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
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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