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Tuesday 22 December 2015

Punjab and Haryana High Court on deduction to LIC Employees u/s 10(14)

I.T.A. NO. 645 OF 2005 [1]
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
I.T.A. NO. 645 OF 2005
DATE OF DECISION: 21.04.2006
THE COMMISSIONER OF INCOME TAX, PATIALA
....APPELLANT
VERSUS
BRANCH MANAGER, LIC OF INDIA, SANGRUR (PUNJAB) ....RESPONDENT
CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL
HON'BLE MR. JUSTICE RAJESH BINDAL
PRESENT: DR. N.L. SHARDA, ADVOCATE
FOR THE APPELLANT-REVENUE.

JUDGEMENT:
The Revenue has approached this Court by filing the present appeal raising the following substantial question of law arising out of the order dated 15.7.2005 passed in ITA No. 543/Chandi/2003 for the assessment year 2000-01:
"Whether on the facts and in the circumstances of the case the Hon'ble ITAT has erred in holding that the payment made to its Development Officer by the LIC of India under the Reimbursement of Expenses Scheme, 1997 is not the income of the assessee and further it is not a part of salary of the recipient D.O. ignoring the factual position that details of expenses incurred have not been reported to the Branch Manager (Paying Officer) on the basis of which it could be inferred that these allowances were the reimbursement of actual expenses ?"
The Income Tax Officer rejected the contention of the assessee to the effect that in the year 1997 Life Insurance Corporation of India framed two separate Schemes, namely: Incentive Bonus Scheme, 1997 and Reimbursement of Expenses Scheme, 1997. The amounts paid to the Development Officer under the Incentive Bonus Scheme, was I.T.A. NO. 645 OF 2005 [2]
taxable and the income tax was being deducted thereon as per the rules whereas the expenses reimbursed under the Reimbursement of Expenses Scheme, since were not taxable, the same were not being treated as part of salary of the Development Officer and, hence, no deduction was being made thereon.
We have heard Dr. N.L.Sharda, Advocate, counsel for the Revenue. A perusal of the substantial question of law sought to be raised shows that the same is not happily worded. However, still we thought it appropriate to go into the substance of the matter. The Revenue, in the present appeal, is seeking to dispute the taxability of expenses reimbursed to the Development Officer of the Life Insurance Corporation of India under Reimbursement of Expenses Scheme, 1997.
In proceedings initiated under Section 201(1) of the Income Tax Act (for short 'the Act') read with Sections 192 and 201 (1a) of the Act, the Revenue treated the assessee in default for not deducting the tax on a sum of Rs. 4,44,570/- at source. Assessee was further held liable to pay mandatory interest. The primary reason given by the AO was that the expenses reimbursed by the L.I.C. to it's Development Officers under the Reimbursement of Expenses Scheme, 1997 were actually to be treated as a part of the salary of the Development Officer, hence, TDS was required to be deducted thereon.
The assessee went in appeal before the Commissioner of Income Tax (Appeals) against the order of Income Tax Officer which was accepted on the ground that the earlier appeal of Barnala Branch filed by Life Insurance Corporation of India for the year 1999-2000 had been accepted on the same issue.
The Revenue went in appeal before the Tribunal against the order passed by the Commissioner of Income Tax (Appeals) and reiterated it's stand that the payments made to Development Officer under Reimbursement of Expenses Scheme, 1997, are to be treated as part of the salary of the Development Officer, hence, TDS was required to be deducted thereon. On the other hand, the assessee, inter alia, referred two earlier orders in I.T.A. Nos. 218, 209 and 216 /Chandi/02 dated 30.4.2004 of the Tribunal in the case of the assessee wherein the issue was decided against the Revenue and in favour of the assessee, which orders were not appealed against.
Besides this the assessee also referred to a judgment of I.T.A. NO. 645 OF 2005 [3]
Rajasthan High Court in L.I.C. of India versus Union of India [2003] 260 ITR 40 wherein it is held as under:
"The life Insurance Corporation of India is a statutory body.
The duties of a Development Officer are provided under the relevant rules, which are extracted as follows: "Duties of Development Officers and obligations.- A (i) To develop and increase the production of the life insurance business in a planned way as far as may be practicable in the area that may be allotted to work from time to time through the agents placed under his supervision by the corporation and in consonance with the corporate objectives of the corporation.
(ii) To guide, the supervise and direct the activities of the agents placed under his supervision by the corporation.
(iii) To introduce suitable persons to the corporation for appointment as new agents.
(iv) To act generally in such a way as to activise existing agents and motivate new agents so as to develop a stable agency force.
(v) To render all such services to policyholders conducive to better policy servicing.
(vi) To carry out the investigation of claims, revival of lapsed polices and liaison work in connection with S.S.S. business.
(vii) To perform such other duties as may be entrusted to him."
It is, thus, clear that the Development Officers of the Life Insurance Corporation are full-time employees of the corporation whose main task is to develop the business in 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 production 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 I.T.A. NO. 645 OF 2005 [4]
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 policyholders. The officer is also required to perform such duties that are entrusted and assigned to him from time to time.
As per the practice, the Life Insurance Corporation has been giving the utilisation certificate for the purpose of income- tax as follows:
"This is to certify that during the financial year .........(assessment year.........), Shri...........................,has been paid Rs.......................... to meet the expenses wholly, necessarily and exclusively incurred in performance of development duty and that the said amount has actually been incurred wholly for that purpose. As such this amount is exempt from income-tax under section 10(14) of the Income Tax Act, 1961, and, therefore, no tax has been deducted at source thereon.
(Branch Manager)".
It is, thus, evident that the conveyance allowance and the additional conveyance allowance are paid to the Development Officers for meeting actual expenditure incurred by them in discharge of their field duties and, thus, wholly, necessarily and exclusively for meeting such expenditure, the allowance is being exempt as per the norms set out in the Life Insurance Corporation circular dated August 3, 1987, referred to in the preceding para. It appears that the Life Insurance Corporation has worked out the additional conveyance allowance to the Development Officers considering the probable expenditure for procuring the business. The Life Insurance Corporation appears to have devised the general formula having a reference to the para-meters of the business and, thus, the payment of additional conveyance allowance is a reimbursement for actual expenditure incurred by the Development Officers on account of conveyance in relation to performance of their duties and the said expenditure has a direct nexus with the performance of duties for development of the insurance business by way of meeting several people and I.T.A. NO. 645 OF 2005 [5]
to enrol new life insurance agents and to meet the insurance persons for encouraging them to take insurance policies.
Naturally, in such circumstances, touring expenses are incurred on conveyance. Such conveyance expenses are reimbursed by the employer as per the prescribed norms in the name of additional conveyance allowance. The certificate is given by the LIC-employer of the minimum amount which the Life Insurance Corporation certifies that it is the amount actually spent by the Development Officers in the performance of their duties. The ultimate liability of claiming exemption and proving the same is on the employee-assessee (Development Officers). The exemption limit is restricted by the instructions issued by the Central Board of Direct Taxes from time to time.
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. Therefore, the Life Insurance Corporation cannot be insisted for deduction of tax to be deducted at source to the extent such conveyance allowance/ additional conveyance allowance is exempt under rule 2BB and further such minimum limit is set from time to time. The ultimate liability of claiming exemption and proving the same is on the employee-assessees, i.e. the Development Officers."
The Tribunal after detailed discussion on the contentions of the parties and also keeping in view the fact that the Revenue had not challenged the earlier orders passed by the Tribunal on the same issue, pertaining to different offices of LIC, upheld the order passed by the Commissioner of Income Tax (Appeals) and dismissed the appeal of the Revenue.
For the reasons given above and respectfully concurring with the view taken by Rajasthan High Court in L.I.C.'s case (supra), we do not find any reason to differ with the view taken by the Tribunal and hold that no substantial question of law arises in the present case.
I.T.A. NO. 645 OF 2005 [6]
Faced with this the counsel for the Revenue raised the plea that the expenses claimed by the assessee were not admissible to the extent that they had been claimed. We are afraid this plea of the assessee does not fit in the domain of a substantial question of law, if examined on the guiding principles laid down for entertaining of appeals under Section 260 A of the Act.
In view of our above discussions the appeal is dismissed in limine.
(RAJESH BINDAL)
JUDGE
APRIL 21, 2006 (ADARSH KUMAR GOEL)

gsv JUDGE

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