IT: Where Senior Divisional Manager of LIC had issued a letter dated 7-4-2004 directing office to deduct tax at source on conveyance/additional conveyance allowance to be paid to development officers of LIC, said allowance was taxable being perquisite and, therefore, impugned letter had rightly been issued
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[2013] 38 taxmann.com 361 (Allahabad)
HIGH COURT OF ALLAHABAD
National Federation of Insurance Field Workers of India
v.
Union of India*
RAJIV SHARMA AND DR. SATISH CHANDRA, JJ.
MISC. BENCH NO. 2197 OF 2004
SEPTEMBER 12, 2013
Section 17(2), read with sections 10(14) and 192, of the Income-tax Act, 1961 and rules 2BB and 3 of the Income-tax Rules, 1962 - Salaries - Perquisites [Conveyance/additional conveyance allowance] - Senior Divisional Manager of LIC issued a letter dated 7-4-2004, whereby he directed office to deduct tax at source on conveyance/additional conveyance allowance to be paid to development officers of LIC - Whether conveyance/additional conveyance allowance paid to development officers was taxable being perquisite - Held, yes - Whether therefore, letter dated 7-4-2004 had rightly been issued for deducting tax at source from amount paid pertaining to conveyance/additional conveyance allowance incurred in performance of duty as development officers for generating business - Held, yes [Paras 21 & 22] [In favour of revenue]
FACTS
| ■ | The Senior Divisional Manager of Life Insurance Corporation of India issued a letter dated 7-4-2004, whereby he directed the office to deduct tax at source on conveyance/additional conveyance allowance to be paid to the development officers of the LIC. | |
| ■ | On writ: |
HELD
| ■ | The development officers are salaried persons. For getting the business, they were paid conveyance/additional conveyance allowance and also incentive bonus. [Para 16] | |
| ■ | The various kinds of special allowance have been prescribed under section 10(14) and also under rule 2BB. According to rule 2BB(10), transport allowance granting to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty is prescribed at the rate of Rs. 800 per month. Table II of rule 3 prescribed the value of the perquisite pertaining to the motor car owned or hired and used by the employee for personal/official or wholly official purpose. It is prescribed that the value of the perquisite shall be the amount calculated in respect of only one car. Further it is prescribed that the employer has to maintain detail of the journey undertaking for the official purpose which may include the date of journey, destination, mileage and amount of the expenditure incurred thereon. The employer shall give a certificate to this effect that the expenditure was incurred wholly and exclusively for the purpose of the official duty. [Para 17] | |
| ■ | The word 'perquisite' is excluded from the purview of section 10(14). It is defined under section 17(2). In view of Explanation 3 under section 17(2), conveyance/additional conveyance allowance is covered by the word 'perquisite' and the same is taxable. [Para 18] | |
| ■ | Compartmentalization of income under various heads and computation of the taxable portion strictly in accordance with the formula of deductions, rebates and allowances are to be done only as per the scheme provided under the Act. [Para 19] | |
| ■ | In the instant case, the employer has issued the certificate pertaining to the conveyance /additional conveyance allowance used exclusively and wholly for the official purpose, i.e., the procurement of business. The said certificate is issued by the employer after verifying the data. When it is so, then there is no reason for the Assessing Officer to reject the said certificate specially when the LIC is a statutory body and no private interest is involved. However, the LIC is not competent to determine the allowances, which are exempted from the tax. This task will have to be performed by the Assessing Officer. [Para 20] | |
| ■ | Thus it is clear that the conveyance/additional conveyance allowance is taxable being perquisite. Therefore, the aggrieved development officers are at liberty to lodge a claim for deduction or refund before the Assessing Officer after substantiating their claims. [Para 21] | |
| ■ | Accordingly, the letter dated 7-4-2004 has rightly been issued by the Senior Divisional Manager of LIC for deducting the tax at source from the amount paid pertaining to the conveyance/additional conveyance allowance incurred in the performance of duty as development officers for generating the business. [Para 22] | |
| ■ | Therefore, the writ petition was liable to be dismissed. [Para 23] |
CASE REVIEW
T.K. Ginarajan v. CIT [2013] 217 Taxman 323/36 taxmann.com 583 (SC) (para 21) followed.
CASES REFERRED TO
Topman Exports v. CIT [2012] 342 ITR 49/205 Taxman 119/18 taxmann.com 120 (SC) (para 5), Vodafone International Holdings B.V. v. Union of India [2012] 341 ITR 1/204 Taxman 408/17 taxmann.com 202 (SC) (para 6), State of Himachal Pradesh v. Himachal Pradesh Nizi Vyavsayak Parikshan Kendra Sangh [2011] 6 SCC 597 (para 6), Commissioner of Sales Tax v. Sanjiv Fabrics [2010] 9 SCC 630 (para 6), Life Insurance Corpn. of India v. Union of India [2003] 260 ITR 41/129 Taxman 205 (Raj.) (para 7), CIT v. M.D. Patil [1998] 229 ITR 71/100 Taxman 516 (Kar.) (para 11), National Federation of Insurance Fields Workers of India v. Union of India [2005] 145 Taxman 116 (Jharkhand) (para 12),National Federation of Insurance Field Workers of India (Cuttack Divisional Association) v. Union of India [2009] 185 Taxman 87 (Orissa)(para 13), Karamchari Union v. Union of India [2000] 243 ITR 143/109 Taxman 1 (SC) (para 19), CIT v. Kiranbhai H. Shelat [1999] 235 ITR 635 (Guj.) (para 19) and T.K. Ginarajan v. CIT [2013] 217 Taxman 323/36 taxmann.com 583 (SC) (para 21).
Prashant Chandra, Prashant Kumar, Shishir Jain and Talha A. Rahman for the Petitioner. D.D. Chopra and P.K. Khare for the Respondent.
ORDER
Dr. Satish Chandra, J. - By this petition, the petitioners have assailed thecommunication dated 07.04.2004 issued by the Senior Divisional Manager of Life Insurance Corporation of India (in short LIC) (Annexure No.1), where a direction was issued to deduct the Tax at Source (in short TDS) on conveyance/additional conveyance allowance to be paid to the Field Officers.
2. Sri Prashant Chandra, Senior Counsel, assisted by Sri Shishir Jain, learned counsel for the petitioners submits that the development officers are the members of the petitioners' association. Being aggrieved by the action of their employer's for deducting the tax at source (TDS) pertaining to the conveyance allowance which is being paid in lieu of actual expenditure incurred in procuring business for the LIC preferred the instant writ petition interalia on the grounds that the said additional conveyance allowance does not come within the meaning of Section 10(14)(i) of the Income Tax Act, under which the impugned demand notices have been issued by the Revenue. Learned counsel also submits that Section 10 (14) is applicable only in respect of a perquisite which has not been included or clarified in Section 17 (2) of the Income Tax Act and further the value of perquisite has been defined in Rule 3 of the Income Tax Rules.
3. It is also a submission of the learned counsel that each Field Officer uses the vehicle "wholly and exclusively" for the official purpose and charges the allowance for which certificate is produced by the employee which on verification by the employer, the said allowance was reimbursed and as such the same is exempted as it is not covered under Section 10 (14)(i) of the Act or the Rule 3 regarding the valuation of the perquisite. Thus, the additional conveyance allowance which is being paid for procuring the business for the LIC is exempted.
4. It is a submission of the learned counsel that no Act or Rules provides that the Assessing Officer shall have any jurisdiction to review the decision of the LIC authorities or to scrutinize it. Once satisfaction is recorded by the officers of the LIC, nothing in the Act or the Rules framed thereunder; or even in the circular issued by the CBDT, even remotely empowers the Assessing Officer to sit in appeal over the assessment made by the Senior Officers of the LIC, which needless to say is the subjective satisfaction of the high ranking officers made on objective material. The sufficiency of material cannot be looked into by the Assessing Officer.
5. Learned counsel relied on the ratio laid down in the case of Topman Exports v. CIT [2012] 342 ITR 49/205 Taxman 119/18 taxmann.com 120 (SC), where it was observed that:—
"39. It is a well-settled principle of statutory interpretation of a taxing statute that a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in Explanation (baa) to Section 80-HHC read with the words used in clauses (iiid) and (iiie) of Section 28, the assessee was entitled to a deduction under Section 80HHC on export profits, the benefit of such deduction cannot be denied to the assessee."
6. Learned counsel in support of his arguments, also relied on the ratio laid down in the following cases:—
| 1. | Vodafone International Holdings B.V. v. Union of India [2012] 341 ITR 1/204 Taxman 408/17 taxmann.com 202 (SC); | |
| 2. | State of Himachal Pradesh v. Himachal Pradesh Nizi Vyavsayak Parikshan Kendra Sangh [2011] 6 SCC 597; | |
| 3. | Commissioner of Sales Tax v. Sanjiv Fabrics [2010] 9 SCC 630; and | |
| 4. | Judgment & order dated 09.02.2007 passed in SLP ( C ) Nos.25058-59/2005 |
7. It is also a submission of learned counsel that the issue is squarely covered by the decision of the Hon'ble High Court, Rajasthan in the case of Life Insurance Corpn. of India v. Union of India [2003] 260 ITR 41/129 Taxman 205, decided on 22.01.2003, which was upheld by the Hon'ble Apex Court vide order dated 09.02.2007, (copy on record) while dismissing SLP filed by the Department. In the said case, it was observed that:—
"It is, thus, clear that the Development Officers of the LIC are full time employees of the Corporation whose main task is to develop the business of life insurance. They are required to discharge the duties and obligations which inter alia include development of life insurance business of the Corporation. The very first duty enumerated for the Development Officer is to develop and increase the product on of new insurance business in the planned way, as far as practicable in the area that may be allotted to him from time to time. The other duties and obligations include the duty to supervise and to guide the activities of the agents placed under the supervision of the Development Officers; to recruit new agents so as to develop agency force; and to act generally in such a way as to activate existing agents and to motivate new agents and to render certain services to policy holders. The Officer is also required to perform such duties that are entrusted and assigned to him from time to time."
Finally, in the said case, the Hon'ble Rajasthan High Court has directed the department not to insist upon the LIC to deduct the income tax at source in respect of conveyance and additional conveyance allowance, paid by it to development officers. The Assessing Officer was directed to pass the fresh order in accordance with law laid down in that case.
8. Lastly, learned counsel submits that similar direction may kindly be issued to the LIC, not to deduct the tax at source as the conveyance/additional conveyance allowance is not subjected to tax.
9. On the other hand, Sri Prashant Kumar, learned counsel for the department has raised the preliminary objection about locus standi of the assessee to challenge the notice issued to LIC under Section 201 of the Income Tax Act. He also submits that it is always open for each of the Development Officers to approach the authority concerned and claim refund in accordance with Section 237 of the Income Tax Act, 1961, in as much it also includes tax paid on behalf of 'any person' on the ground that the deductions being made by the LIC in respect of Additional Conveyance Allowance was not taxable at all; and therefore, the instant writ petition is misconceived.
10. Learned counsel also submits that so called 'utilization certificate' given by the employer is nothing but only a subjective estimate of the amount that might have been forwarded by the development officers pertaining to the business brought by them. From a bare perusal of the circular dated 24.04.2004 (Annexure 8 to the writ petition), it is clear that Additional Conveyance Allowance is nothing but additional remuneration being paid to the Development Officers pertaining to their performance. There is no element of reimbursement. The Assessing Officer has rightly asked the proof of having incurred the expenditure, but the same was never produced by the Development Officers.
11. In support his argument, learned counsel relied on the ratio laid down by the Hon'ble Karnataka High Court in the case of CIT v. M.D. Patil [1998] 229 ITR 71/100 Taxman 516, where it was observed that "incentive bonus" being linked to the quantum of business procured by the Development Officer amounts to salary which is taxable as such, and the same does not amount to allowance. It was observed by the Hon'ble Karnataka High Court that:—
"Therefore, in our considered opinion, incentive bonus/commission, is a production/business-oriented payment/income and it is not an allowance granted to meet any expense incurred by the Development Officer in the performance of his duties in that capacity. This inference of ours stands substantiated by the other provisions of the Third Schedule to the Regulations which apart from incentive commission ensures payments or reimbursement to a Development Officer of the amount spent in respect of travelling, residential telephone, insurance premium and taxes on motor vehicles."
12. In the case of National Federation of Insurance Fields Workers of India v. Union of India [2005] 145 Taxman 116 (Jharkhand) the Hon'ble Jharkhand High Court observed that:—
"There is no question of LIC not deducting tax at source and if the Assessee wish to lodge a claim for deduction or refund they may do so before the Assessing Officer after substantiating their case."
13. Similar propositions were expressed in the case of National Federation of Insurance Field Workers of India (Cuttack Divisional Association)v. Union of India [2009] 185 Taxman 87 (Orissa). According to the learned counsel, the conveyance/additional conveyance allowance is an allowance and covered by Section 17(2) Explanation 3 of the Act.
14. Lastly, he made a request for dismissal of the writ petition.
15. Sri P.K. Khare, learned counsel for the LIC also justified the impugned order passed by the Senior Divisional Manager. He submits that the LIC is deducting the tax as per the provisions of the Income Tax Act.
16. After hearing all the parties and on perusal of the record, it appears that the Development Officers are salaried persons. For getting the business, they were paid conveyance/additional conveyance allowances and also incentive bonus.
17. It may be mentioned that the various kind of special allowance has been prescribed under Section 10 (14) of the Act and also under Rule 2 BB of the Income Tax Rules. According to Rule 2BB (10), transport allowance granting to an employee to meet the expenditure for the purpose of commuting between the place of his residence and the place of his duty, is prescribed @ Rs.800 per month. The Rule 3 of the Income Tax Rules prescribed the value of the perquisite. Table II of Rule 3 prescribed the value of the perquisite pertaining to the motor car owned or hired and used by the employee for personal/official or wholly official purpose. It is prescribed that the value of the perquisite shall be the amount calculated in respect of only one car. Further, it is prescribed that the employer has to maintain detail of the journey undertaking for the official purpose which may include the date of journey, destination, mileage and amount of the expenditure incurred thereon. The employer shall give a certificate to this effect that the expenditure was incurred wholly and exclusively for the purpose of the official duty.
18. It may be mentioned that "Perquisite" is excluded from the purview of Section 10(14). 'Perquisite' is defined under Section 17(2) of the Act. Explanation 3 under Section 17(2) clearly provides that :
"Salary includes the pay, allowance, bonus or commission payable monthly or otherwise or any monetary payment, by whatever name called, from one or more employers, as the case may be,..."
In view of above, conveyance/additional conveyance allowance is covered by the word "perquisite" and the same is taxable.
19. Compartmentalization of income under various heads and computation of the taxable portion strictly in accordance with the formula of deductions, rebates and allowances are to be done only as per the scheme provided under the Act. As held by the Hon'ble Apex Court in Karamchari Union v.Union of India [2000] 243 ITR 143/109 Taxman 1, the Income-tax Act, 1961 is a self contained code and taxability of the receipt of any amount or allowance has to be determined on the basis of the meaning given to the words or phrases given in the Act. Thus, the Hon'ble Apex Court do not agree with the view taken by the High Court of Gujarat in CIT v. Kiranbhai H. Shelat [1999] 235 ITR 635. The same does not lay down the correct principle of law.
20. In the light of above discussions and by considering the totality of the facts and circumstances of the case, it appears that in the instant case, the employer has issued the certificate pertaining to the conveyance allowance/additional conveyance allowance used exclusively and wholly for the official purpose i.e. the procurement of business. The said certificate is issued by the employer after verifying the data. When it is so, then there is no reason for the Assessing Officer to reject the said certificate specially when the LIC is a statutory body and no private interest is involved. The LIC is not competent to determine the allowances which are exempted from the tax. This task will have to be performed by the Assessing Officer.
21. Thus, in view of the provisions of Income Tax Act, 1961 and its interpretation it is clear that the conveyance/additional conveyance allowance, and incentive bonus is taxable being perquisite as per the ratio laid down in the case of T.K. Ginarajan v. CIT [2013] 217 Taxman 323/36 taxmann.com 583 (SC) and, therefore, the members of the petitioner federation are at liberty to lodge a claim for deduction or refund before the Assessing Officer after substantiating their claims.
22. Accordingly, the letter dated 07.04.2004 has rightly been issued by the Senior Divisional Manager, LIC for deducting the Tax at source from the amount paid pertaining to the conveyance/additional conveyance allowances incurred in the performance of duty as Development Officers for generating the business being a permissible deduction as the same is exigible to tax. The members of the petitioner's association being salaried persons on furnishing their return of income return he assessed by the assessing authority and it is only after due assessment he entitled for refund of the amount, if any, deducted by the employers conveyance allowance.
The instant petition is devoid of merit. According, the same is hereby dismissed. No cost.
S.K.JRegards
Prarthana Jalan
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