ORDER
Pramod Kumar, A.M.
1. These two appeals are filed by the same assessee involving the same issues and were heard together. As a matter of convenience therefore, both of these appeals are being disposed by way of this consolidated order.
2. We will first take ITA No. 5561/Mum/2002, i.e., assessee’s appeal for the asst. yr. 1997-98.
3. This appeal is directed against the CIT(A)’s order dt. 19th Aug., 2002 in the matter of assessment under Section 143(3) for the asst. yr. 1997-98. Although the assessee has raised four grounds of appeal, the only grievance pressed before us is against the CIT(A)’s confirmation of AO’s action in declining exemption under Section 10(14) in respect of “uniform making expenses” and ‘uniform washing expenses’ and ‘academic research allowance’. The quantum of uniform making expenses and uniform washing expenses is Rs. 51,554 and quantum of academic research allowance is Rs. 13,560.
4. The assessee-appellant is an employee of Shipping Corporation of India Ltd. and is working as electrical officer on the ships owned or operated by the employer, i.e., Shipping Corporation of India Ltd. In the course of his duties the assessee is required to be on ships for about 6-7 months in a year. During the course of assessment proceedings, the AO noticed that the assessee was paid uniform making allowance, uniform washing allowance and academic research allowance aggregating to Rs. 65,114 in respect of which the assessee could not produce evidence of expenses actually spent and allowance so received. Aggrieved, assessee carried the matter in appeal before the CIT(A) who confirmed the disallowance by observing that “appellant has not produced evidence regarding purchases of uniform and washing expenses” and that the appellant-individual is earning salary income ”it is thus seen that purchases and washing of uniform, expenses on purchase of journals and periodicals and attending seminars are personal expenses of the appellant”. The assessee is not satisfied and is in appeal before us.
5. We have heard the rival contentions, perused the orders of the authorities below, duly considered the factual matrix of the case and legal position.
6. We find that the basic reason of declining the exemption claimed by the assessee is that the authorities below are not satisfied about evidence of the assessee having actually spent the amount of allowance for the purposes for which the same were granted. A lot of emphasis is laid on the fact that Section 10(14)(i) provides any allowance for the purpose of meeting expenses wholly, necessarily and exclusively incurred for the purpose of official duties, as may be prescribed, but the exemption is available only “to the extent to which such expenses are actually incurred for that purposes”. The AO has disallowed the exemption only on the basis that there were insufficient proof for the expenses having been actually incurred. In appeal, the CIT(A) has also held that the appellant has not produced evidence regarding actual use of the allowances for the purpose for which the same were granted. Unlike the requirements of Section 10(14)(ii) which provides for exemption of a prescribed allowance to the extent ‘prescribed’, under Section 10(14)(i) exemption is indeed confined to the extent to which an exempt allowance is actually spent for the purposes for which such allowance is granted. In other words, ‘actual use’ of an allowance is one of the conditions precedent for exemption under Section 10(14)(i). This is in sharp contrast with the exemption provisions of Section 10(14)(ii) under which even the quantum of exemption is to be prescribed by the Rules. Having taken note of this significant distinction, however, we must also appreciate the background in which this actual use condition was brought in the statute and true connotations thereof in the context of Section 10(14)(i).
7. The expression to the extent to which such expenses are actually incurred, as finds place in Section 10(14)(i), is not new to the IT Act. It was first introduced w.e.f. 1st April, 1955, in Section 4(3)(vi) of the Indian IT Act, 1922 which dealt with the exemption of allowance to the salaried employees. This amendment was made in the backdrop of Hon’ble Bombay High Court’s judgment in the case of Tejaji Frasaram Kharawalla v. CIT (1948) 16 ITR 260 (Bom) wherein their Lordships had held that exemption under Section 4(3)(vi) was available even if portion of the allowance was not consumed and stood as surplus in the hands of the employees. Subsequently, though this decision was reversed by the Hon’ble Supreme Court in the case of CIT v. Tejaji Frasaram Kharawalla , not before Section 4(3)(vi) was amended, w.e.f. 1st April, 1955, by Finance Act, 1955. This amendment, it appears, resulted in considerable apprehension amongst the salaried employees as to how can they be expected to maintain meticulous details and evidence of expenditure incurred by them for the actual usage of allowance. To allay these apprehensions, the CBDT, on 1st Aug., 1955, issued a circular which is reproduced below for ready reference :
Special allowance or benefit being reasonable and not disproportionately high–No details of expenses actually incurred need be asked for the purpose of granting exemption under Section 4(3)(vi) of 1922 Act.
The exemption under Section 4(3)(vi) in respect of any special allowance or benefit will be available from the asst. yr. 1955-56 only to the extent of the sanctioned amounts. Generally speaking, where the specific allowance is reasonable with reference to the nature of the duties performed by the assessee and are not disproportionately high compared to the salary received by him, no attempt will ordinarily be made to call for details of the expenses actually incurred by him with a view to disentitling him to some extent from the exemption. An enquiry will, of course, be justified and will be made in cases where the allowances are prima facie unreasonably high.
Source : Direct Taxes Circulars
Vol. 1-1994 Edn.–p. 1130
It is, therefore, clear that even as the provisions were amended so as to allow the exemption of allowance only to the extent the allowances were used for the purposes for which the same were granted, even this amendment did not vest the AO’s with powers to call for details of actual expenditure unless, generally speaking, the allowances are unreasonably high vis-a-vis salaries of the assessee or with reference to the nature of duties performed by the assessee.
8. The above circular was undoubtedly issued under the IT Act, 1922 but then all the circulars issued under Section 1922 Act do not cease to hold good in law. Section 297(2)(k) specifically provides that notwithstanding the repeal of IT Act, 1922, amongst other things, any instructions issued under any provisions of the repealed Act shall, so far as not inconsistent with the corresponding provisions of IT Act, 1961, deemed to have been issued under the corresponding provisions of the new Act, and shall continue to remain in force accordingly. In other words, to the extent the legal provisions of 1922 Act and 1961 Act are in pan materia, circulars and instructions issued under the 1922 Act will also hold good. The expressed view of the provisions of Section 297(2)(k) still holds good and continues to be in force. The expression used, i.e., to the extent to which such expenses are actually incurred being absolutely identical in both the Acts, the provisions of the above circular, in our humble understanding, apply under the 1961 Act as well.
9. In the light of the aforesaid circular it is not open to the Revenue to call for the details of expenses actually incurred unless the specific allowance is disproportionately high compared to the salary received by him or unreasonable with reference to the nature of the duties performed by the assessee. It is, however, not the case of the Revenue that the allowance granted to the assessee was unreasonable or excessive having regard to the salary of the assessee or the legitimate minimum requirement for the purpose for which the allowances were granted. We have also noted that the quantum of these allowances is prima facie reasonable vis-a-vis salary of the assessee and the purposes for which the allowances were given. Uniform washing and making allowance of Rs. 51,554 per year, which is required to be spent when half a time the assessee is on ships abroad cannot be, in our humble understanding, said to be excessive. Similarly, academic research allowance of Rs. 13,560 to an electrical officer who is a qualified engineer and is required to keep abreast of the technical knowledge cannot either be said to be excessive or unreasonable. In the light of the aforesaid circular it is not open to the Revenue to call for the details of expenses actually incurred unless the specific allowance is disproportionately high compared to the salary received by him or unreasonable with reference to the nature of the duties performed by the assessee. None of the conditions is satisfied in the present case. It is not the case of the Revenue that there is any material to indicate or establish that the assessee has any un-spent portion out of the allowances so paid to the assessee. The disallowance sustained by the CIT(A), therefore, does not meet our approval, so far as objections taken by him are concerned.
10. There is, however, one more aspect of the matter, the CIT(A) has held that these allowances are in the nature of personal expenses and, therefore, exemption under the provisions of Section 10(14) in respect of the same cannot be granted. Section 10(14)(i), categorically exempts, any such special allowance or benefit, not being in the nature of a perquisite within the meaning of Clause (2) of Section 17 specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit as may be prescribed. Therefore, what is important is whether or not the allowances are granted to meet expense wholly, necessarily and exclusively incurred in the performance of the duties of an office and whether these allowances are prescribed for the purpose of Section 10(14) or not. Rule 2BB of the IT Rules prescribes the allowances which are exempt under Section 10(14). Rule 2BB(1)(f) provides that any allowance granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit shall be eligible for exemption under Section 10(14)(i). As far educational allowance is concerned, Rule 2BB(1)(e) provides that any allowance granted for encouraging the academic research and training pursuits in educational and research institutions is eligible for exemption under Section 10(14)(i). But then, the assessee is working a ship and it cannot be said that the allowance was granted to him for “encouraging the academic research and training pursuits in educational and research institutions”. In our humble understanding, an academic or research allowance could be eligible for exemption under Section 10(14)(i) r/w Rule 2BB only when “academic research and training pursuits” are in educational and research institutions. There is no material to establish that this condition is fulfilled in the present case. Therefore, even as we hold that observations of the CIT(A) are not sustainable in law, we also hold that, on the facts of the present case, academic research allowance is not eligible for exemption under Section 10(14)(i) of the Act. In effect, the CIT(A)’s action of sustaining denial of exemption to uniform making and uniform washing allowances is reversed. In coming to this conclusion, we are particularly guided by the fact that (i) these allowances are exempt under Section 10(14)(i) r/w Rule 2BB; (ii) the quantum of allowances is not excessive or unreasonable vis-a-vis salaries of the employee or the purposes for which allowances are granted by the employer; and (iii) there is no material to establish, or even indicate, that any portion or whole of the allowances so granted has remained unspent by the assessee-employee. For the reasons set out above, we are of the considered view that the CIT(A) committed error in declining exemption under Section 10(14)(i) of the Act in respect of “uniform making expenses” and “uniform washing expenses”. We, therefore, direct the AO to grant the exemption under Section 10(14)(i) in respect of the above allowances. The appeal is partly allowed in the terms indicated above.
11. ITA No. 5561/Mum/2002 is thus partly allowed.
12. We now take up ITA No. 5570/Mum/2002, i.e., assessee’s appeal for the asst. yr. 1998-99.
13. We have already dealt with the grounds of appeal Nos. 1 and 2 in the assessee’s appeal for the asst. yr. 1997-98.
Following the view so taken in the asst. yr. 1997-98, the assessee will get partial relief here as well. The AO is directed to grant exemption under Section 10(14)(i) accordingly.
14. Grounds of appeal No. 3 reads as under:
The learned AO and the learned CIT(A) have erred in not allowing deduction under Section 80RRA for the remuneration earned in foreign exchange and remitted to India in accordance with the requirement of that section.
15. We have noted that the CIT(A) has declined the deduction under Section 80RRA by observing as under :
4.2 During the appellate proceedings, appellant has contended that salary drawn by the appellant includes foreign port income of Rs. 1,86,327. Appellant has contended that appellant had earned remuneration in foreign exchange. The salary certificate itself certified that salary being received in foreign port is in foreign currency. Appellant has contended that foreign exchange earned had been brought into India. Appellant has contended that copy of bank pass book was submitted to the AO. Appellant has contended that formal requirement of submission of Form H was not completed. Appellant has contended that now he is enclosing copy of Form H. Appellant has contended that deduction under Section 80RRA should now be allowed.
16. The only basis for declining deduction under Section 80RRA is hypertechnical, i.e., Form No. 10H was not filed along with the original return of income even though the same was filed subsequently along with revised return.
17. The law is well settled, that once a valid revised income return is filed, it substitutes original return. It is only revised return which can be acted upon. In any event Form No. 10H was filed before completion of the assessment. The action of the authorities below declining the deduction under Section 80RRA does not meet our approval.
18. For the reasons set out above, we set aside the orders of the authorities below on this issue and direct the AO to grant deduction under Section 80RRA. The assessee gets relief accordingly.
19. Ground No. 3 is thus allowed.
20. Thus, this appeal is allowed in the terms indicated above.
21. To sum up both the appeals are allowed in the terms indicated above.