FRANCO JOHN Vs. UNION OF INDIA

JUDGEMENT

(1.) ALL these Original Petitions are filed by associations representing the LIC Development Officers challenging the periodical circulars issued by the Executive Director (Marketing) of the LIC of India providing guidelines for deduction of income -tax at source on 'additional conveyance allowance' paid to the LIC Development Officers. OP No. 7547 of 1990 was filed in the year 1990 challenging Ext. P1 circular, dt. 3rd March, 1987, produced in that OP. Pending this OP, the very same petitioner filed OP No. 33745 of 2001 challenging latter circular, produced as Ext. P2 in that OP, which was issued in modification of the earlier circular. OP No. 7153 of 2000 is filed by another organisation of LIC Development Officers challenging the same circulars and for the same relief. I have heard counsel for the petitioners and standing counsel for the IT Department and counsel for the LIC.

(2.) PETITIONERS ' contention is that additional conveyance allowance paid to them qualifies for exemption under Section 10(14) of the IT Act, and, therefore, the direction of the Executive Director of LIC to deduct income -tax in accordance with the norms prescribed by the impugned circulars is unauthorised and without jurisdiction. LIC of India, on the other hand, contended that as employer they are bound to deduct income -tax at source from the payment of salary in terms of Section 192 of the IT Act. They have further contended that salary, perquisites, etc. under the IT Act have definite meanings and accordingly the LIC of India took guidelines from the CBDT for the purpose of deduction of income -tax. So far as conveyance allowance and additional conveyance allowance, etc. are concerned, the impugned circulars are issued by the Executive Director of the LIC after taking instructions from the CBDT. Standing counsel for the IT Department, on the other hand, contended that additional conveyance allowance forms part of salary and deductions have to be made towards income -tax at source after providing for exemption in terms of Section 10(14) of the IT Act r/w Rule 2BB of the IT Rules, prescribed thereunder.

(3.) THE exemption provided under Section 10(14) is not limited to additional conveyance allowance or conveyance allowance. It provides for exemption for special allowances other than perquisites defined under Section 17(2) of the IT Act, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit. Of course, the exemptions are subject to a ceiling that has been prescribed under the Rules. Rule 2BB(1)(c), insofar as conveyance allowance is concerned, provides for exemption of only allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit. There is a further limitation that no exemption is available to an employee in a case where the employer is providing free conveyance to the employee. On a reading of the section the rule prescribed thereunder, namely, Rule 2BB(1)(c) is absolutely consistent with the section. The exemption contemplated is only in respect of expenditure for conveyance incurred by the employee and reimbursement by the employer. The position, therefore, is that actual expenditure incurred by the employee and reimbursed by the employer on being satisfied that the expenditure is incurred towards conveyance in the performance of duty of office shall not attract income -tax. It is conceded that LIC Development Officers are entitled to certain conveyance allowance and besides this, they are also entitled to additional conveyance allowance. The claim of exemption raised in the OPs does not pertain to conveyance allowance paid to the Development Officers, but is limited to the eligibility for exemption of 'additional conveyance allowance'. Exemption is available to the additional conveyance allowance in terms of Section 10(14) r/w Rule 2BB(1)(c) to the extent of actual expenditure for conveyance incurred by each Development Officer and reimbursement to him by the employer, namely, LIC of India. The issue arose in Madras where the LIC's return claiming exemption from the deduction of income -tax on additional conveyance allowance was rejected by the AO and in turn by the CIT. When this was challenged before the Madras High Court, the Madras High Court in the decision in Life Insurance Corporation of India v. CIT : [2000]245ITR224(Mad) referred the matter back to the Department for deciding the issue with reference to Rule 2BB of the IT Rules as the same was not considered by the Department in the proceedings impugned in Court. The finding of the learned Single Judge in that case was that the Department went by the earlier decision of the Madras High Court in CIT v. E.A. Rajendran : [1999]235ITR514(Mad) , wherein the rule was not considered at all and decision in that case was in the context of incentive bonus. It is seen that the issue directly arose in the decision of the Bombay High Court in Life Insurance Corporation Class -I Officers (Bombay) Association v. Life Insurance Corporation of India and Anr. : [1998]229ITR510(Bom) , wherein the Bombay High Court after considering Rule 2BB of the IT Rules held that in order to claim exemption, the conveyance allowance must be necessarily expended for meeting expenses wholly and necessarily incurred or to be incurred in the performance of duties of an office. In order to claim exemption, it was held, the assessee must satisfy two tests, namely, that they are expenses wholly and necessarily incurred in the performance of the duties of the office, and, secondly, the expenses incurred by the assessee were for the discharge of his duties under the conditions of service with the employer. I do not think Section 10(14) r/w Rule 2(BB)(1)(c) is capable of different meaning than what is assigned to it by the Bombay High Court in the said decision. However, I do not think that this Court should examine the correctness or propriety of the two impugned circulars issued by the Executive Director of LIC who is stated to have issued the same after consulting tax experts and CBDT. These circulars or guidelines are not statutory and have no force of law. It only serves as guidelines from management to subordinate officers; particularly to salary -disbursing department and can neither bind the IT Department nor the LIC Development Officers. The administration of IT Act is by statutory authorities, who have been given definite powers. While CBDT has jurisdiction under Section 119 to issue circulars for the administration of statute, it cannot authorise employees to issue circulars on behalf of CBDT. Circulars issued by the Executive Director of LIC do not have force of circulars issued by the CBDT under Section 119 of the Act. Of course, since the LIC has operation all over India, it is upto them to approach CBDT who are free to issue any circular which will have binding force on the subordinate officers. So far as deduction of income -tax at source is concerned, especially pertaining to an item of income, which is claimed as exempt by the employee, I find Section 197 grants specific power to the AO on an application by the assessee to issue certificate authorising payment without deduction of tax or on deduction of tax at rates below the prescribed limit, if the AO is satisfied that the assessee is eligible for exemption full or partial.' Therefore, the normal procedure under the Act is for each and every LIC Development Officer to approach the AO with an application under Section 197 and demonstrate that the additional conveyance allowance is not exempt fully or partly and on being satisfied the AO has to necessarily issue the certificate. On the other hand, if deduction is made, it is for the assessee to claim exemption in the assessment by filing returns and claim refund of tax wherein also the AO will consider the eligibility for exemption in the assessment, and if assessee is aggrieved, he is free to file appeal before the appellate authority and get the matter settled. It is, therefore, either for the LIC to take up the matter before the CBDT for appropriate circulars under Section 119 of the IT Act and in that event CBDT will issue circular, or otherwise, since all the LIC Development Officers are assessees they are free to make individual applications before the AO concerned in terms of Section 197 and obtain certificate which will be followed by LIC in regard to tax deduction at source. I do not think there is any need for this Court to go into the correctness of the two impugned circulars issued by the Executive Director of the LIC of India on deduction of income -tax, which, as already held, serves only as guidelines to subordinate officers. It is for the IT Department to scrutinise the correctness of TDS made either while considering the LIC's TDS returns or while assessing the income of LIC Development Officers. Going by the interpretation placed on Section 10(14) and Rule 2BB(1)(c) by this Court above, exemption on additional conveyance allowance has to be considered with reference to proved facts of each assessee (LIC Development Officer) and, therefore, the issue cannot be decided by this Court in OPs filed by representative bodies. OPs are disposed of with the above observations.