1993 (7) TMI 134 - AT - Income Tax

Summary

Issues Involved:

1. Whether the orderly allowance paid by the assessee-Board to its officers is exempt under section 10(14) of the Income-tax Act, 1961.
2. Whether the Principal Officer of the Board was under an obligation to deduct tax at source on the orderly allowance under section 192(1) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Exemption of Orderly Allowance under Section 10(14):

The core issue was whether the orderly allowance paid by the assessee-Board to its officers qualifies for exemption under section 10(14) of the Income-tax Act, 1961. The Board had framed a scheme for engaging persons as orderlies at the residences of its officers, which was later discontinued, and the officers started receiving an orderly allowance instead. The Principal Officer of the Board argued that the said allowance was exempt under section 10(14), whereas the ITO (TDS) contended that it was a perquisite under section 17(2) and not exempt.

The Tribunal examined the requirements under section 10(14)(i), which states that the special allowance should not be in the nature of a perquisite, should be specifically granted to meet expenses wholly, necessarily, and exclusively incurred in the performance of duties, and should be to the extent such expenses are actually incurred. The Tribunal found that the orderly allowance was indeed granted to meet expenses incurred in the performance of official duties at the officers' residences and was not a personal advantage. The officers had provided certificates confirming the expenditure, and there was no material to disbelieve these statements. Furthermore, the Central Government's Notification SO 267(E) dated 29-3-1990 specified such allowances for exemption purposes.

The Tribunal concluded that the orderly allowance met all the requirements for exemption under section 10(14)(i) and was not in the nature of an assessable perquisite.

2. Obligation to Deduct Tax at Source under Section 192(1):

The second issue was whether the Principal Officer of the Board was obligated to deduct tax at source on the orderly allowance under section 192(1). The ITO (TDS) had directed the Principal Officer to deposit a sum of Rs. 37,36,775 on account of TDS and Rs. 1,48,465 as interest under section 201(1A), which was upheld by the CIT (A).

The Tribunal noted that the officers had submitted certificates confirming the expenditure on helpers, and the Board had accepted these as sufficient proof. The CBDT Circular No. 568 dated 27-7-1990 did not require detailed accounts for claims under section 10(14)(i). The Tribunal held that the disbursing authorities of the Board had discharged their responsibility under section 192(1) in accordance with the legislative intention and Board's guidelines. Since the orderly allowance was not an assessable perquisite, the authorities were justified in not deducting tax at source.

The Tribunal canceled the direction issued by the ITO (TDS) for depositing the amount of TDS and interest, totaling Rs. 38,85,240, as approved by the CIT (A), deeming it inherently bad in law.

Conclusion:

The Tribunal allowed the appeal, holding that the orderly allowance paid to the officers was exempt under section 10(14)(i) and that the Principal Officer of the Board was not obligated to deduct tax at source on the said allowance. The directions for deposit of TDS and interest were canceled.