778/CBDT. - Income Tax - 778/CBDT

INSTRUCTION NO. 778/CBDT Dated : October 30, 1974 Section(s) Referred: 10(14) Statute: Income - Tax Act, 1961 The liability to income-tax of various items of allowances drawn by the commanders and other pilots of Indian Airlines which are being claimed as exempt from tax u/s 10(14) of the IT Act came up for examination in the Board recently. It was noticed that some of the allowances claimed to be tax-free are really in the nature of perquisites as defined u/s 17(2) of IT Act and consequentially taxable as salary, while others being in excess of what could be reasonably considered as expenditure required to be incurred wholly, necessarily and exclusively in the performance of duties, are liable to tax to the extent of such excess. In order to avoid detailed enquiries in individual cases with resultant harassment to the employees concerned, the following uniform guidelines are hereby laid down for the exemption to be allowed in respect of certain allowances:- (a) A commandeer of Indian Airlines, while away from Headquarters on flying duty, is entitled to:- (i) special travelling allowance @ Rs.48 per day; (ii) stay-over allowance @ Rs.24 for stay of 16 to 24 hours, Even a stay of 4 hours earns 60 per cent of the allowance; (iii) meal allowance @ Rs.66 per day; and (iv) light refreshment allowance before each flight which comes to Rs.6 per day. The above allowances aggregate to Rs.144 per day and this is in addition to free hotel accommodation on 'bed and break-fast basis'. It is difficult to accept that the entire amount has to be actually spelt wholly, necessarily and exclusively for the purposes of employment. Even under Rule 6D of the IT Rules, 1962, the maximum amount deductible in the assessment of employers towards daily allowance payable to employees is Rs.120 per diem only and this amount covers hotel charges as well. It may therefore be assumed with justification that a the special traveling allowance of Rs.48 per diem is only a form of additional remuneration and should accordingly be taxes in full as salary. The stay-over allowance, meal allowance and light refreshment allowance will remain tax free. (b) A Kit Maintenance allowance of Rs.150 per month is paid to the pilots to compensate them for the expenditure that they have to incur on the maintenance of their kit and uniform are provided by the Airlines, even on a liberal estimate, an amount of Rs.50 p.m. only can be said to be covered by section 10(14) of the IT Act. The excess of Rs.100 p.m should, therefore, be subjected to tax. (c) The amount of premia reimbursed in respect of insurance against loss of licence falls clearly within the ambit of clauses (iii) and (iv) of section 17(2) of the IT Act. It should therefore be subjected to tax as perquisite in the hands of the recipients. (d) Other allowances such as house rent allowances which have hitherto been treated as tax-free should continue to be so treated, subject to the conditions and within the limits prescribed in the IT Act/Rules. The commanders and pilots of the Airlines enjoy several such tax free allowances and perquisites. Apart from stay-over allowance, meal allowance, light refreshment allowance and house rent allowance which are tax free and have been referred to above, there are other tax free allowances and benefits such as telephone allowance, transport/conveyance allowance, free and concessional passsages, medical facilities, etc. These need not be subjected to tax. 2. The limits laid down above are in respect of commanders. In the case of other pilots also, similarly, the special travelling allowance and reimbursement of premia of insurance against loss of licence may be subjected to tax in full and two-thirds out of the kit-maintenance allowance may also be taxed. Similar limitations should be placed on the exemption allowed in respect of the various allowances drawn by commanders and pilots of Air India as well. 3. It has to be made clear that the above guidelines are not absolute. Where a pilot is able to furnish evidence to prove that a larger amount than what is proposed to be treated as exempt, has actually been incurred in the course of the performance of his duty, satisfying the conditions of section 10(14) of the IT Act, the ITO may examine the evidence in support of the claim and decide the issue on the basis thereof. 4. The restrictions indicated above should be applied in all the pending and future assessments. Assessments already completed need not, however, be reopened for this purpose. 5. These instructions may be brought to the notice of all the officers working in your charge.