Is there any High Court authority the other way on the LIC development officers' conveyance and additional conveyance allowance, and how far does it actually go?
Yes. The Rajasthan High Court held that development officers of the LIC are entitled to claim exemption under s.10(14) for conveyance allowance and additional conveyance allowance, and directed the Department not to insist on the LIC deducting tax at source on them. But the holding is expressly conditional: it applies only upon the officers satisfying that the allowances were actually spent wholly, necessarily and exclusively in the performance of duties, and the Court twice said the ultimate liability of claiming and proving the exemption is on the employee.
Decided by the High Court (N.N. Mathur and H.R. Panwar JJ) on 2003-01-22, reported as (2003) 260 ITR 41 (Raj); (2003) 179 CTR (Raj) 432. It bears on section 10(14), section 10(14)(i), section 10(14)(ii), section Rule 2BB, section 17(2), section 192, section 143(1)(a) of the Income Tax Act 1961, in Salary & Perquisites, Capital Gains Exemptions and TDS Defaults matters.
This is the taxpayer-side authority in a genuinely split area, and it is important to read exactly what it does and does not say. It does not hold that the allowances are exempt as a class. Its own reasoning at paragraph 24 records that Rule 2BB prescribes the allowance, that free conveyance from the employer takes it outside the rule, and that the assessing authority has to be satisfied the expenditure was incurred; and paragraph 28 says the ultimate liability of claiming and proving the exemption rests on the development officer. Where it goes further than the Orissa, Bombay and Madras view is on the employer's deduction obligation: on the strength of the LIC's utilisation certificate and the norm-based computation of the allowance, it treated the allowance as reimbursement of actual expenditure and restrained the Department from requiring deduction at source up to the exempt limit fixed by CBDT instructions from time to time. The Orissa High Court in 2008 declined to follow it, saying the 2001 CBDT circulars were not placed before this Bench — a criticism that goes to the circulars and not to this Court's treatment of Rule 2BB, which it did consider.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Two special appeals raised the question whether additional conveyance allowance paid by the Life Insurance Corporation of India to its development officers in terms of the norms of business fetched by them, under a circular issued by the LIC in 1987, is exempt under s.10(14) as a special allowance. The appeals were from judgments of a single judge dated 17 April 2000 and 3 November 1999 in S.B. Civil Writ Petitions Nos. 700 of 2000 and 1617 of 1991. In the first, notices dated 25 February 2000 and 29 February 2000 were in issue; in the second, an assessment order dated 27 November 1990. The duties of a development officer, reproduced from the relevant rules, are to develop and increase life insurance business in an allotted area through agents, to guide, supervise and direct agents, to introduce new agents, to activise existing agents, to render policy servicing, and to carry out claim investigation and revival work. The LIC's practice was to issue a utilisation certificate for income-tax purposes certifying that the amount had been paid to meet expenses wholly, necessarily and exclusively incurred in the performance of development duty and had actually been so incurred. The facts and submissions set out in paragraphs 2 to 19 were not read.
The special appeals were allowed. The single judge's judgments were set aside, the impugned notices in W.P. No. 700 of 2000 were quashed, the Department was directed not to insist upon the LIC deducting income-tax at source in respect of conveyance and additional conveyance allowance paid to its development officers, and the assessment order dated 27 November 1990 in W.P. No. 1617 of 1991 was quashed with a direction to the assessing authority to pass a fresh order in accordance with the law laid down (para 31). The Court held that development officers are entitled to claim exemption under s.10(14) in respect of conveyance allowance and additional conveyance allowance upon satisfying the conditions that such allowances have actually been spent for the purpose for which they were given, wholly, necessarily and exclusively in the performance of duties (para 28).
The Court set out s.10(14) as amended, the notification dated 9 June 1989 issued under sub-clause (i), the Finance Act 1995 amendment substituting 'as may be prescribed', and Rule 2BB as inserted by the Income-tax (Eighth Amendment) Rules 1995 (paras 20 to 22). It identified the three requirements for exemption under clause (14): the payment must be a special allowance or benefit that is not a perquisite within s.17(2); it must be granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties; and it is exempt only to the extent such expenses are actually incurred (para 23). It held that the assessee must show the amount was not for his own benefit but to meet such expenses, that after the 1995 amendment the allowance must be one prescribed by rule, that Rule 2BB(1)(c) covers an allowance to meet conveyance expenditure in the performance of duties and excludes an employee provided with free conveyance, that the assessing authority has to satisfy itself whether the expenses were incurred, and that the provision imposes an obligation on the Department to grant the exemption if the claim comes within the prescriptions (para 24). Turning to the facts, it described the development officers' duties as field duties requiring extensive travel (paras 25 and 26), set out the LIC's utilisation certificate (para 27), and reasoned that the additional conveyance allowance is worked out by a general formula referable to the parameters of the business and represents reimbursement of actual conveyance expenditure with a direct nexus to the performance of duties, the employer certifying the minimum amount actually spent; on that basis it held the officers entitled to the exemption on proof and held that the LIC cannot be required to deduct at source to the extent the allowance is exempt under Rule 2BB and the minimum limits set from time to time, while restating that the ultimate liability of claiming and proving the exemption is on the employee (para 28). It distinguished CIT v. L.D. Satija [2000] 246 ITR 629 (P&H) and CIT v. Nestle India Ltd. [2000] 243 ITR 435 (Delhi) as decided on other points (paras 29 and 30).
Therefore, we hold that the Development Officers in the Life Insurance Corporation are entitled to claim exemption under Section 10(14) of the Act in respect of conveyance allowance/additional conveyance allowance upon satisfying the conditions that such allowances have actually been spent for the purpose for which they were given wholly, necessarily and exclusively in the performance of duties.
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Handle my notice → Ask a CA on WhatsAppYes. The Rajasthan High Court held that development officers of the LIC are entitled to claim exemption under s.10(14) for conveyance allowance and additional conveyance allowance, and directed the Department not to insist on the LIC deducting tax at source on them. But the holding is expressly conditional: it applies only upon the officers satisfying that the allowances were actually spent wholly, necessarily and exclusively in the performance of duties, and the Court twice said the ultimate liability of claiming and proving the exemption is on the employee. This was decided by the High Court (N.N. Mathur and H.R. Panwar JJ) and bears on section 10(14), section 10(14)(i), section 10(14)(ii), section Rule 2BB, section 17(2), section 192, section 143(1)(a) of the Income Tax Act 1961. It is reported as (2003) 260 ITR 41 (Raj); (2003) 179 CTR (Raj) 432. This is the taxpayer-side authority in a genuinely split area, and it is important to read exactly what it does and does not say. It does not hold that the allowances are exempt as a class. Its own reasoning at paragraph 24 records that Rule 2BB prescribes the allowance, that free conveyance from the employer takes it outside the rule, and that the assessing authority has to be satisfied the expenditure was incurred; and paragraph 28 says the ultimate liability of claiming and proving the exemption rests on the development officer. Where it goes further than the Orissa, Bombay and Madras view is on the employer's deduction obligation: on the strength of the LIC's utilisation certificate and the norm-based computation of the allowance, it treated the allowance as reimbursement of actual expenditure and restrained the Department from requiring deduction at source up to the exempt limit fixed by CBDT instructions from time to time. The Orissa High Court in 2008 declined to follow it, saying the 2001 CBDT circulars were not placed before this Bench — a criticism that goes to the circulars and not to this Court's treatment of Rule 2BB, which it did consider. If it applies to you, the first step is this: If the assessment is in Rajasthan, plead this judgment for the proposition that the Department cannot insist on deduction at source, but plead it with its condition — actual expenditure, wholly, necessarily and exclusively in the performance of duties.
Two special appeals raised the question whether additional conveyance allowance paid by the Life Insurance Corporation of India to its development officers in terms of the norms of business fetched by them, under a circular issued by the LIC in 1987, is exempt under s.10(14) as a special allowance. The appeals were from judgments of a single judge dated 17 April 2000 and 3 November 1999 in S.B. Civil Writ Petitions Nos. 700 of 2000 and 1617 of 1991. In the first, notices dated 25 February 2000 and 29 February 2000 were in issue; in the second, an assessment order dated 27 November 1990. The duties of a development officer, reproduced from the relevant rules, are to develop and increase life insurance business in an allotted area through agents, to guide, supervise and direct agents, to introduce new agents, to activise existing agents, to render policy servicing, and to carry out claim investigation and revival work. The LIC's practice was to issue a utilisation certificate for income-tax purposes certifying that the amount had been paid to meet expenses wholly, necessarily and exclusively incurred in the performance of development duty and had actually been so incurred. The facts and submissions set out in paragraphs 2 to 19 were not read. The matter was decided on 2003-01-22 by the High Court (N.N. Mathur and H.R. Panwar JJ). On those facts the High Court held as follows. The special appeals were allowed. The single judge's judgments were set aside, the impugned notices in W.P. No. 700 of 2000 were quashed, the Department was directed not to insist upon the LIC deducting income-tax at source in respect of conveyance and additional conveyance allowance paid to its development officers, and the assessment order dated 27 November 1990 in W.P. No. 1617 of 1991 was quashed with a direction to the assessing authority to pass a fresh order in accordance with the law laid down (para 31). The Court held that development officers are entitled to claim exemption under s.10(14) in respect of conveyance allowance and additional conveyance allowance upon satisfying the conditions that such allowances have actually been spent for the purpose for which they were given, wholly, necessarily and exclusively in the performance of duties (para 28).
The Court set out s.10(14) as amended, the notification dated 9 June 1989 issued under sub-clause (i), the Finance Act 1995 amendment substituting 'as may be prescribed', and Rule 2BB as inserted by the Income-tax (Eighth Amendment) Rules 1995 (paras 20 to 22). It identified the three requirements for exemption under clause (14): the payment must be a special allowance or benefit that is not a perquisite within s.17(2); it must be granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties; and it is exempt only to the extent such expenses are actually incurred (para 23). It held that the assessee must show the amount was not for his own benefit but to meet such expenses, that after the 1995 amendment the allowance must be one prescribed by rule, that Rule 2BB(1)(c) covers an allowance to meet conveyance expenditure in the performance of duties and excludes an employee provided with free conveyance, that the assessing authority has to satisfy itself whether the expenses were incurred, and that the provision imposes an obligation on the Department to grant the exemption if the claim comes within the prescriptions (para 24). Turning to the facts, it described the development officers' duties as field duties requiring extensive travel (paras 25 and 26), set out the LIC's utilisation certificate (para 27), and reasoned that the additional conveyance allowance is worked out by a general formula referable to the parameters of the business and represents reimbursement of actual conveyance expenditure with a direct nexus to the performance of duties, the employer certifying the minimum amount actually spent; on that basis it held the officers entitled to the exemption on proof and held that the LIC cannot be required to deduct at source to the extent the allowance is exempt under Rule 2BB and the minimum limits set from time to time, while restating that the ultimate liability of claiming and proving the exemption is on the employee (para 28). It distinguished CIT v. L.D. Satija [2000] 246 ITR 629 (P&H) and CIT v. Nestle India Ltd. [2000] 243 ITR 435 (Delhi) as decided on other points (paras 29 and 30). In the words reproduced by the source cited on this page: "Therefore, we hold that the Development Officers in the Life Insurance Corporation are entitled to claim exemption under Section 10(14) of the Act in respect of conveyance allowance/additional conveyance allowance upon satisfying the conditions that such allowances have actually been spent for the purpose for which they were given wholly, necessarily and exclusively in the performance of duties." The decision followed or applied CIT v. L.D. Satija [2000] 246 ITR 629 (P&H) — distinguished; CIT v. Nestle India Ltd. [2000] 243 ITR 435 (Delhi) — distinguished.
It was decided by the High Court on 2003-01-22 and is reported as (2003) 260 ITR 41 (Raj); (2003) 179 CTR (Raj) 432. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 10(14), section 10(14)(i), section 10(14)(ii), section Rule 2BB, section 17(2), section 192, section 143(1)(a), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The special appeals were allowed. The single judge's judgments were set aside, the impugned notices in W.P. No. 700 of 2000 were quashed, the Department was directed not to insist upon the LIC deducting income-tax at source in respect of conveyance and additional conveyance allowance paid to its development officers, and the assessment order dated 27 November 1990 in W.P. No. 1617 of 1991 was quashed with a direction to the assessing authority to pass a fresh order in accordance with the law laid down (para 31). The Court held that development officers are entitled to claim exemption under s.10(14) in respect of conveyance allowance and additional conveyance allowance upon satisfying the conditions that such allowances have actually been spent for the purpose for which they were given, wholly, necessarily and exclusively in the performance of duties (para 28). It arises in Salary & Perquisites, Capital Gains Exemptions and TDS Defaults matters, on section 10(14), section 10(14)(i), section 10(14)(ii), section Rule 2BB, section 17(2), section 192, section 143(1)(a) of the Income Tax Act 1961, and was decided by N.N. Mathur and H.R. Panwar JJ. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Elsewhere, treat the exemption as one to be established in the employee's own assessment and expect the Orissa, Bombay and Madras line to be cited against you. Produce the employer's utilisation certificate in the form reproduced at para 27, and the circular fixing the norms by which the allowance is computed, because the Court's reasoning rests on the allowance being a norm-based reimbursement of probable expenditure. Check whether free conveyance is provided by the employer; if it is, the proviso to Rule 2BB(1)(c) takes the allowance out of the prescribed list altogether. Tell the client in writing that the High Courts differ on this and what the exposure is if the assessing officer follows the contrary line.
High Courts differ on this point. The Orissa High Court in National Federation of Insurance Field Workers of India v. Union of India, 106 (2008) CLT 118, decided 3 April 2008, expressly declined to follow this judgment, holding that the implications of the amended s.10(14) and Rule 2BB were not properly appreciated here and that the CBDT circulars dated 4 January 2001 and 1 February 2001 were never placed before this Bench; it recorded that the Bombay and Madras High Courts have taken the Revenue's view. The Orissa Court also recorded that the Supreme Court dismissed the SLP against this judgment on the narrow ground that the year in issue was 1990-91 and an earlier CBDT circular then governed, which is not an approval of this reasoning. No Supreme Court decision resolving the conflict was located. Note also that this entry is written from paragraph 1 and paragraphs 20 to 31 only; the balance of the judgment was not read. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
I did not read the whole judgment. The first fetch of the print view returned the header, paragraph 1 and paragraph 31 with an interpolated placeholder in place of the body; a second fetch, asking for paragraphs 20 to 31 word for word, returned those twelve paragraphs as continuous text, and this entry is written only from paragraph 1 and paragraphs 20 to 31. Paragraphs 2 to 19, which contain the facts of the two writ petitions and the submissions, were NOT read, and nothing is stated here about them. Within what was read there is a date conflict: para 1 identifies the LIC circular as dated March 3, 1987, while para 28 refers to 'the Life Insurance Corporation circular dated August 3, 1987'; the Orissa High Court, reproducing the same circular, gives it as 3 March 1987. Para 22 sets out Rule 2BB as inserted with effect from 1 July 1995 and includes a transport allowance entry of Rs 800 per month inserted with effect from 1 August 1997, which is long superseded and is reproduced here only as legislative history. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The special appeals were allowed. The single judge's judgments were set aside, the impugned notices in W.P. No. 700 of 2000 were quashed, the Department was directed not to insist upon the LIC deducting income-tax at source in respect of conveyance and additional conveyance allowance paid to its development officers, and the assessment order dated 27 November 1990 in W.P. No. 1617 of 1991 was quashed with a direction to the assessing authority to pass a fresh order in accordance with the law laid down (para 31). The Court held that development officers are entitled to claim exemption under s.10(14) in respect of conveyance allowance and additional conveyance allowance upon satisfying the conditions that such allowances have actually been spent for the purpose for which they were given, wholly, necessarily and exclusively in the performance of duties (para 28).
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