2006 (6) TMI 250 - AT - Income Tax

Summary

Issues Involved:
1. Exemption of allowances under section 10(14)(i) of the Income-tax Act, 1961.
2. Applicability of Notification No. S.O.143(E), dated 21-2-1989.
3. Requirement of evidence for actual expenditure incurred.
4. Charging of interest under section 234A of the Income-tax Act, 1961.

Detailed Analysis:

1. Exemption of allowances under section 10(14)(i) of the Income-tax Act, 1961:
The primary issue in this case was whether allowances received by a commercial pilot for Indian Airlines Ltd. while away from his normal place of duty in connection with flying duties are exempt under section 10(14)(i) of the Income-tax Act, 1961. The Tribunal held that allowances for both domestic and international duties are eligible for exemption under section 10(14)(i) read with Rule 2BB(1)(b), provided they are granted to meet ordinary daily charges on account of absence from the normal place of duty. The Tribunal emphasized that allowances granted to meet expenses wholly, necessarily, and exclusively incurred in connection with the duties of an office are eligible for exemption under section 10(14)(i).

2. Applicability of Notification No. S.O.143(E), dated 21-2-1989:
The Tribunal noted that the revenue had previously accepted the applicability of section 10(14)(i) for allowances received for international flights. The Tribunal observed that the revenue's reliance on Notification Nos. SO 144(E) and SO 487(E) was misplaced, as these notifications ceased to be relevant after the amendment of section 10(14) with effect from 1st July 1995. The Tribunal concluded that the provisions of section 10(14)(i) are applicable to allowances received for both domestic and international duties, and the revenue cannot deny exemption based on the destination of the duties.

3. Requirement of evidence for actual expenditure incurred:
The Tribunal addressed the issue of the extent to which exemption can be granted in the absence of evidence for actual use of the allowance. The Tribunal referred to a previous decision in the case of Madanlal Mohanlal Narang, where it was held that unless the quantum of allowances is found to be excessive or unreasonable, the Assessing Officer cannot demand evidence of actual expenditure. The Tribunal directed the Assessing Officer to grant exemption under section 10(14)(i) based on the daily rates fixed by the Government of India, without requiring evidence of actual expenditure, provided the allowances are not excessive or unreasonable.

4. Charging of interest under section 234A of the Income-tax Act, 1961:
The Tribunal also addressed the issue of charging interest under section 234A. The CIT(A) had directed the Assessing Officer to calculate interest under section 234A only for a limited period of two years, relying on the decision of the Tribunal in the case of Ms. Priti Pithawala. The Tribunal upheld this direction, noting that the matter is required to be restored to the file of the Assessing Officer for fresh computation of interest chargeable under section 234A, considering the period for which it was possible for the assessee to file the income tax return. The Tribunal confirmed the action of the CIT(A) and declined to interfere on this count.

Conclusion:
The Tribunal concluded that the allowances received by the assessee for both domestic and international duties are eligible for exemption under section 10(14)(i) of the Income-tax Act, 1961. The revenue's reliance on Notification Nos. SO 144(E) and SO 487(E) was found to be misplaced. The Tribunal directed the Assessing Officer to grant exemption based on the daily rates fixed by the Government of India, without requiring evidence of actual expenditure, unless the allowances are found to be excessive or unreasonable. The Tribunal also upheld the CIT(A)'s direction regarding the computation of interest under section 234A. The appeal of the revenue was dismissed, and the cross-objection filed by the assessee was allowed for statistical purposes.