2005 (1) TMI 45 - HC - Income Tax

In these petitions, the petitioners have sought for quashing of a circular Ref. Mktg./ZL/26/2004 dated April 24, 2004 issued by the first respondent- LIC & for further directions to the Corporation and its branches not to deduct income-tax at source in respect of payment to the petitioners known as conveyance allowance and additional conveyance allowance - Petitioner contend that the payment which the petitioners receive is exempted from income-tax under the provisions of clause (14) of section 10 Held that object of such a circular on the face of it appears to be that if the employee really qualifies for the exemption to ensure that a certificate to this effect is issued in favour of the employee based on which not only the employee can claim the benefit, but also the employer is relieved of his obligation for deduction of tax at source. A circular of this nature can never be said to be to the detriment of the petitioners petition dismissed

Summary

Issues:
Quashing of circular on income-tax deduction for conveyance allowance and additional conveyance allowance.

Analysis:
The petitioners, employees of the Life Insurance Corporation of India, sought to quash a circular issued by the LIC directing the deduction of income-tax at source for conveyance allowance and additional conveyance allowance. The petitioners argued that these allowances were exempt from income tax under section 10(14) of the Income Tax Act. The circular aimed to ensure compliance with the exemption provisions to prevent employees from losing the benefit due to non-compliance. The circular highlighted the need for employees to claim the exemption by providing necessary documentation and indicated that tax deduction at source was a provisional measure, subject to adjustment based on actual tax liability.

The High Court noted that the exemption under section 10(14) was conditional and required verification by the assessing authority. The circular was issued based on past experiences of non-compliance by employees and court decisions on tax deduction at source. It emphasized the importance of employees claiming the exemption and the employer issuing certificates accordingly. The circular also allowed for consideration of actual expenditure based on vouchers or bills provided by employees. It aimed to facilitate employees in claiming the benefit effectively and relieve the employer of tax deduction obligations.

The Court found that the circular did not harm the petitioners but rather enabled them to avail of the exemption benefits effectively. It concluded that there was no ground for interference in the petitions as the circular was not detrimental to the petitioners. The Court dismissed the writ petitions, allowing the petitioners to pursue their contentions and benefits under the law through appropriate authorities if unsatisfied. The interim orders were vacated, and the rule was discharged in the circumstances of the case.