2012 (5) TMI 117 - HC - Income Tax

Salary - TDS in respect of conveyance allowance and additional conveyance allowance - conveyance allowance and additional conveyance allowance received by the Development Officers of the Corporation was permissible deduction under Section 10(14) as they were paid to Development Officer against the expenses actually incurred on duty as per the rules and circulars of the Life Insurance Corporation - both the AO and Appellate Authority as well as the Tribunal have proceeded on the premise that the officers of the Corporation cannot suo motu allow any deduction towards conveyance allowance or additional conveyance allowance and was in the domain of the Assessing Officer, the very premise on which the authorities have proceeded is unfounded as it is the employer who makes the payment to its employee as per the rules or the procedure regulated by it - in favour of the assessee

Summary

Issues Involved:
1. Legality of the demand created by the Assessing Officer for short deduction of tax on conveyance allowance and additional conveyance allowance.
2. Jurisdiction of the Life Insurance Corporation (LIC) officers to allow deductions suo motu.
3. Applicability of Section 10(14) of the Income Tax Act regarding conveyance allowance.
4. Responsibility of the Development Officers versus LIC in claiming and proving deductions.
5. Relevance of precedents from various High Courts on similar issues.

Issue-wise Detailed Analysis:

1. Legality of the Demand Created by the Assessing Officer:
The Assessing Officer scrutinized Form-24 and Form-16 submitted by LIC and issued a notice to the responsible officers of LIC, creating a demand of Rs. 1,06,800/- for short deduction of tax due to wrongly allowed deductions for conveyance allowance and additional conveyance allowance. The shortfall and interest under Section 201 were computed. The Commissioner of Appeal, Income Tax, and the Income Tax Appellate Tribunal affirmed this order, leading to the appeal.

2. Jurisdiction of LIC Officers to Allow Deductions Suo Motu:
The Commissioner of Appeal held that the responsible persons of LIC incorrectly allowed deductions for conveyance allowance and additional conveyance allowance suo motu, which was beyond their jurisdiction. The Appellate Tribunal directed the Assessing Officers to reinvestigate the matter after giving reasonable opportunity to the assessee and to produce evidence of payment of tax by the Development Officers.

3. Applicability of Section 10(14) of the Income Tax Act:
The appellant contended that conveyance allowance and additional conveyance allowance were permissible deductions under Section 10(14) of the Income Tax Act, as they were paid against expenses incurred on duty as per LIC rules and circulars. The appellant cited judgments from the Rajasthan High Court, Punjab and Haryana High Court, and Madhya Pradesh High Court, which held such allowances as deductible under Section 10(14). The respondent argued that deductions could only be claimed if approved by the Assessing Officer in the assessment proceedings.

4. Responsibility of Development Officers versus LIC in Claiming and Proving Deductions:
The appellant argued that the ultimate liability for claiming exemption and proving the same was on the employee assessee (Development Officer), as laid down by the Rajasthan High Court. Therefore, any demand created against LIC was unjustified. The respondent countered that LIC or its officers had no authority to claim deductions without Assessing Officer's approval.

5. Relevance of Precedents from Various High Courts:
The court considered precedents from various High Courts:
- Rajasthan High Court: Held that Development Officers could claim exemption under Section 10(14) for conveyance allowance/additional conveyance allowance if the expenses were wholly, necessarily, and exclusively incurred in the performance of duties.
- Punjab and Haryana High Court: Affirmed that conveyance allowance and additional conveyance allowance paid to Development Officers were for actual expenditure incurred in performance of duties and were deductible under Section 10(14).
- Kerala High Court (Franco John vs. Union of India): Emphasized that actual expenditure incurred and reimbursed by the employer for conveyance in performance of duties was exempt from income tax. The court also noted that non-statutory guidelines from LIC did not bind the Income Tax Department.
- Bombay High Court: Distinguished on facts, as the allowance was paid irrespective of duty and was not reimbursement for expenditure incurred in performance of duties.

Conclusion:
The court concluded that the view taken by the Assessing Officer, the appellate authority, and the Tribunal that LIC had a statutory obligation to deduct tax at source for conveyance allowance and additional conveyance allowance was unsupported. The court held that these allowances were permissible deductions under Section 10(14) of the Income Tax Act. The responsibility for claiming and proving deductions lay with the Development Officers, not LIC. The appeal was allowed, and the order of the Tribunal confirming the liability of interest was set aside.