1997 (4) TMI 113 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of allowances under section 10(14)(ii) of the Income Tax Act.
2. Applicability of Notification No. 143(E) dated 21-2-1989 under section 10(14)(i).
3. Interpretation of legislative changes and CBDT instructions regarding section 10(14).

Detailed Analysis:

Issue 1: Taxability of Allowances under Section 10(14)(ii)
The primary issue in this case is the taxability of allowances received by the assessee from Indian Airlines. The Assessing Officer (AO) noted that the assessee received various allowances totaling Rs. 90,169 but claimed exemption under section 10(14) of the Income Tax Act. The AO examined the provisions of section 10(14) and referred to several notifications, including SO 144(E) dated 21-2-1989, which regulated the exemption of allowances for employees in the transport sector. The AO concluded that the exemption was limited to 70% of the allowances, up to a maximum of Rs. 1,000 per month until 30-6-1992, and Rs. 3,000 per month thereafter. Consequently, the AO disallowed Rs. 60,169 of the claimed exemption.

Issue 2: Applicability of Notification No. 143(E) dated 21-2-1989 under Section 10(14)(i)
On appeal, the assessee argued that the allowances should be fully exempt under section 10(14)(i) as they were granted to meet expenses incurred in the performance of duties. The assessee cited CBDT Instruction No. 1107, which advised that special traveling allowances were exempt to the extent actually incurred. The CIT (Appeals) examined the legislative history and noted that the amendments effective from 1-4-1989 required allowances to be notified by the Central Government. The CIT (Appeals) concluded that the allowances were governed by section 10(14)(ii) and upheld the AO's decision to limit the exemption to Rs. 30,000.

Issue 3: Interpretation of Legislative Changes and CBDT Instructions Regarding Section 10(14)
The assessee contended that there was no material change in the provisions of section 10(14) before and after 1-4-1989, except that allowances required notification by the Central Government. The assessee also argued that the earlier CBDT instructions should still apply. However, the Tribunal referred to its decision in the case of Indian Airlines Ltd., which held that the amendments effective from 1-4-1989 meant that allowances could only be exempt if covered by subsequent notifications. The Tribunal rejected the contention that earlier instructions remained valid and clarified that the whole gamut of exemptions was now regulated by notifications issued by the Central Government.

The Tribunal also examined the nature of the allowances and concluded that they were not granted in connection with a tour or transfer but for the performance of flying duties. Therefore, they did not fall under clause (b) of Notification No. SO 143(E). The Tribunal further noted that the allowances were granted to meet personal expenses during duty performed in the course of running transport from one place to another, as specified in item 4 of Notification No. SO 144(E). Consequently, the Tribunal upheld the tax authorities' decision to limit the exemption to Rs. 30,000.

Conclusion:
The Tribunal concluded that the tax authorities correctly applied the provisions of section 10(14)(ii) and Notification No. SO 144(E) to limit the exemption to Rs. 30,000. The appeal was dismissed, affirming the CIT (Appeals) order.

Final Judgment:
The appeal is dismissed.