2001 (5) TMI 41 - HC - Income Tax

Summary

Issues:
Interpretation of provisions of section 40A(5) of the Income-tax Act, 1961 in relation to travel concession or assistance received by an employee, exclusion of such amounts under section 10(5) and rule 2B of the Income-tax Rules.

Analysis:
The case involved a question regarding the exclusion of travel concession or assistance received by an employee from the purview of section 40A(5) of the Income-tax Act, 1961. The Assessing Officer disallowed a certain amount in the hands of the employee for contravention of rule 2B of the Income-tax Rules, which was not exempted under section 10(5) of the Act. The Commissioner of Income-tax (Appeals) and the Tribunal upheld this view. The Tribunal held that the entire travel concession or assistance should be excluded from section 40A(5).

The Revenue contended that section 40A(5) excludes the value of any travel concession or assistance received by an employee under section 10(5) from the computation of certain expenditures. It argued that if any concession exceeds the limits prescribed in rule 2B, it becomes taxable. The assessee's counsel argued that section 40A(5) pertains to leave travel concession and not the limits set by rule 2B.

The court analyzed the second proviso to section 40A(5) which excludes the value of travel concession or assistance under section 10(5). It noted that section 10(5) provides for exemptions subject to prescribed conditions, including limits on the amount exempted per head. Ignoring the prescribed limits would contradict the Act's purpose and scheme.

The court emphasized that the limits set by rules aim to prevent companies from incurring excessive non-business expenses to reduce profits and tax liability. It concluded that the limits prescribed in rules cannot be disregarded for disallowance under section 40A(5) as the purpose of limiting expenses is consistent for both employees and employers. Consequently, the court ruled in favor of the Revenue, holding that the excess amount exceeding the prescribed limits should not be excluded from disallowance under section 40A(5).

In conclusion, the court's decision clarified the interplay between section 40A(5), section 10(5), and rule 2B concerning the exclusion of travel concession or assistance from certain expenditures, emphasizing the importance of adhering to prescribed limits for tax purposes.