2009 (11) TMI 917 - HC - Income Tax

Summary

Issues Involved:
1. Whether providing an orderly/peon would come within the concept of compensatory allowance.
2. Whether the supply of power at a concessional rate should be treated as a taxable perk.

Summary:

Issue 1: Compensatory Allowance
The petitioner, erstwhile Madhya Pradesh Electricity Board, challenged the order dated 20th June 2000 passed by the CIT, Jabalpur u/s 264 of the IT Act, 1961, regarding the compensatory allowance paid to employees for employing private helps for official duties outside the office. The Board argued that this allowance was paid as per the terms of the Board's circular and should be exempt u/s 10(14) and r. 2BB(1)(d). The CIT, however, held that the allowance did not qualify as compensatory since the DDOs failed to verify actual expenses incurred by employees, thus upholding the ITO (TDS) order for tax deduction and interest levy.

Issue 2: Supply of Power at Concessional Rate
The Board supplied power to its employees at a 50% concessional rate and argued that this should not be treated as a taxable perquisite since the power was from its own generation. The CIT disagreed, noting that the Board also purchased electricity from NTPC and other sources, thus the concessional supply constituted a taxable perk. The CIT's order was based on the interpretation that the rule exempts perquisites only when electricity is not purchased from outside sources.

Court's Decision:
The High Court found that the CIT did not consider relevant judicial precedents and past practices. The Court referenced decisions such as State Bank of Patiala vs. CIT and CIT vs. Larsen & Toubro Ltd., which emphasized that employers are not obligated to verify the actual use of allowances by employees. The Court quashed the CIT's order and remitted the matter for fresh adjudication, directing the CIT to consider the decisions and past practices, and to dispose of the proceedings within three months. The Board's claim for a refund was deferred pending the new adjudication.

Conclusion:
The writ petition was allowed to the extent indicated, with no order as to costs.