2004 (8) TMI 70 - HC - Income Tax

All India Association of the Development Officers working in the office of the LIC of India has prayed for a declaration that the conveyance allowance and additional conveyance allowance paid to the Development Officers are exempted under section 10(14) r.w.r. 2BB of the Income-tax Rules 1962 - A further declaration that there should be no deduction of tax at source on the amounts of conveyance allowance and additional conveyance allowance paid to the Development Officers is also claimed Held that it is a matter of establishing the claim for exemption by the individual assessee at the time of completion of the assessment and he would be entitled to exemption to the extent he is able to establish that a particular amount was wholly necessarily and exclusively spent by him in the performance of duties of his office - We dismiss this writ petition without prejudice to the right of the individual assessee to raise his claim for exemption before the appropriate Assessing Officer at the time of assessment relating to his income

Summary

Issues:
1. Exemption of conveyance allowance and additional conveyance allowance under section 10(14) of the Income-tax Act, 1961.
2. Obligation of the employer to deduct tax at source on conveyance allowances.
3. Interpretation of relevant statutory provisions and rules regarding tax deductions.

Analysis:
1. The writ petition sought a declaration that the conveyance allowances paid to Development Officers are exempt under section 10(14) of the Income-tax Act. The petitioner argued that these allowances are not taxable as salary income. However, the court found that the exemption under section 10(14) depends on actual expenses incurred by the assessee in the performance of duties, to be established during assessment. The court emphasized that the employer cannot determine the exempted amount; it is the responsibility of the Assessing Officer based on evidence provided by the assessee.

2. The petitioner contended that the employer, in this case, the Life Insurance Corporation of India, was not obligated to deduct tax at source on conveyance allowances. However, the court held that as per section 192 of the Act, the employer must deduct income tax on salaries at the average rate applicable. The obligation to deduct tax remains, while the assessee can claim exemption during assessment by proving the expenses were wholly, necessarily, and exclusively incurred for duty performance.

3. The court referred to various legal precedents, emphasizing that the claim for exemption under section 10(14) must be established by the individual assessee during assessment. The court rejected the plea for a blanket declaration exempting the employer from deducting tax at source on conveyance allowances. It clarified that the exemption is based on actual expenditure proved by the assessee, not a predetermined amount by the employer. The judgment concluded that the Income-tax Officer was justified in directing tax deduction at source, leaving the assessee to claim exemption during assessment.

In summary, the court dismissed the writ petition, allowing individual assessees to claim exemption during assessment. The judgment highlighted the importance of proving actual expenses incurred for duty performance to qualify for exemption under section 10(14) of the Income-tax Act. The employer's obligation to deduct tax at source was affirmed, with the onus on the assessee to establish exemption eligibility during assessment proceedings.