2009 (2) TMI 417 - HC - Income Tax

Exemption- whether the additional conveyance allowance granted by the LIC to Development Officers is exempt from tax under section 10(14) of the Income-tax Act, 1961? Held that- the respondent was eligible for exemption. However the Department was at liberty to establish and disallow exemption in case where the employer did not prove that the additional conveyance allowance was reimbursement of actual expenditure and it was not a perquisite which was outside the scope of section 10(14) of Act.

Summary

Issues:
Whether additional conveyance allowance granted by LIC to Development Officers is exempt from tax under section 10(14) of the Income-tax Act, 1961.

Analysis:

The High Court of Kerala considered the issue of whether the additional conveyance allowance granted by the LIC to Development Officers is exempt from tax under section 10(14) of the Income-tax Act, 1961. The court reviewed the orders of the Tribunal and the first appellate authority. Referring to a previous decision, the court highlighted that reimbursement of actual expenditure incurred by employees towards conveyance expenditure is an allowable deduction, regardless of whether it is granted as an allowance or not. In the present cases, it was found that the employer, LIC, a statutory corporation under the Government of India, was reimbursing only the actual expenditure incurred by the Development Officers for business-related travel. Consequently, the court upheld the exemption for the respondents. However, the court granted the Department the freedom to establish and disallow the exemption in cases where the employee fails to prove that the additional conveyance allowance received is not a reimbursement of actual expenditure and does not fall outside the scope of section 10(14) of the Act.

This judgment provides clarity on the tax treatment of additional conveyance allowance granted by LIC to its Development Officers under the Income-tax Act, 1961. It emphasizes the importance of proving that such allowances are reimbursement for actual expenditure incurred for business purposes to qualify for exemption under section 10(14) of the Act. The decision underscores the need for employers to ensure that allowances provided to employees are genuinely linked to business-related expenses to avoid tax implications. The judgment also highlights the role of the Department in verifying the nature of allowances and perquisites to prevent misuse of tax exemptions. Overall, the judgment sets a precedent for assessing the tax implications of conveyance allowances in the context of employee reimbursements and perquisites.