1996 (4) TMI 153 - AT - Income Tax

Summary

Issues Involved:
1. Exemption of living allowance under section 10(14) of the Income-tax Act, 1961.
2. Interpretation of "in the performance of duties" under section 10(14).
3. Applicability of the Explanation added to section 10(14) with retrospective effect.
4. Determination of the assessee's ordinary place of residence and place of duties.
5. Whether the assessee was holding an office or employment of profit under section 10(14).

Detailed Analysis:

1. Exemption of Living Allowance under Section 10(14) of the Income-tax Act, 1961:
The primary issue in this appeal was whether the living allowance received by the assessee was exempt under section 10(14) of the Income-tax Act, 1961. The assessee argued that the living allowance of Rs. 79,040 received from National Fertilizers Ltd. was for meeting additional expenses incurred during the performance of his service and should be exempt. The Assessing Officer and CIT(Appeals) rejected this claim, stating that the allowance was part of the salary for meeting extra costs of living in India and not specifically for performing duties.

2. Interpretation of "In the Performance of Duties" under Section 10(14):
Section 10(14) exempts any special allowance granted to meet expenses wholly, necessarily, and exclusively incurred in the performance of duties. The Explanation added by the Finance Act, 1975, clarified that allowances for personal expenses at the place of ordinary residence or duty performance were not exempt. The Tribunal examined various precedents, including the Andhra Pradesh High Court's decision in Zdzizlaw Skakuz v. CIT and the Allahabad High Court's decision in Addl. CIT v. A.K. Misra, which supported the view that allowances for personal expenses were not exempt under section 10(14).

3. Applicability of the Explanation Added to Section 10(14) with Retrospective Effect:
The CIT(Appeals) noted that the Explanation added to section 10(14) with retrospective effect from 1-4-1962 was not considered in the Gujarat High Court's decision in CIT v. S. G. Pgnatale, which the assessee relied upon. The Tribunal acknowledged this oversight and emphasized the importance of the Explanation, which excluded allowances for personal expenses from exemption.

4. Determination of the Assessee's Ordinary Place of Residence and Place of Duties:
The Tribunal considered whether India was the assessee's ordinary place of residence and where his duties were ordinarily performed. The Tribunal noted that the assessee, a Danish company employee, was deputed to India for a limited period of two years. Citing the Tribunal's earlier decision in the assessee's case for Assessment year 1986-87, it was concluded that the assessee's ordinary residence and place of duties were outside India, supporting the claim for exemption under section 10(14).

5. Whether the Assessee was Holding an Office or Employment of Profit under Section 10(14):
The departmental representative argued that the assessee was not holding an office or employment of profit, thus section 10(14) did not apply. The Tribunal rejected this argument, citing the Andhra Pradesh High Court's decision in CIT v. Maddi Sudarsanam, which clarified that the term "office or employment of profit" should be read as "office" or "employment of profit." The Tribunal held that the assessee was holding an office within the meaning of section 10(14), making the provision applicable.

Conclusion:
In light of the conflicting views of various High Courts and the absence of a jurisdictional High Court decision, the Tribunal adopted a view favorable to the assessee. It was concluded that the living allowance received by the assessee, a personnel of the Danish company deputed to India for a limited period, was exempt under section 10(14) and not affected by the Explanation. Consequently, the appeal was allowed.