancelled the demand raised by the AO under ss. 201(1) and 201(1A). The Revenue filed an application under s. 256(1) of the Act for making a reference to this Court for opinion on the following questions: “1. The full amount of fixed conveyance allowance paid to Development Officers will be treated as exempt from tax and no tax need be deducted at source from monthly payments.” “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the demands raised under ss. 201(1) and 201(1A) of the Act?

Whether, on the facts and in the circumstances of the case, the 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 said application was rejected by the order of the Tribunal dt. 5th March, 1991. Thus, the Revenue preferred an application under s 256(2) of the Act before this Court. The reference application has been registered as DB IT Ref. No. 34/1999. The said reference application is also decided today by a separate order against the Revenue. It was contended before the learned Single Judge that as the conveyance allowance and additional conveyance allowance are paid to the Development Officers for meeting actual expenditure incurred by them in discharge of their field ‘duties and, thus, wholly, necessarily and exclusively for meeting such expenditure as per the norms provided under the circular of 1987, it clearly falls under the exempt category of s. 10(14) of the Act. However, the learned Single Judge dismissed the writ petition by a brief order dt. 17th April,.2000 [reported as Life Insurance Corpn. of India vs. Union of India & Ors. (2000) 160 CTR (Raj) 331—Ed.] following the order dt. 3rd Nov., 1999 (supra), passed in the writ petition filed by Shivraj Bhatia. Thus, the LIC has also preferred the special appeal against the aforesaid judgment dt. 17th April, 2000.

It is contended by Mr. Vineet Kothari, learned counsel appearing for the appellant-LIC, that the learned Single Judge has committed illegality in dismissing the writ petition solely on the basis of the statement made by the learned counsel for the Revenue that the controversy involved was covered by the judgment dt. 9th March, 1998 rendered in S.B. Civil Writ Petition No. 1355/1997 [reported as General Insurance Employees Association vs. Union of India & Ors. (2000) 160 CTR (Raj) 327—Ed.] and the judgments in Life Insurance Corporation Class-1 Officers (Bom) vs. Life Insurance Corpn. of India & Anr. (1998) 229 ITR 510 (Bom) and CIT vs. E.A. Rajendran (1997) 142 CTR (Mad) 244 : (1999) 235 ITR 514 (Mad). The judgment of the learned Single Judge dt. 9th March, 1998, reads as follows: “Perused the averments made in the writ petition as well as reply filed on behalf of the answering respondents. From the perusal of the decision, rendered by a Division Bench of Bombay High Court in case of Life Insurance Corporation Class-I Officers (Bombay) Association vs. Life Insurance Corporation of India & Ors. (1998) 229 ITR 510 (Bom), I am satisfied that the controversy involved in the present case is squarely covered by the aforesaid decision. I respectfully concur with the decision taken by the Division Bench of Bombay High Court in case of Life Insurance Corporation Class-I Officers (Bombay) Association (supra) and propose to decide the present writ petition in the terms and conditions of aforesaid decision. As a result of aforementioned discussion, the present writ petition is dismissed in limine at admission stage. The ad interm order is vacated. Both the parties are directed to bear their own costs.”

The learned Single Judge has found the controversy involved in the instant writ petition covered by the decision of the Bombay High Court reported in (1998) 229 ITR 510 (Bom) (supra) without elaboration and further discussion. We have read the judgment of the Bombay High Court reported in (1998) 229 ITR 510 (Bom) (supra). We are in agreement with the contention of the learned counsel for the appellant that it does not decide the controversy relating to additional conveyance allowance but only conveyance allowance, which was held to be not exempt under s. 10(14) of the Act. It further appears that the Court was concerned with the question whether conveyance allowance paid pursuant to r. 9B of the Life Insurance Corporation of India Class-I Officers (Revision of Terms and Conditions of Service) Rules, 1985, is such a special allowance or benefit as is envisaged under s. 10(14) of the IT Act. The Court held that such an allowance was not covered under s. 10(14) of the Act, as the mere use of word ‘conveyance allowance’ is not enough. The Court noted that such an allowance is paid to the employee whether such employee is on duty or not and also the fact that such allowance is not reimbursement for expenses wholly and exclusively incurred in the performance of duty as it is payable also for the period when the person is not on duty, even in case an eligible officer is on maternity leave irrespective of the fact of distance from the residence to the office. In the instant case, the Development Officers are class-II officers. They are being paid conveyance allowance and additional conveyance allowance as special allowance to meet the cost of the running and maintaining the vehicle which they used for the performance of their duties. The rules also provide that they are not entitled to the additional conveyance allowance while on leave, including the maternity leave.

As far as another case reported in (1999) 235 ITR 514 (Mad) (supra) is concerned, the Madras High Court was mainly dealing with the controversy relating to deduction of 40 per cent of incentive bonus. The words “additional conveyance allowance” is mentioned along with 40 per cent of incentive bonus in the referred question and the Hon’ble High Court was not directly deciding the controversy of exemption of such additional conveyance allowance under s. 10(14) but on the contrary, the deduction of 40 per cent incentive bonus and conveyance allowance as deductible expenditure from the income of the assessee. This judgment has been distinguished by another decision of the same High Court in Life Insurance Corpn. of India vs. CIT (2001) 166 CTR (Mad) 125 : (2000) 245 ITR 224 (Mad). The Court held that the judgment in CIT vs. E.A. Rajendran (supra) was with reference to s. 10(14) of the Act. The Court had no occasion to deal with the import of r. 2BB as the said rule was inserted by the IT (Eighth Amendment) Rules, 1995, w.e.f. 1st July, 1995. Thus, we are of the view that the learned Single Judge has wrongly placed reliance on the decision of the Madras High Court in CIT vs. E.A. Rajendran (supra). As far as the earlier decision of this Court in CIT vs. Shivraj Bhatia (supra), is concerned, it is evident from the question of law referred, as extracted in the preceding para that in the said case, the question involved was with respect to incentive bonus. A reading of the judgment further shows that after setting out the facts and the relevant provisions of law, the Court posed the question for consideration as follows: “Whether the “incentive bonus” earned by the assessee falls within the meaning of “salary” or is a business or professional income and if so, the assessee is entitled to deduction on the amount of the part of the incentive bonus spent by the assessee for earning of the incentive bonus?” The instant case pertains to additional conveyance allowance. Thus, apparently the said case has no application to the issue involved in the present case.

13. It is further contended by Mr. Vineet Kothari, learned counsel appearing for the appellant-LIC, that the learned Single Judge did not look into the fact that there was no dispute at least to the fact that as per r. 2BB of the IT Rules, 1962, framed under s. 10(14) of the IT Act, 1961, vide cl. (x) of the Table, there is an exemption on the conveyance allowance at least to the extent of Rs. 800 per month. Learned counsel has further submitted that the additional conveyance allowance is different from the conveyance allowance. According to the corporation, the additional conveyance allowance is given to the employees as special allowance for meeting the actual expenditure incurred by them in accordance with the guidelines dt. 3rd March, 1987, and 18th March, 1991. The exemption under s. 10(14) was available upon certificate of actual expenditure, given by the employer-LIC in terms of the CBDT circulars. It is further contended that the respondents could not insist for making deduction of tax at source in view of the fact that there is serious doubt as to whether the entire conveyance allowance/additional conveyance allowance is taxable. On the other hand, Mr. Sundeep Bhandawat, learned counsel appearing for the Revenue, has supported the view taken by the learned Single Judge. It is submitted that in the instant case, there is no material to show that there was reimbursement of the expenditure incurred by the Development Officers. Thus, the expenditure incurred by the Development Officers, by itself, cannot qualify for exemption under s. 10(14)(i) of the Act. Learned counsel has heavily relied on a decision of the Division Bench of this Court in CIT vs. Shivraj Bhatia (supra). Learned counsel has also placed reliance on a decision of the Andhra Pradesh High Court in CIT vs. Anil Singh (1995) 215 ITR 224 (Ori). In order to consider the point germane to the controversy, it would be appropriate to make mention of some of the relevant provisions of law and the circulars which have material bearing on the controversy involved. Chapter III of the IT Act, 1961, contains provisions for exemption of certain incomes. Its 73 clauses display different shades and colours pointing to different objectives. Sec. 10(14) reads as follows: “Sec. 10. Incomes not included in total income.—In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included – (14) (i) any such special allowance or benefit, not being in the nature of a perquisite within the meaning of cl. (2) of s. 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, as may be prescribed to the extent to which such expenses are actually incurred for that purpose; (ii) any such allowance granted to the assessee either to meet his personal expenses at the place where duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, as may be prescribed and to the extent as may be prescribed : Provided that nothing in sub-cl. (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence;” The notification dt. 9th June, 1989, is extracted as follows: “In exercise of the powers conferred by sub-cl. (i) of cl. (14) of s. 10 of the IT Act, 1961 (43 of 1961), the Central Government hereby specifies any allowance granted to meet the expenditure incurred on conveyance in the performance of the duties of an office or employment of profit, for the purposes of the said sub-clause for the asst. yr. 1989-90 and subsequent assessment years.”

16. There was further amendment in the Finance Act, 1995 w.e.f. 1st July, 1995, which substituted the words “as may be prescribed” for the expression “as the Central Government may, by notification, in the Official Gazette, specify”. In pursuance to the aforesaid provision, r. 2BB of the IT Rules was inserted by the IT (Eighth Amendment) Rules, 1995, w.e.f. 1st July, 1995. The relevant notification is extracted as follows: “2. In the IT Rules, 1962,— (a) after r. 2BA, the following rule shall be inserted namely: 2BB. Prescribed allowances for the purposes of cl. (14) of s. 10.—(1) For the purposes of sub-cl. (i) of cl. (14) of s. 10, prescribed allowances, by whatever name called, shall be the following, namely: (a) any allowance granted to meet the cost of travel on tour or on transfer; (c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit; (2) For the purposes of sub-cl. (ii) of cl. (14) of s. 10, the prescribed allowance, by whatever name called, and the extent thereof shall be following namely:

17. Thus, under s. 10, income falling under the clauses set out therein, are excluded in computing the total income of the previous year. Sub-cl. (14) deals with the special allowance. In order to avail exemption under cl. (14), it is required to be established that : (i) the payment has been made by way of special allowance or benefit, which is not a perquisite within the meaning of cl. (2) of s. 17 ; (ii) it has been granted to meet expenses “wholly, necessarily and exclusively incurred” in performance of duties of an office or employment of profit; (iii) it has been exempted to the extent such expenses are actually incurred for the purpose.

18. Thus, for enabling an assessee to take the benefit of s. 10(14), it is imperative on his part to satisfy that special allowance, benefit or perquisite in respect of which the claim is made, has been granted to him to meet expenses wholly, necessarily and exclusively incurred in the performance of duties of office or employment of profit. Thus, the assessee in order to claim exemption under the provision, is required to show that the amount in question was not for his own benefit but for the purpose of meeting the expenses wholly, necessarily and exclusively incurred in the performance of duties. As a result of amendment of s. 10(14)(i) by the Finance Act, 1995, referred to above, such special allowance or benefit has to be prescribed by the Board by framing the rule in that regard. Rule 2BB has made such prescriptions. As per this provision, the allowance should be granted to meet the expenditure incurred on conveyance in performance of duties of an office. This excludes the employee provided with the free conveyance. It is of course true that the assessing authority is required to satisfy as to whether the expenses have been incurred on conveyance in performance of duties of assessee—Development Officer and the claim justifies or not. The provision imposes an obligation on the Department to grant the exemption, if it comes within the four corners of the prescriptions.

19. The LIC of India is a statutory body. The duties of a Development Officer are provided under the relevant rules, which are extracted as follows: “Duties of Development Officers and obligations A. (i) To develop and increase the production of life insurance business in a planned way as far as may be practicable in the area that may be allotted to work from time to time through the agents placed under his supervision by the Corporation and in consonance with the corporate objectives of the Corporation. (ii) To guide, supervise and direct the activities of the agents placed under his supervision by the Corporation. (iii) To introduce suitable persons to the Corporation for appointment as new agents. (iv) To act generally in such a way as to activise existing agents and motivate new agents so as to develop a stable agency force . (v) To render all such services to policyholders conductive to better policy servicing. (vi) To carry out the investigation of claims, revival of lapsed policies and liaison work in connection with S.S.S. business. (vii) To perform such other duties may be entrusted to him.” It is, thus, clear that the Development Officers of the LIC are full-time employees of the Corporation whose main task is to develop the business of life insurance. They are required to discharge the duties and obligations which inter alia include development of life insurance business of the Corporation. The very first duty enumerated for the Development Officer is to develop and increase the production of new insurance business in the planned way, as far as practicable in the area that may be allotted to him from time to time. The other duties and obligations include the duty to supervise and to guide the activities of the agents placed under the supervision of the Development Officers; to recruit new agents so as to develop agency force; and to act generally in such a way as to activate existing agents and to motivate new agents and to render certain services to policyholders. The officer is also required to perform such duties that are entrusted and assigned to him from time to time. As per the practice, the LIC has been giving the utilization certificate for the purpose of income-tax as follows: “This is to certify that during the Financial Year …….(Assessment Year……..), Shri ………………… has been paid Rs……… to meet the expenses wholly necessarily and exclusively incurred in performance of development duty and that the said amount has actually been incurred wholly for that purpose. As such this amount is exempt from income-tax under s. 10(14) of the IT Act, 1961, and, therefore, no tax has been deducted at source thereon. (Branch Manager)”

22. It is, thus, evident that the conveyance allowance and the additional conveyance allowance are paid to the Development Officers for meeting actual expenditure incurred by them in discharge of their field duties and, thus, wholly, necessarily and exclusively for meeting such expenditure, the allowance is being exempt as per the norms set out in the LIC Circular dt. 3rd Aug., 1987, referred to in the preceding para. It appears that the LIC has worked out the additional conveyance allowance to the Development Officers considering the probable expenditure for procuring the business. The LIC appears to have devised the general formula having a reference to the parameters of the business and, thus, the payment of additional conveyance allowance is a reimbursement for actual expenditure incurred by the Development Officers on account of conveyance in relation to performance of their duties and the said expenditure has direct nexus with the performance of duties for development of the insurance business by way of meeting several people and to enrol new life insurance agents and to meet the insurance persons for encouraging them to take insurance policies. Naturally, in such circumstances, touring expenses are incurred on conveyance. Such conveyance expenses are reimbursed by the employer as per the prescribed norms in the name of additional conveyance allowance. The certificate is given by the LIC-employer of the minimum amount which the LIC certifies that it is amount actually spent by the Development Officers in performance of their duties. The ultimate liability to claim exemption and proving the same is on the employee-assessee (Development Officers). The exemption limit is restricted to the instructions issued by the CBDT from time to time. Therefore, we hold that the Development Officers in the LIC are entitled to claim exemption under s. 10(14) of the Act in respect of conveyance allowance/additional conveyance allowance upon satisfying the conditions that such allowances have actually been spent for the purpose for which they were given wholly, necessarily and exclusively in the performance of duties. Therefore, the LIC cannot be insisted for deduction of tax to be deducted at source to the extent such conveyance allowance/additional conveyance allowance is exempt under r. 2BB and further such minimum limit is set from time to time. The ultimate liability of claiming exemption and proving the same is on the employee-assessees i.e., the Development Officers.

23. We may also deal with the cases referred to by the learned counsel for the appellant. In Jogender Singh vs. ITO (1999) 155 CTR (All) 218 : (2000) 246 ITR 269 (All), the Punjab and Haryana High Court held that the deduction of conveyance allowance and additional conveyance allowance could not be denied to the assessee without giving opportunity of hearing to him, therefore, the ITO could not make addition of the same in the declared income while making assessment under s. 143(1)(a) of the Act. In CIT vs. Nestle India Ltd. (2000) 159 CTR (Del) 243 : (2000) 243 ITR 435 (Del), the assesseecompany did not include the conveyance allowance as part of taxable salary and did not deduct any income-tax at source. The ITO sought to impose penalty, interest and also required the company to pay such TDS. The Tribunal decided in favour of the respondent-company. The Division Bench of the Delhi High Court found that no question of law arises in the matter.

24. Consequently, we allow these special appeals and set aside the judgments of the learned Single Judge dt. 17th April, 2000, and 3rd Nov., 1999, in S.B. civil writ petitions No. 700/2000 and 1617/1991, respectively. We declare that the notice Annex. 8, dt. 25th Feb., 2000, and Annex.10, dt. 29th Feb., 2000, in S.B. civil writ petition No. 700/2000 are quashed and set aside. We direct the Department not to insist upon the Life Insurance Corporation of India to deduct the income-tax at source in respect of conveyance and additional conveyance allowance, paid by it to its Development Officers. The assessment order dt. 27th Nov., 1990, (Annex. 11) in S.B. civil writ petition No. 1617/1991 is quashed and set aside. The assessing authority shall pass a fresh order in accordance with the law laid down in the instant judgment. There shall be no order as to costs.

[Citation : 260 ITR 41]

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