2007 (5) TMI 49 - HC - Income Tax

Section 10(14) of the Act. Any special allowance specifically granted to meet expenses wholly, necessarily and exclusively incurred for the purpose of the duties of office or employment is exempt from tax to the extent such expenses are actually incurred for that purpose.

Summary

Issues:
Interpretation of Section 10(14) of the Income Tax Act, 1961 regarding exemption of living allowance under the Act.

Analysis:
In this case, a reference under Section 256(1) of the Income Tax Act, 1961 was made to determine whether the living allowance received by the Assessee is exempt under Section 10(14) of the Act. The Tribunal had held that the living allowance was indeed exempt. The Supreme Court's decision in Commissioner of Income Tax v. Goslino Mario And Others, [2000] 241 ITR 312, was considered, where it was discussed whether daily allowance received in India was exempt under Section 10(14) of the Act. The Court upheld the view that special allowances granted to meet expenses incurred for the duties of office or employment are exempt from tax to the extent those expenses are genuinely incurred for that purpose. The Gauhati High Court's decisions were also referenced, emphasizing that if the payment is a reimbursement for expenses related to the performance of duties, it should not be taxed as salary.

The Court highlighted that the Assessee in this case, who were foreign technicians required to stay away from their homes, received daily allowance for extra expenses incurred on food, etc., which were essential for their duties. This allowance was deemed as reimbursement for expenses wholly, necessarily, and exclusively for the purpose of their duties, falling within the exemption under Section 10(14) of the Act. Therefore, the Court answered the question in the affirmative, favoring the Assessee and ruling against the Revenue. The judgment reaffirmed the principle that allowances specifically granted to meet work-related expenses are exempt from tax if those expenses are genuinely incurred for the purpose of the duties of office or employment.