1. The appeals by the department and the cross-objections by the assessee relate to the assessment years 1979-80 and 1980-81.
2. The assessee is an employee of Tata Finlay Ltd., Munnar, hereinafter referred to as 'the company'. The leave rules of the company provided for granting 30 days' leave to a member of the staff each year. The leave rules also provided for paying to the assessee travelling and incidental assistance up to a maximum of Rs. 2,400 each for adult and Rs. 2,400 per child over 12 years of age up to a maximum of 21 years and/or Rs. 1,200 per child below 12 years. For each of the accounting years relevant to the assessment years under appeal, the assessee was paid Rs. 9,600 as leave travel assistance. In the original assessments for these two assessment years, which were completed on 25-7-1980 and 17-10-1980, the leave travel assistance was treated as exempt under Section 10(5) of the Income-tax Act, 1961 ('the Act'). The assessments were completed under Section 143(1) of the Act. These assessments were rectified under Section 154 of the Act on the ground that an error apparent from the record had occurred in granting exemption with regard to the entire amount of leave travel assistance. According to the ITO, the assessee had incurred only an expenditure of Rs. 4,080 for the to and from journey to Bombay and back. In both these assessment years, the assessee had proceeded to Bombay during the leave period. The rest of the amount constituted boarding and lodging expenses. According to the ITO, this is a benefit taxable as a perquisite in the hands of the assessee and in the original assessments, the entire amount was wrongly allowed as a deduction. Therefore, by the rectification orders passed, the ITO disallowed Rs. 5,520 out of the leave travel assistance amount.
3. The AAC held that any amount received from an employer in connection with proceeding on leave has to be allowed as a deduction under Section 10(5) that the section does not require the ITO to find out if the amount had been fully utilised in connection with the trip made by the employee and his family during the leave period. He, therefore, cancelled the rectification orders passed by the ITO. The AAC did not record his finding on an alternative contention raised by the assessee that there was no mistake apparent from the record which could have been rectified under Section 154.
4. In its appeals, the department questions the correctness of the finding of the AAC that the entire leave travel concession amount was exempt under Section 10(5). In the cross-objections, the assessee contends that the AAC erred in not holding that there was no error apparent from the record which could have been rectified under Section 5. We may first deal with the appeals by the department. As already stated, the assessee received Rs. 9,600 as leave travel assistance for each of the assessment years under appeal. In describing this amount as 'concession' leave travel concession rules relating to the Central Government servants seem to have had some influence. The correct description of the amount will be leave travel assistance. In the leave rules of the company, the amount is described as leave travel assistance expenses. Before the ITO, the assessee had furnished the details of the expenditure incurred by him in the trip made to Bombay during the leave period. The car hire from Munnar to Cochin and back and the plane tickets from Cochin to Bombay and back cover Rs. 4,080.
The rest of the expenditure was described as boarding and lodging expenses including taxi fare, etc., apparently at Bombay. The exemption claimed by the assessee is under Section 10(5)(ii) which reads thus : In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- (5) subject to such conditions as the Central Government may prescribe in the case of an individual being a citizen of India,- (ii) in relation to any other assessment year the value of any travel concession or assistance received by or due to such individual,- (a) from his employer for himself and his family, in connection with his proceeding on leave to any place in India ; Provided that the amount exempt under item (a) or item (b) of this sub-clause shall not, except in such cases and under such circumstances as may be prescribed having regard to the travel concession or assistance granted to the employees of the Central Government, exceed the value of the travel concession or assistance which would have been received by or due to the individual in connection with his proceeding to his home district in India on leave or, as the case may be, after retirement from service or after the termination of his service.
It will be clear from a reading of the section that what is exempted is the value of the travel assistance received by the assessee in connection with his proceeding on leave to any place in India. In the present case, it cannot be disputed that the entire amount of Rs. 9,600 was received by the assessee as leave travel assistance for proceeding to a place in India. There is nothing in the section which confines the exemption to the car, train or plane fare incurred for proceeding to the place. In this connection, it will be useful to compare the exemption provided in Section 10(14) where, while exempting any special allowance or benefit granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office, the exemption is confined to the extent to which such expenses are actually incurred for that purpose. There is no such restrictive provision in Section 10(5). The exemption is not restricted to the actual expenditure incurred for the purpose of proceeding on leave to a place in India. There is also no provision by which the exemption is confined to the plane, train or taxi fare incurred for proceeding to the place.
In support of the contention that the assessee was entitled to claim exemption only with regard to the actual fare paid, the department relied upon the proviso to the section wherein reference is made to 'the travel concession or assistance granted to the employees of the Central Government'. A reading of the proviso will show that the proviso does not confine the exemption to the extent of the travel concession allowable to the employees of the Central Government. The reference to the travel concession or assistance granted to the employees of the Central Government has been made in the proviso only as a matter, which is to be taken into consideration in prescribing the cases and circumstances where the exemption may cover an amount in excess of the assistance which is payable for proceeding to the home district of the assessee. The only scope of the proviso is that except where a higher amount has been prescribed the exemption under Section 10(5)(ii) should not exceed the value of travel concession or assistance which would have been received by or due to the individual in connection with his proceeding to his home district in India.
Therefore, applying the proviso, the ITO might perhaps have disallowed the leave travel assistance, if any, received by the assessee in excess of what would have been allowable to him, had he proceeded to his home district on leave. But, in the present case, the disallowance is not for the reason that Bombay is not in the home district of the assessee and that the assistance in connection with the travel to the home district would have been much less. The disallowance is solely on the basis that the exemption is confined to the actual fare incurred by the assessee. There is nothing in Section 10(5), which restricts the exemption to the actual fare. There is nothing in the proviso which says that the exemption will be limited to what a Central Government servant would have received as leave travel concession while proceeding to his home town, in which case alone a restriction of the amount to the fare would have been justified. In coming to this conclusion, we are fortified by an earlier decision of this Tribunal dated 20-7-1979, sitting at Coimbatore Bench in the case of ITO v. P.V. Prameswaran [IT Appeal No. 982 (Coch.) of 1978-79]. Parameswaran was an employee of James Finlay & Co. Ltd., which appears to be the predecessor of Tata Finlay & Co. In that case, it was held by the Tribunal : The exemption is in relation to the value of any travel concession or assistance received by an assessee in connection with his proceeding on leave to anyplace in India, i.e., in other words, the exemption is available for assistance received for expenditure incurred in connection with his going on leave to any place in India, which contemplates going to a place and returning from that place to the place of work within the period of leave. Going to a place and returning during the period of leave would take within its purview spending the leave or a portion thereof at the place to which the individual has gone. The travel concession or the assistance given, if it is in relation to the journeys as well as period of stay during to and fro journeys or in between the to and fro journeys, would, therefore, in our view, be travel assistance granted in connection with the employee proceeding on leave to place in India. We do not find any warrant for restricting the exemption to actual to and fro fare alone as contended for by the department.
In view of what is stated above, the rectification orders are not sustainable and the appeals filed by the department have to fail.
6. The ground taken in the cross-objections filed by the assessee is that the AAC erred in not recording a finding on the validity of the rectification orders by declining to pronounce upon the contention and that the AAC should be deemed to have decided the issue against the assessee. The position is well settled that the powers under Section 154 can be exercised only if the mistake is an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may be conceivably two opinions. In the present case, both the AAC and the Tribunal have taken a view different from the one taken by the ITO and it is, therefore, clearly a debatable issue on which there could be two opinions. We, therefore, hold that the rectification orders are also not legally sustainable.
7. In the result, the appeals by the department are dismissed and the cross-objections by the assessee are allowed.