2016 (5) TMI 693 - HC - Income Tax

TDS u/s 192 - per-diem allowance paid to the employees as a part of the salary - ITAT deleted tds liability - Held that - f any allowance or benefit not being in the nature of perquisite is granted to meet the expenses wholly, necessarily or exclusively incurred in performance of duties, to the extent to which such expenses are actually incurred would fall in the sa id category. It is the case of the assessee that the payment was not made as an allowance on par with the perquisites, but the case of the assessee was that the payment was made to meet the expenses incurred. When the payment is made to meet the expenses incurred and when not taxable under Section 10(14) of the Act merely because the actual expenses were not verified, the character or nature of the payment would not be changed so as to include under Section 17(2) of the Act. On the aspects of verification, the Tribunal has relied upon not only its own decision but has further relied upon the circular issued by the Ministry. No substantial question of law, would arise for consideration, as canvassed - Decided against revenue.

Summary

Issues:
1. Interpretation of circulars issued by the Ministry of External Affairs in relation to per-diem allowances.
2. Reliance on a decision by the Tribunal, Kolkata bench in a similar case.
3. Tax deduction at source (TDS) liability on per-diem allowances under section 192.

Issue 1: Interpretation of Circulars by Ministry of External Affairs:
The High Court analyzed the Tribunal's reliance on circulars issued by the Ministry of External Affairs regarding per-diem allowances. The Tribunal considered the circulars dated 11/11/1996 and 21/9/2010, concluding that per-diem allowances of $50 to $75 paid to employees on official trips to the USA and Europe were reasonable and exempt under Section 10(14) of the Income Tax Act. The Court upheld this decision, emphasizing that verification of actual expenses is not required if the allowances are not disproportionately high compared to the salary received.

Issue 2: Reliance on Kolkata Tribunal's Decision:
The Court also examined the Tribunal's reliance on a decision by the Kolkata bench in a similar case. It was held that the employer is not obligated to verify proof of journey or actual expenditure for per-diem allowances unless the allowances are unreasonably high compared to the salary or duties performed. The Court agreed with this approach, further supporting the exemption of per-diem allowances based on the circulars issued by the Ministry of External Affairs.

Issue 3: TDS Liability on Per-diem Allowances:
Regarding the TDS liability under section 192, the Court considered the argument that per-diem allowances should be treated as perquisites under Section 17(1)(iv) of the Income Tax Act. However, it was clarified that if such allowances are for reimbursement of expenses wholly, necessarily, and exclusively incurred in the performance of duties, they fall under Section 10(14) and are not taxable. The Court emphasized that verification of actual expenses does not alter the nature of the payment, and therefore, TDS deduction was not applicable in this case.

In conclusion, the High Court dismissed all the appeals, stating that no substantial question of law arose for consideration. The judgment highlighted the importance of considering circulars and judicial precedents in determining the tax treatment of per-diem allowances, ultimately upholding the exemption of such allowances under Section 10(14) of the Income Tax Act.