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TMI Blog2006 (6) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned CIT(A) erred in directing the AO to allow exemption of allowances received on duty abroad under section 10(14)( ii ) to the extent of 50 per cent of the allowances or Rs. 50,000 whichever is less, because of the following reasons : ( i )The assessee being an Indian Airlines on board crew, it cannot be said that the journey performed on board on trips abroad is same as journey performed on tour, so as to come within the ambit of clause ( b ) of Notification No. S.O.143(E), dated 21-2-1989. ( ii )Clause ( b ) of Notification No. S.O. 143(E), dated 21-2-1989 is not applicable to the facts of the case. ( iii )Without prejudice to ( i ) and ( ii ) above, the assessee has produced no evidence, whatsoever either before the Assessing Officer or before the CIT(A) to prove that the assessee, in fact had performed journey to foreign stations during the relevant previous year and incurred any expenditure on these hypothetical journey abroad. ( iv )The specific provision contained in clause (4) of Notification No. S.O.143(E), dated 21-2-1989 regarding any allowance granted to an employee working in any transport system to meet his personal expenditure during his duty perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction of various allowances under section 10(14)( i ) in the case of Capt. V.K. Verma and the Department has accordingly allowed part of the allowance as deduction under section 10(14)( i ) read with rules and notifications thereon, there was no room for restricting the deduction which should be allowed in full. 4.On the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in law and facts in restricting the deduction as above without appreciating the fact that even under the amended provisions the exemption is allowable to the extent the same were used for the purpose for which the same were granted and the amendment did not vest the Assessing Officer powers to call for details of factual expenditure." 5. A materially identical issue came up for consideration before a Co-ordinate Bench of this Tribunal, in the case of Asstt. CIT v. Capt. K.P. Singh, and vice versa. In the said case, the Tribunal has, inter alia, has held that in the light of the subsequent judgment of the Tribunal in the case of Capt. V.K. Verma v. Asstt. CIT and vice versa . In the said case, we have, inter alia, observed as follows : "2.Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In appeal, the CIT(A) took the view that so far as the allowances in respect of flights in India is concerned, the Assessing Officer was indeed justified in holding that the exemption is to be granted under section 10(14)( ii ) and is to restricted to Rs. 3,000 per month. However, as regards the exemption in respect of the same allowances, so far as international flights are concerned, the CIT(A) was of the view that the provisions of section 10(14)( i ) will come into play. In coming to this conclusion, the CIT(A) was also guided by observations made by the Delhi Bench of the Tribunal, in the case of Capt. V.K. Verma v. ITO and vice versa (ITA No. 5876/Delhi/96 and ITA No. 1493/Delhi/97). The CIT(A) thereafter proceeded to observe as follows: Since section 140(14)( ii ) read with rule 2BB covers only the situation where the allowances are received in India, therefore, the allowances received for flights operated outside India are to be brought with the scope of section 10(14)( i ) of the Income-tax Act. The said section has not prescribed any limit and was further limited the deduction to the extent such allowances are actually incurred for the purpose. Therefore, I hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sighted before us, during the course of this hearing, was a revision order under section 264 dated 30th May, 2003 in the case of Capt. U. A. Joglekar, passed by the very Commissioner of Income-tax who has signed the authorisation memo dated 2nd July, 2003 for filing of this appeal before us. In this revision order, the Commissioner has, inter alia, observed as follows : ...The assessee has, in this case, moved a petition under section 264 for the assessment year 1994-95 with regard to claim of exemption under section 10(14)( i ) of the Income-tax Act. It was contended that this claim has not been allowed by the Assessing Officer in the course of the assessment. The assessee s claim relates to the exemption under section 10(14)( i ) read with notification made therein in respect of various allowances received while operating international flights. These allowances are received in local currency at the foreign station and, therefore, covered by the provisions of section 10(14)( i ) and notification issued thereunder. Clause ( b ) of relevant Notification No. SO 143(E), dated 21st February, 1989 reads as under : "any allowance, whether granted on tour or for the period of jou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty. This expenditure should, however, be limited to Rs. 50,000 only. Further the Assessing Officers should substitute the allowance incorporated in the assessment order with the allowances indicated by Indian Airlines authorities, if required, and should also substitute salary as per Form No. 16 as against the estimated salary. Accordingly, the Assessing Officer is directed to allow the assessee s claim under section 10(14)( i ) as per the above instruction. 7.It is thus clear that the revenue itself has taken a stand that so far as international flights are concerned, the provisions of exemption under section 10( 14 )( i ) are applicable, and that the assessee-pilot is entitled to exemption under section 10( 14 )( i ) in respect of the same. The very Commissioner who challenges the impugned order, passed by the CIT(A) holding that the assessee is entitled to exemption under section 10(14)( i ) in respect of allowances received for international flights, has himself allowed the same exemption. It is difficult to reconcile between Commissioner s giving the relief of exemption under section 10(14)( i ), by exercising his revision powers under section 264, and the same Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that is at the rate of Rs. 3,000 the correct figure should have been Rs. 36,000. The apparent reason is that in Capt. Harminder Singh s case ( supra ), Tribunal had allowed exemption to the extent of Rs. 30,000 but then the assessment year involved in that case was 1993-94, and for the relevant previous year, the applicable limit was Rs. 1,000 per month till June, and for the rest of nine months the applicable limit was enhanced to Rs. 3,000 per month. That is how, i.e. Rs. 1,000 multiplied with 3 plus Rs. 3,000 multiplied with 9, the figure of Rs. 30,000 applied for the assessment year 1993-94. Yet, the Assessing Officer has adopted the same for the assessment year 1997-98 also. As for the reliance on notification numbers SO 144(E), dated 21st February, 1989 and SO 487(E), dated 1st July, 1992, these notifications ceased to be relevant after amendment of section 10(14) with effect from 1st July, 1995. These things, as we pointed out, only show-how thoughtlessly the impugned assessment order is passed. It is also important to bear in mind the fact that in Capt. Harminder Singh s case ( supra ), the assessee was working on domestic sectors and it was for this reason that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). In Capt. Verma s case ( supra ), a Co-ordinate Bench of this Tribunal, vide order dated 22nd August, 2001, observed that : On careful perusal of the record, we find force in the contentions of the assessee that the facts of the impugned case are not identical to that of Harminder Singh s case ( supra ). As such the principle laid down in that case is not strictly applicable to the instant case. It is also obvious from Tribunal s order in Harminder Singh s case that Tribunal did not have occasion to examine the issue of exemption of allowance under section 10(14)( i ) of the Act, if the assessee is on flying duty abroad. Though the assessee has emphatically argued that its claims are covered under section 10(14)( i ), we are of the view that since lower authorities have not applied their mind to this aspect, this matter should go back to the Assessing Officer for its re-examination in the light of assessee s contentions and various notifications of the Board and relevant provisions of law. Accordingly, we set aside the order of the CIT(A) and restore the matter to the file of the Assessing Officer for re-examination in the terms indicated above. 12.This order has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities, the claim of exemption is allowable under section 10(14)( i ) though only to the extent of 60 per cent in respect of allowances granted for the purpose of visits abroad in connection with the flying duties. The nature of allowances is admittedly the same for domestic and international visits, only the quantum of allowance and currency of allowance varies. That is a significant departure from revenue s stand that the allowances cannot be said to be in the nature of allowances eligible for exemption under section 10(14)( i ) at all. The revenue having taken the stand that the nature of allowances is such that it can be partly exempted under section 10(14)( i ) when assessee visits abroad and when the exemption under section 10(14)( ii ) is, therefore, unavailable, it cannot be open to revenue to now argue that provisions of section 10(14)( i ) cannot be attracted at all in respect of the identical allowances for visiting Indian stations. To that extent, the principle laid down by the Tribunal in Capt. Harminder Singh s case ( supra ) has been modified by the Tribunal in the subsequent decisions, such as in the case of Capt. V.K. Verma ( supra ), and even by the revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g duties of a special nature relating to his office unless such allowance is related to his place of posting or residence. 15.We also consider it appropriate to reproduce the part of Rule 2 BB under which the allowances paid for going abroad in connection with flying duties are exempted by the revenue and under which the allowances paid for going to other places inside India are exempted by the revenue : Rule 2BB (1) For the purpose of clause ( i ) of sub section 14 of section 10, prescribed allowances, by whatever name called, shall be following : ( b )any allowance, whether granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from normal place of duty; ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (2) For the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r ; -the assessee should not be in receipt of a daily allowance; and -the exemption of allowance is to the extent the allowance is prescribed at 70 per cent of the allowance up to a maximum of Rs. 3,000 per month so far as year before us is concerned. 18.It is thus clear that so far as eligibility for exemption under section 10(14)( i ) read with Rule 2BB(1)( b ) is concerned, it has nothing to do with the place which assessee is to visit in the course of duties. The exemption under this section cannot be declined on the ground that the assessee was to visit places outside his normal place of duty in India, and not abroad. Whether an assessee is in India or is outside India, as long as allowance is granted to meet ordinary daily charges on account of absence from normal place of duty, the same is eligible for exemption under section 10(14)( i ) read with Rule 2BB(1)( b ) - of course subject to actual use condition but that is not relevant in the present context. Therefore, the normal interpretation of this provision, as accepted by the revenue, is that if an employee is posted in Mumbai and he travels to, say, London, the allowance that the assessee is granted to meet his ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted to "meet expenses wholly, necessarily and exclusively incurred in connection with the duties of an office". The purpose of the allowances remains in the same and if destination that the assessee visits makes any difference to the allowances, such difference is only in terms of quantum of allowance and the currency in which it is paid. These factors, by any stretch of logic, cannot have any bearing on the eligibility for exemption under section 10(14)( i ). The very basis of denying exemption under section 10(14)( i ), therefore, is no longer sustainable in law. 20.When the allowances are admittedly granted for wholly, necessarily and exclusively for official purposes, there cannot be any occasion to invoke section 10(14)( ii ) the scope of which is confined to expenses to meet increased cost of living or to meet personal expenses at the place where duties of office are performed or where the assessee resides. The expression place where the duties of his office or employment of profit are performed appearing in section 10(14)( ii ) of the Act refers to a geographical location, i.e. city, State, or the region, where the employee is posted, as is also evident from colum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he costs of ordinary daily charges on account from normal place of duty. The cost of living, in any event, only relevant for the place of the duties are normally performed, and not of the places where a person has to go in connection with performance of his duties. A place of duty , as we have discussed above, refers to a geographical location and, therefore, not an aircraft which cannot be stationary and has to move from place to place. It is also not in dispute that a daily allowance, though computed at hourly rate, is being paid to the assessee, and, for this reason also, rule 2BB(2)( iv ) has no application in the cases where daily allowance is paid. Last few words of this entry are "provided such employee is not in receipt of daily allowance". For all these reasons, the provisions of section 10(14)( ii ) and also of Rule 2BB(2)( iv ) are not applicable on the facts of this case. 21.The line of distinction between an allowance to meet expenses wholly, necessarily and exclusively for the performance of duties, though prima facie of a personal nature, and an allowance to meet personal expenses simplicitor is very significant. Take for example, and allowance to meet the costs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aily charges on account of absence from normal place of duty. It is thus clear that the provisions of section 10(14)( ii ) read with Rule 2BB(2)( iv ) have no application in case the allowances are found to be covered by the provisions of section 10(14)( i ) read with Rule 2BB(1)( b ), and vice versa . These two sections operate in mutually exclusive areas inasmuch as application of one of the section is to the exclusion of the other section. In other words, revenue having accepted the allowances granted to the assessee are covered by section 10(14)( i ), there is no room to invoke the provisions of section 10(14)( ii ). It is materially different from the case of Capt. Harminder Singh ( supra ) wherein there was a categorical finding by the Tribunal that the allowances in question are not covered by the provisions of section 10(14)( i ) read with Notification No. S.O. 143(E) which is in pari materia with Rule 2BB(1)( a ) and ( b ), but that is no longer the case as revenue itself has allowed exemption under section 10(14)( i ) read with Rule 2BB(1)( b ) in respect of identical allowances. To that extent, the legal position, on the facts of the case before us and in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. We find that the basic reason of declining the exemption claimed by the assessee is that the authorities below are not satisfied about evidence of the assessee having actually spent the amount allowance for the purposes for which the same were granted. A lot of emphasis is laid on the fact that section 10(14)( i ) provides any allowance for the purpose of meeting expenses wholly necessarily and exclusively incurred for the purpose of official duties, as may be prescribed, but the exemption is available only to the extent "to the which such expenses are actually incurred for that purposes". The Assessing Officer has disallowed the exemption only on the basis that there were insufficient proof for the expenses having been actually incurred. In appeal, the CIT(A) has also held that the appellant has not produced evidence regarding actual use of the allowances for the purpose for which the same were granted. Unlike the requirements of section 10(14)( ii ) which provide for exemption of a prescribed allowance to the extent prescribed , under section 10(14)( i ) exemption is indeed confined to the extent to which an exempt allowance is actually spent for the purposes for which su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nately high compared to the salary received by him, not attempt will ordinarily be made to call for details of the expenses actually incurred by him with a view to disentitling him to some extent from the exemption. An enquiry will, of course, be justified and will be made in cases where the allowances are prima facia unreasonably high. Source : Direct Taxes Circulars Volume 1 - 1994 Edition - Page 1.130 It is, therefore, clear that even as the provisions were amended so as to allow the exemption of allowance only to the extent the allowances were used for the purposes for which the same were granted, even in this amendment did not vest the Assessing Officers powers to call for details of actual expenditure unless, generally speaking, the allowances are unreasonably high vis-a-vis salaries of the assessee or with reference to the nature of duties performed by the assessees. 8. The above circular was undoubtedly issued under the Income-tax Act, 1922 but then all the circulars issued under section 1922 Act, do not cease to hold good in law. Section 297(2)( k ) specifically provides that notwithstanding the repeal of Income-tax Act, 1922, amongst other things, any instr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Canada US $ 54 Chaina US $ 68 Germany US $ 75 Hong Kong US $ 75 Ethiopia US $ 50 Indonesia US $ 60 Japan US $ 75 Kenya US $ 50 Korea US $ 70 Kuwait US $ 74 Malaysia US $ 50 Mauritius US $ 50 Russian Federation US $ 75 Switzerland US $ 58 UAE US $ 61 UK US $ 75 USA US $ 75 These daily allowances are over and above the hotel charges and local conveyance expenses which are allowed on actual expense basis in the approved list of hotels, but wherever breakfast is included in the hotel tariff, the daily allowance is reduced by 10 per cent. On the strength of this Government circular, learned counsel contends that the allowance at the rate of US $ 75 is reasonable. It is, therefore, argued that to the extent of US $ 75 per day, the allowance granted to the assessee can be treated as a daily allowance to meet ordinary daily charges on account of absence from normal place of duty. 26.Learned Departmental Representative vehemently conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e performance of duties of his office, and compute the exempt portion of daily allowance at the rates specified in the Government circular referred to above. Upon furnishing of these details by the assessee, the Assessing Officer shall grant exemption under section 10(14)( i ) in respect of the allowances in the terms indicated above. 28.We now come to the quantum of allowance to be treated as exempt under section 10(14)( i ) in respect of allowances granted to the assessee to meet ordinary daily charges during the period he is away from his base station but is in India. 29.The assessee has contended that a sum of Rs. 600 per day in respect of the above are fair and reasonable. No material has been brought on record by any of the authorities below to establish, or even indicate, that this quantum of allowance is excessive or unreasonable. We agree with learned counsel s contention that having regard to high prices of meals and other incidental expenses at the places the airline crew members are required to stay in, a sum of Rs. 600 per day is hardly enough to meet the costs of two meals. We, therefore, see no reasons to reject the claim of the assessee. We direct the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Once the Administrative Commissioner accepts the position regarding applicability of exemption under section 10(14)( i ) read with Notification No. 143(E), or under corresponding rule under the Income-tax Rules, for these allowances when assessee travels abroad in connection with the flying duties, it cannot be open to the revenue to take a stand that those very allowances cease to be of the nature as to be covered by section 10(14)( i ) read with the Notification No. 143(E). The only reason of disallowance was the applicability of section 10(14)( ii ) read with Notification No. 144(E), or the corresponding rule, but then, as revenue itself has accepted applicability of section 10(14)( i ) in respect of allowances drawn for travelling abroad in connection with the flying duties, there cannot be any good reason to decline exemption under section 10(14)( i ) in respect of allowances paid for travelling within India. Once exemption under section 10(14)( i ) is available in respect of these allowances, the same allowances cannot be subject-matter of exemption under section 10(14)( ii ) as well. In any event, as we have noted earlier, section 10(14)( i ) and section 10(14)( ii ) operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew that we have decided in the case of Capt. K.P. Singh ( supra ), we think it fit and proper to restrict the exemption to the rate of daily allowance fixed by the Government of India, so far as foreign visits are concerned. These daily allowance rate have been set out earlier in this order while quoting extracts from our order in the case of Capt. K.P. Singh ( supra ). We direct the Assessing Officer to accordingly grant exemption under section 10(14)( i ) to the allowances, by adopting daily rates so fixed by the Government of India as the maximum permissible rate eligible for exemption under section 10(14)( i ) without productions of evidence of actual expenditure, out of the consolidated flying allowances received by the assessee. In case, however, the allowance actually received by the assessee for a particular day is less than the daily allowance fixed by the Government of India, the exemption will be restricted to the actual allowance received by the assessee. In order that the above directions can be given effect by the Assessing Officer, the assessee shall provide for the details of stay abroad in connection with the performance of duties of his office, and compute t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese details by the assessee, the Assessing Officer shall grant exemption under section 10(14)( i ) in respect of the allowances in the terms indicated above. 9. For the reasons set out above, while we reject the contention of the revenue so far as the issue of grant of exemption to impugned allowances is concerned, and we uphold the contentions of the assessee in the terms indicated above. The matter will, however, go back to the file of the Assessing Officer for the limited purposes of quantification of relief in terms of our observations in the foregoing paragraphs. 10. The only other issue left is revenue s grievance against CIT(A) s direction to the effect that interest under section 234A is to be charged only for the period for which the assessee was permitted to file the income tax returns i.e. for two years. This issue is also covered in favour of the assessee by a series of orders of various Co-ordinate Benches of the Tribunal, copies of which were filed before us at pages 4 to 23 of the paper book. In these decisions, namely in the cases of Capt. E B Karadia, Ms. Priti Pithawala v. ITO [2003] 129 Taxman (Mag.) 79 Nupur Rohinda, F.S. Vajifdar, Ms. Sidha Sal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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