760/CBDT. - Income Tax - 760/CBDT

Instruction No: 760/CBDT Date of Issue: 20/9/1974 Section(s) Referred: 10(7) Statute: Income - Tax Act, 1961 I am directed to refer to Board's Circular No. 3(xxxvii-4)D of 1956 dated 27th January 1956 (copy enclosed) wherein instructions regarding the Taxability of Exchange Compensation Allowance drawn by officers and staff of the Government of India posted abroad were issued. It was stated that in regard to assessments for assessment year 1956-57 onwards only so much of the Exchange Compensation Allowance will be exempt from income-tax as is actually expended for the purpose for which the foreign allowance is given. This exemption was, however, subject to the condition that the foreign allowance was specifically granted to meet expenses wholly and necessarily incurred in the performance of duties of the office. In a re-examination of these instructions it has been noticed that it is excess of the requirements in law and to that extent it has to be modified. 2. Section 10(7) of the Income-tax Act, 1961 grants exemption from income-tax to "any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India for rendering service outside India". As would be seen from this provision, there are four conditions which have to be satisfied before the allowance or perquisite is exempt from tax. These and the only conditions to be satisfied are:- (i) The allowance or perquisite should be paid or allowed as such; (ii) It should be given outside the taxable territories; (iii) It should be paid or allowed by the Government of India to a citizen of India; and (iv) The allowance or perquisite should be paid or allowed for rendering service outside the taxable territories. It is significant that no condition of any part of the allowance or perquisite being laid out wholly, necessarily and exclusively in the performance of duties has been attached to this clause. Once the conditions enumerated above are satisfied, the whole of the allowance or value of the perquisite would be totally exempt from income-tax under the provisions of section 10(7). 3. The earlier instruction, issued in supersession of the are circular 1956, may be brought to the notice of all officers under year. Appeals, etc pending on this point may be and assessments rectified if applications for rectification are and are with time.