1987 (2) TMI 93 - AT - Income Tax

Summary

Issues Involved:
1. Whether the living allowance received by the assessee is taxable income.
2. Whether the Commissioner (Appeals) erred in entertaining a new plea without giving an opportunity to the ITO.
3. Applicability of section 9(1)(ii) and section 10(14) of the IT Act to the living allowance.
4. Relevance of the case CIT v. S. G. Pgnatale and the Tribunal's previous order.

Issue-wise Detailed Analysis:

1. Whether the living allowance received by the assessee is taxable income:
The assessee, a foreign national employed by IFFCO, received a living allowance in addition to their salary. The ITO treated this living allowance as part of the income and assessed it accordingly. The CIT (A) held that the living allowance was a reimbursement of expenses and not 'income,' following the precedent set by CIT v. S. G. Pgnatale. The Tribunal, however, disagreed, stating that the living allowance was paid in connection with services rendered in India and thus constituted income under section 5(2) of the IT Act. The Tribunal emphasized that the living allowance accrued and became payable in India, making it taxable.

2. Whether the Commissioner (Appeals) erred in entertaining a new plea without giving an opportunity to the ITO:
The revenue contended that the CIT (A) entertained a new plea without giving the ITO an opportunity to respond. The Tribunal found no merit in this argument, noting that the grounds of appeal were served on the ITO, who had ample opportunity to present his case before the CIT (A). The Tribunal concluded that the ITO was aware of the grounds raised by the assessee and had the opportunity to make submissions.

3. Applicability of section 9(1)(ii) and section 10(14) of the IT Act to the living allowance:
The Tribunal examined the case under sections 9(1)(ii) and 10(14) of the IT Act. Section 9(1)(ii) deems income earned in India as taxable, and the Explanation added to this section clarifies that income for services rendered in India is considered earned in India. The Tribunal held that the living allowance paid in connection with services rendered in India falls under this provision. The Tribunal also rejected the assessee's argument that the living allowance is exempt under section 10(14), which pertains to special allowances granted to meet expenses incurred in the performance of duties. The Tribunal stated that the living allowance does not qualify as a special allowance under this section.

4. Relevance of the case CIT v. S. G. Pgnatale and the Tribunal's previous order:
The Tribunal found that the CIT v. S. G. Pgnatale case was not applicable to the present case. The facts of the Pgnatale case involved an employee of a French company, with allowances paid to cover the extra cost of living in India, which were deemed reimbursements. In contrast, the present case involved an employee of an Indian company, with a fixed living allowance not subject to change based on circumstances. The Tribunal also distinguished the present case from its previous order dated 29th October 1985, where the assessees were foreign nationals employed by a foreign company, with living allowances paid by IFFCO. The Tribunal noted that the facts of the previous case differed significantly from the present case, making the previous decision inapplicable.

Conclusion:
The Tribunal allowed the appeals, reversing the orders of the Commissioner of Income-tax (Appeals) and restoring the ITO's assessment that the living allowance is taxable income.