LIC has started deducting tax on the conveyance allowance and additional conveyance allowance paid to development officers. Can the employees stop the deduction on the footing that the allowances are exempt under s.10(14)?
The Orissa High Court said no and dismissed the writ petition. It held that after the 1987 amendment to s.10(14) and the insertion of Rule 2BB, the entire conveyance allowance and additional conveyance allowance are not exempt unless the expenses are actually incurred and that is proved to the satisfaction of the Assessing Officer; the employer remains bound to deduct under s.192, and the employee must establish the exemption in his own assessment.
Decided by the High Court (A.K. Ganguly CJ and B.N. Mahapatra J) on 2008-04-03, reported as 106 (2008) CLT 118 (Orissa High Court). It bears on section 10(14), section 10(14)(i), section Rule 2BB, section 192, section 17(2), section 119, section 226(2) of the Income Tax Act 1961, in Salary & Perquisites, Capital Gains Exemptions and TDS Defaults matters.
This is the Revenue-side authority on the recurring LIC development officer allowance dispute, and more broadly on how s.10(14)(i) read with Rule 2BB works: the clause exempts a prescribed allowance only to the extent the expenses are actually incurred for the purpose, so the exemption is proof-driven and belongs in the employee's assessment, not in the employer's TDS computation. Practitioners must know that the High Courts are not agreed. The Rajasthan High Court in Life Insurance Corporation of India v. Union of India (2003) 260 ITR 41 directed the Department not to insist on deduction at source on these very allowances, resting on the LIC's utilisation certificate; this Court declined to follow it, holding that the CBDT circulars of 4 January 2001 and 1 February 2001 had not been placed before that Bench. The Bombay High Court in Life Insurance Corporation Class-I Officers (Bombay) Association and the Madras High Court in CIT v. E.A. Rajendran are recorded here as taking the Revenue's view. Do not advise on either side of this without telling the client which High Court's line governs and that the point is contested.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner was an all-India association of development officers working in the Life Insurance Corporation of India. It challenged the LIC's deduction of tax at source from conveyance allowance and additional conveyance allowance paid to development officers. A Division Bench had by interim order dated 15 January 2004 directed that there be no deduction, and the LIC stopped deducting; that stay was vacated on 30 January 2006, and the LIC applied for leave to deduct, saying the Department had treated it as an assessee in default and issued a show cause notice under s.226(2). The petitioner's case was that development officers are full-time Class-II officers who do not have a desk job, travel extensively to promote business, and are paid these allowances to meet expenses incurred wholly, necessarily and exclusively in the performance of official duties; that the LIC had never deducted under s.192 on them; and that assessing officers had historically accepted them as exempt under s.10(14). The Department relied on the CBDT circular dated 4 January 2001 addressed to the LIC and a further direction dated 1 February 2001 to field officers to ensure deduction. The LIC's own affidavit said the exemption depends on facts to be established by the individual assessee and that it was bound to deduct under s.192.
The writ petition was dismissed and all interim orders were vacated, with no order as to costs (para 22). The entire conveyance allowance and additional conveyance allowance are not exempt unless actually incurred and proved to the satisfaction of the assessing officer (para 10); the LIC as employer is under an obligation to deduct under s.192, and the person claiming exemption must prove his case before the assessing authority (para 11).
The Court set out s.10(14)(i) and Rule 2BB(1)(c) and held that on a plain reading the exemption operates only to the extent the expenses are actually incurred for the purpose, so that assessing the expenses actually incurred flows from the definition itself (paras 5, 6 and 10). Reading the section with the rule conjointly, it held that the person claiming exemption must prove the requirement before the assessing authority, and that this cannot be converted into a bar on the employer deducting at source (paras 11 and 12). It relied on the CBDT circular dated 4 January 2001, which states that conveyance allowance and additional conveyance allowance paid to LIC officers are not exempt under s.10(14) read with Rule 2BB unless the criteria are fully met to the entire satisfaction of the assessing officer, and on the further circular dated 1 February 2001 directing deduction, holding that circulars under s.119 have the force of law and that the challenge to the 2001 circular disclosed no sufficient ground (paras 12 and 13). It held that Circular No. 701 dated 23 March 1995, which withdrew all earlier circulars on s.10(14) with effect from AY 1989-90, held the field (para 14). It declined to follow the Rajasthan High Court in LIC of India v. Union of India because the implications of the amendment to s.10(14) and Rule 2BB were, in its view, not properly appreciated there and the 2001 circulars had not been placed before that Bench (paras 16 and 17), noted that the Bombay High Court in Life Insurance Corporation Class-I Officers (Bombay) Association had held such allowance not exempt (para 18), and that the Madras High Court in CIT v. E.A. Rajendran had answered the question in favour of the Revenue (para 19). It treated the Supreme Court's dismissal of the SLP from the Rajasthan judgment as resting on the assessment year 1990-91 and a 1968 CBDT circular (para 20), and concluded that after the amendments the position had fundamentally altered (para 21).
The entire amount of CA and ACA are not exempted unless they are actually incurred, as stated above, and this is proved to the satisfaction of the assessing officer.
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Handle my notice → Ask a CA on WhatsAppThe Orissa High Court said no and dismissed the writ petition. It held that after the 1987 amendment to s.10(14) and the insertion of Rule 2BB, the entire conveyance allowance and additional conveyance allowance are not exempt unless the expenses are actually incurred and that is proved to the satisfaction of the Assessing Officer; the employer remains bound to deduct under s.192, and the employee must establish the exemption in his own assessment. This was decided by the High Court (A.K. Ganguly CJ and B.N. Mahapatra J) and bears on section 10(14), section 10(14)(i), section Rule 2BB, section 192, section 17(2), section 119, section 226(2) of the Income Tax Act 1961. It is reported as 106 (2008) CLT 118 (Orissa High Court). This is the Revenue-side authority on the recurring LIC development officer allowance dispute, and more broadly on how s.10(14)(i) read with Rule 2BB works: the clause exempts a prescribed allowance only to the extent the expenses are actually incurred for the purpose, so the exemption is proof-driven and belongs in the employee's assessment, not in the employer's TDS computation. Practitioners must know that the High Courts are not agreed. The Rajasthan High Court in Life Insurance Corporation of India v. Union of India (2003) 260 ITR 41 directed the Department not to insist on deduction at source on these very allowances, resting on the LIC's utilisation certificate; this Court declined to follow it, holding that the CBDT circulars of 4 January 2001 and 1 February 2001 had not been placed before that Bench. The Bombay High Court in Life Insurance Corporation Class-I Officers (Bombay) Association and the Madras High Court in CIT v. E.A. Rajendran are recorded here as taking the Revenue's view. Do not advise on either side of this without telling the client which High Court's line governs and that the point is contested. If it applies to you, the first step is this: Advise the employee that the exemption is claimed and proved in his own assessment, not by stopping the employer's deduction; an interim order restraining deduction was vacated here after years of litigation.
The petitioner was an all-India association of development officers working in the Life Insurance Corporation of India. It challenged the LIC's deduction of tax at source from conveyance allowance and additional conveyance allowance paid to development officers. A Division Bench had by interim order dated 15 January 2004 directed that there be no deduction, and the LIC stopped deducting; that stay was vacated on 30 January 2006, and the LIC applied for leave to deduct, saying the Department had treated it as an assessee in default and issued a show cause notice under s.226(2). The petitioner's case was that development officers are full-time Class-II officers who do not have a desk job, travel extensively to promote business, and are paid these allowances to meet expenses incurred wholly, necessarily and exclusively in the performance of official duties; that the LIC had never deducted under s.192 on them; and that assessing officers had historically accepted them as exempt under s.10(14). The Department relied on the CBDT circular dated 4 January 2001 addressed to the LIC and a further direction dated 1 February 2001 to field officers to ensure deduction. The LIC's own affidavit said the exemption depends on facts to be established by the individual assessee and that it was bound to deduct under s.192. The matter was decided on 2008-04-03 by the High Court (A.K. Ganguly CJ and B.N. Mahapatra J). On those facts the High Court held as follows. The writ petition was dismissed and all interim orders were vacated, with no order as to costs (para 22). The entire conveyance allowance and additional conveyance allowance are not exempt unless actually incurred and proved to the satisfaction of the assessing officer (para 10); the LIC as employer is under an obligation to deduct under s.192, and the person claiming exemption must prove his case before the assessing authority (para 11).
The Court set out s.10(14)(i) and Rule 2BB(1)(c) and held that on a plain reading the exemption operates only to the extent the expenses are actually incurred for the purpose, so that assessing the expenses actually incurred flows from the definition itself (paras 5, 6 and 10). Reading the section with the rule conjointly, it held that the person claiming exemption must prove the requirement before the assessing authority, and that this cannot be converted into a bar on the employer deducting at source (paras 11 and 12). It relied on the CBDT circular dated 4 January 2001, which states that conveyance allowance and additional conveyance allowance paid to LIC officers are not exempt under s.10(14) read with Rule 2BB unless the criteria are fully met to the entire satisfaction of the assessing officer, and on the further circular dated 1 February 2001 directing deduction, holding that circulars under s.119 have the force of law and that the challenge to the 2001 circular disclosed no sufficient ground (paras 12 and 13). It held that Circular No. 701 dated 23 March 1995, which withdrew all earlier circulars on s.10(14) with effect from AY 1989-90, held the field (para 14). It declined to follow the Rajasthan High Court in LIC of India v. Union of India because the implications of the amendment to s.10(14) and Rule 2BB were, in its view, not properly appreciated there and the 2001 circulars had not been placed before that Bench (paras 16 and 17), noted that the Bombay High Court in Life Insurance Corporation Class-I Officers (Bombay) Association had held such allowance not exempt (para 18), and that the Madras High Court in CIT v. E.A. Rajendran had answered the question in favour of the Revenue (para 19). It treated the Supreme Court's dismissal of the SLP from the Rajasthan judgment as resting on the assessment year 1990-91 and a 1968 CBDT circular (para 20), and concluded that after the amendments the position had fundamentally altered (para 21). In the words reproduced by the source cited on this page: "The entire amount of CA and ACA are not exempted unless they are actually incurred, as stated above, and this is proved to the satisfaction of the assessing officer." The decision followed or applied Life Insurance Corporation Class-I Officers (Bombay) Association v. Life Insurance Corporation of India (Bom) — relied on; CIT v. E.A. Rajendran (Mad) — relied on; LIC of India v. Union of India (2003) 260 ITR 41 (Raj) — expressly not followed.
It was decided by the High Court on 2008-04-03 and is reported as 106 (2008) CLT 118 (Orissa High Court). 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 Rule 2BB, section 192, section 17(2), section 119, section 226(2), 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 department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The writ petition was dismissed and all interim orders were vacated, with no order as to costs (para 22). The entire conveyance allowance and additional conveyance allowance are not exempt unless actually incurred and proved to the satisfaction of the assessing officer (para 10); the LIC as employer is under an obligation to deduct under s.192, and the person claiming exemption must prove his case before the assessing authority (para 11). It arises in Salary & Perquisites, Capital Gains Exemptions and TDS Defaults matters, on section 10(14), section 10(14)(i), section Rule 2BB, section 192, section 17(2), section 119, section 226(2) of the Income Tax Act 1961, and was decided by A.K. Ganguly CJ and B.N. Mahapatra J. 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. Build the file the section demands: evidence that the allowance was granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties, and evidence of the amount actually incurred. Check whether free conveyance is provided by the employer — the proviso to Rule 2BB(1)(c) removes the allowance from the prescribed list if it is. Do not rely on pre-1989 CBDT circulars or the LIC utilisation certificate practice standing alone; Circular No. 701 dated 23 March 1995 withdrew the earlier circulars with effect from AY 1989-90 and the CBDT circular of 4 January 2001 states in terms that these allowances are not exempt unless the statutory criteria are met to the assessing officer's satisfaction. If acting for the employer, note that this judgment places the deduction obligation squarely on it under s.192 and leaves the exemption to the employee — that is the safe course where the position is contested.
High Courts differ on this point. The Orissa High Court here, the Bombay High Court in Life Insurance Corporation Class-I Officers (Bombay) Association and the Madras High Court in CIT v. E.A. Rajendran hold that conveyance and additional conveyance allowance paid to LIC development officers are not exempt without proof of actual expenditure, while the Rajasthan High Court in LIC of India v. Union of India (2003) 260 ITR 41 held them exempt on the strength of the LIC's utilisation certificate and directed the Department not to insist on deduction at source. This Court declined to follow the Rajasthan judgment on the ground that the CBDT circulars of 4 January 2001 and 1 February 2001 were not before that Bench. The Supreme Court's dismissal of the SLP against the Rajasthan judgment was, as recorded at para 20, on the narrow ground that the year in issue was 1990-91 and an earlier CBDT circular then governed, and is not an approval of that reasoning. No later Supreme Court decision resolving the conflict was located, and no later-treatment search was run on this judgment. 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.
Internal inconsistencies in the report. Para 7 says Circular No. 701 dated 23.03.1995 stated that circulars issued up to 31.03.1999 ceased to have effect from AY 1989-90; every other reference in the judgment, including in the same paragraph and in the circular reproduced at para 12, gives the date as 31.3.1989, which is the only reading consistent with the 1987 amendment taking effect from 1.4.1989. Para 14 opens by referring to 'the contents of Circular dated 29th March, 1995' and then twice calls the same circular 'the said circular dated 23rd March, 1995'. Para 6 dates the Finance Act 1995 amendment as coming into effect on 01.07.1995 while para 21 refers generally to the amendments 'after 1987'. Para 20 records that the Supreme Court dismissed the SLP against the Rajasthan High Court judgment on the ground that the year in issue was 1990-91 and a 1968 CBDT circular then applied — that is a dismissal on a narrow footing and does not approve the Rajasthan reasoning. The judgment has 23 numbered paragraphs, the last being the concurrence of B.N. Mahapatra J. 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 writ petition was dismissed and all interim orders were vacated, with no order as to costs (para 22). The entire conveyance allowance and additional conveyance allowance are not exempt unless actually incurred and proved to the satisfaction of the assessing officer (para 10); the LIC as employer is under an obligation to deduct under s.192, and the person claiming exemption must prove his case before the assessing authority (para 11).
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