ORDER
George Cheriyan, Vice-President
1. ITA Nos. 3303,3304 & 3305/Mds/1987 are appeals filed by the Revenue and they relate to the assessment years 1981-82, 1982-83, and 1983-84. The Revenue contests the decision of the A.A.C. allowing as deduction the additional conveyance allowance paid to the assessee, a Development Officer with the Life Insurance Corporation of India, by the LIC of India. The amounts so allowed are as under:-
Rs.
1981-82 12,626 1982-83 10,449 1983-84 13,933
2. The learned departmental representative relied on a decision of the Tribunal in the case of ITO v. L.N. Goswami [1984] 8 ITD 661 (Cal.). This was a case where the Tribunal took the view that the additional conveyance allowance was granted to the Development Officer as an incentive for bringing in additional business and in any view of the matter it could not be said that it was specifically granted to meet travelling expenses wholly, necessarily and exclusively within the meaning of Section 10(14) of the I.T. Act. It was submitted that in this order the Tribunal had examined the entire scheme under which the additional conveyance allowance was paid by the LIC of India. The learned departmental representative also referred to a judgment of the Andhra Pradesh High Court in the case of CIT v. Maddi Sudarsanam [1988] 174 ITR 659.. He also placed reliance on an unreported decision of the Allahabad High Court in Civil Misc. Writ Petition No. 328 of 1988 decided on 12-9-1988.
3. The submission of the learned counsel for the assessee, on the other hand, was that this very same issue had come up for the assessment year 1980-81 before the C.I.T. under the provisions of Section 264 and the C.I.T. had allowed the full claim of additional conveyance allowance.
4. We have considered the rival submissions. In the assessment year 1980-81, out of the claim of additional conveyance allowance of Rs. 13,027, only Rs. 9,379 was allowed as exempt in the first instance. In his order Under Section 264, dt. 9-12-85, the C.I.T. observed as under:-
I have looked into the facts of the case. The assessee is a Development Officer of the Life Insurance Corporation of India. With a view to ensure that the Corporation’s Development Officers, who are employees of LIC, are remunerated adequately in terms of their actual output. The Life Insurance Corporation has devised a formula by which allowability of conveyance allowance is actually determined only with reference to their premium income which has accrued to the Corporation. The Corporation itself recognises that the Development Officers who have to guide control and supervise the work of the Insurance Agents attached to them have to do lot of travelling. The Corporation also recognises that the results of such travelling are automatically reflected in the first year premium receipts accruing to the Corporation out of the new businesses secured by the agents with the active guidance and participation of the Development Officers and that is why the conveyance allowance is linked to their premium income. This conveyance allowance cannot be treated as additional remuneration for services rendered camouflaged in the form of conveyance allowance. This is so as there is separate scheme for payment of incentive bonus again on the basis of premium income with reference to which conveyance allowance is also paid. I would therefore hold that the Appellate Asst. Commissioner was not justified in concluding that a portion of the conveyance allowance viz. Rs. 3,648 should be held as taxable income of the assessee. The Income-tax Officer is therefore directed to allow a further sum of Rs. 3,648 as exempt Under Section 10(14) of the Income-tax Act, 1961.
The Andhra Pradesh High Court in the case of Maddi Sudarsanam (supra), relied on by the learned departmental representative, has stated as under: –
Section 10(14) of the Act provides that any special allowance or benefit specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose, would be exempt. In other words, the extent of expenses not actually incurred for the purpose would not earn exemption.
The crux of the issue is that to the extent expenses are not actually incurred for the purposes of the office which the person is holding, it would not be exempt under the provisions of Section 10(14). The CIT’s order Under Section 264 elaborates on the nature of work done by the Development Officers and the amount of travelling which they have to do, etc. It is clear that the additional conveyance allowance was not camouflaged for whittling down the taxable amount. We are proceeding on the basis that the amount will fall for deduction only if the requirements of Section 10(14) are satisfied. Therefore, the decision of the Allahabad High Court in Civil Misc. Writ Petition No. 328 of 1988, dt. 12-9-1988, has no application because in deciding the issue it was observed by the Court as under:-
The submission of Sri Upadhyaya is that these allowances do not amount to ‘income’ under the provisions of the Income-tax Act, 1961 (hereinafter referred to as the Act, 61) and, therefore, they are not liable to tax. Sri Upadhyaya being very firm in his submission that these allowances are not in the nature of income, no argument in alternative was made to claim exemption under Section 10 of the Act, 1961, in respect of such receipts. So the only question for consideration is whether the receipts on account of CCA, HRA and DA are in the nature of income entailing tax liability.
In the judgment of the Andhra Pradesh High Court Maddi Sudarsanam’s case (supra) itself there are the following observations: –
Ordinarily speaking, no surplus is left out of the travelling allowance paid as the amount travelling allowance paid would cover actual expenses. We had not come across any case where the Revenue had made any endeavour to ascertain, where travelling allowances were paid, if there is any surplus left. While the tax Officer may perhaps be justified in making an enquiry, experience shows that lax authorities do not involve themselves in these small exercises and show some benevolence in assuming that the entire allowance paid was spent. It is not clear in what circumstances in the present case, a conclusion was drawn that there was a saving – We are not certain whether the saving was declared by the assessee himself or whether the Revenue drew the inference that there was a saving from out of the information available regarding the extent of allowance paid to the assessee and the expenditure incurred by the assessee therefrom. We do not think that in a case like this the Revenue should resort to meticulous accounting in order to subject to tax some small surplus left.
Viewed with reference to the aforesaid criteria and even assuming that since the additional allowance is fixed with reference to certain broad criteria of the extra insurance canvassed for and, therefore, there may be some element of estimate which could lead to the argument that it is not established that the entire expenditure was exclusively incurred in the performance of the duties of the person concerned, we consider that a practical approach would be to hold that a major portion of the expenditure would have been incurred only for the purpose of discharging duties, since a general formula could have been evolved by the L.I.C. on the basis of such criteria and if at all, on estimate, a small margin can be disallowed. We would fix the amount which could be disallowed Under Section 10(14) at 20% of the claim of the additional conveyance allowance for each of the years. The remaining amount will be”allowed in each year as a deduction which fully satisfies the requirements of Section 10(14).
5. In coming to the aforesaid conclusion we have noticed the argument of the learned departmental representative that the only deduction possible in respect of salary would be the standard deduction permissible Under Section 16(1). We are unable to agree with this because as long as a case can be brought Under Section 10(14), the exemption is admissible and on the facts, we have come to the conclusion that exemption is available under the provisions of Section 10(14) to the extent we have stated.
6. In the appeals of the assessee, the assessee urges that the A.A.C. erred in disallowing the incentive bonus. The learned counsel for the assessee relied on a decision of the Tribunal in ITA No. 886/Mds/1985, dt July, 1986, to which one of us i.e., the Accountant Member, was a party, where it was held that to the extent of 60% the incentive bonus would be taxable and the remaining 40% would be exempt. The learned departmental representative submitted that on the basis of Circular No. F-200/172/84, dt. 28-11-86, no deduction should be allowed for incentive bonus.
7. In the order of the Tribunal referred to, the Tribunal observed as under;
5. In the two earlier orders of the Tribunal relied on by the learned counsel for the assessee, the Tribunal had held that in the case of Development Officers a deduction can be allowed Under Section 10(14) against the incentive bonus received because it was given for new business being canvassed and it was well-known that for canvassing insurance business there had to be some outgoings to visit the customers on more than one occasion to make special efforts to persuade them to take out L.I.C. policies, etc. The Tribunal took the view that the whole of the incentive amount could not be considered as expenditure wholly, necessarily, and exclusively incurred in the performance of duties but a portion thereof had necessarily to be spent in the performance of such duties. The Tribunal was of the view that 40% of the incentive bonus could be as satisfying the requirements of Section 10(14) and, therefore, they allowed the said deduction. We would follow the same decision in the present case also and since the I.T.O. has allowed only 40% deduction from the gross incentive bonus, we are of the view that the C.I.T. was not justified in considering that the order of the I.T.O. was prejudicial to revenue and erroneous. We may also add that if a conveyance allowance is given it is only for meeting expenditure on conveyances but the Development Officer has to incur other expenses for securing new business through the team of agents which he leads. Therefore, merely because a conveyance allowance was given, we are unable to agree with the revenue that no further deduction was permissible.
Following the aforesaid reasoning, we hold that a deduction should be allowed of 40% of the incentive bonus in each of the years and the balance of 60% should be taxed.
8. The cross-objections of the Revenue seeking the order of the A.A.C. being upheld on the aforesaid point have become superfluous and are accordingly dismissed.
9. In the result, the appeals of the Revenue and the assessee are allowed in part, and the cross-objections of the Revenue are dismissed.