Per Shri A. K. Das, Judicial Member - In this appeal the department objects to the AACs deletion of the amount of Rs. 8,548 (sic) added by the ITO, to the total income of the assessee in the return for the assessment year 1978-79. The assessee filed a cross-objection supporting the order of the AAC.
2. During the financial year 1977-78, the assessee was a salaried employees of the LIC, Asansol Branch, holding the office of the development officer. From the salary certificates for the said financial year granted to the assessee, it was seen that the total amount of salaried included fixed monthly conveyance allowance aggregating to Rs. 3,028 and additional conveyance allowance of Rs. 8546.35, the assessee claimed exemption in respect of both the fixed monthly conveyance allowance as well as the additional conveyance allowance. The employer treated the fixed monthly conveyance allowance of Rs. 3,028 as exempt from tax under section 10(14) of the Income-tax Act, 1961 (the Act). But the additional conveyance allowance amounting to Rs. 8,546 was subjected to tax. The claim for exemption of the additional conveyance allowance was also rejected by the ITO. In lan appeal the AAC was of the opinion that the payment of additional conveyance allowance was also rejected by the ITO. In an appeal is linked with extra touring by a development officer in procuring business over and above his fixed quota. In this view of the matter he deleted the addition of Rs. 8546 (and not Rs. 8,548 as stated in the grounds of appeal) made by the ITO. The department preferred this appeal against the said order which is supported by the assessee by filing a cross-objection.
3. It was contended by the departmental representative that the amount paid as additional conveyance allowance is really in incentive or additional remuneration for bringing in additional business by the development officers like the assessee. He also contended that additional conveyance allowance as sanctioned by the employer of the assessee under its Circular No. DD/ZD/108/1973, dated 12-11-1973, was not granted by the employer, LIC, to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of the office of the development officers. In this connection he drew our attention to the decision in CIT v. Tejaji Farasram Kharawalla Ltd. : 67ITR95(SC) on the term incurred and A. K. Venkiteswaran v. CIT : 92ITR233(Ker) on the term expenditure incurred wholly, necessarily and exclusively in the performance of duties. This connection was opposed on behalf of the assessees, who contended that the additional conveyance allowance was granted by his employer to meet expenses wholly, necessarily land exclusively in the performance of his duties and that the amount given to him as additional conveyance allowance was in fact wholly, necessarily and exclusively incurred in performance of such duties.
4. On behalf of the assessee it was urged that the term annual remuneration does not include additional conveyance allowance as per clause 1(a) of the Annexure to the Notification, dated 19-12-1978, of the Ministry of Finance, Department of Economic Affairs. The definition of annual remuneration in the said paragraph was in connection with alteration of remuneration and other terms and conditions of service of the employees of the LIC. This definition cannot control the concept of income under the Act. The nature of the additional conveyance allowance granted to the a by his employer has to be examined in order to decide the question in dispute.
5. In order to be exempt from the category of income, the additional conveyance allowance has to come under section 10(14). It runs as follows :
'any special allowance or benefit, not being of an entertainment allowance or other perquisite within the meaning of clause (2) of section 17, specifically granted to met 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.'
6. It is not disputed before us that additional conveyance allowance granted to the assessee by his employer is a special allowance It is further not disputed that it is not in the nature of an entertainment allowance or other perquisite with in the meaning of clause (2) of section 17 of the Act, The parties, however, are in dispute as to whether this allowance is granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of the assessee and if the amount granted to the assessee during the financial year 1977-78 was actually so incurred by him. Paragraph 2 of the LICs circular No. DD/ZD/108/1973, dated 12-11-1973, deals with conveyance allowance. Paragraph 3 deals with additional conveyance allowance. It is the case of the assessee that he comes under clause (ii) (b) of sub-paragraph C of paragraph 2. This clause (iii) is as follows :
(a) Development officers working at other places and having no touring duties, and
Conveyance allowance per moth Rs. 254.10'
(b) Development officers having touring duties.
From these sub-clause (a) and (b) it is seen that development officers having to touring duties get conveyance allowance at the same rate as development officers having touring duties. From clauses (ii), (iii) and (iv) of sub-paragraph B of the paragraph 2 of the said circular it is also found that development officers with or without touring duties get conveyance allowance at equal rates. So, it is amply clear that at least in towns having a population of less than 1 lakh, the development officers get conveyance allowance at the same rate whether they have touring duties or not.
7. Paragraph 3 of the circular runs as follows :
'The conveyance allowance determined accordance with the Schedule in paragraph 2 above shall be a payment on account which will be reviewed on completion of appraisal year on the basis of the performance during that year.'
Where on such appraisal of the performance of a development officer the conveyance allowance arrived at on the following alternative scale is higher than the payments made on account in accordance with the minimum scale specified in preceding paragraph, the difference shall be corm payable as additional conveyance allowance.
First year scheduled premium income group of the development officer according to his appraisal year
Conveyance allowance for the full appraisal year of the development officer
Development officer having no touring duties
Development officer having touring duties
less than Rs. 40,000
4 per cent of FYSPI
3.5 per cent of FYSPI
Rs. 40,000 to Rs. 69,999
4.5 per centof FYSPI
4 per cent of FYSPI
Rs. 70,000 to Rs. 1,00,000
5 per cent of FYSPI
4.5 per cent of FYSPI
Rs. 1,00,001 to Rs. 1,50,000
Rs. 5,000 plus 4.5 per cent of FYSPI in cent of excess of Rs. 1,00,000
Rs. 4,500 plus 4 per FYSPI in excess of Rs. 1,00,000
Rs. 1,50,001 and over
Rs. 7,250 plus 4 per cent of FYSPI in excess of Rs. 1,50,000
Rs. 6,500 plus 3.5 per cent of FYSPI in excess of Rs. 1,50,000
(Note : FYSPI means First year Scheduled Premium Income).
8. From this paragraph also it is quite clear that development officers having touring duties get conveyance allowance at a lesser rate than development officers having no touring duties. From paragraph 2 and 3 it is also clear that the development officers are given a minimum scale of payment of conveyance allowance irrespective of their performance during the appraisal year. But if the conveyance allowance in accordance with paragraphs 2 and 3 is higher on appraisal of the performance of a development officer, he is granted the difference which is termed additional conveyance allowance by his employer. It is, thus, clear that this difference or the additional conveyance allowance as termed by the assessee and his employer depends on the performance of a development officer. It has no connection or nexus with the travels undertaken by him. This is all the more clear when it is remembered that development officers without touring duties get, as per paragraph 3 of the circular, conveyance allowance at a higher rate. It seems that this additional conveyance allowance is granted to the development officer as an incentive for bringing in additional business as is apparent from column 1 of para 3 quoted above. In any view of the matter it cannot be said that it is specifically granted to meet travelling expenses wholly, necessarily and exclusively within the meaning of section 10(14). So, we are of the opinion that additional conveyance allowance granted to the assessee does not come within section 10(14) and as such is not exempt from taxation.
9. In view of our above finding it is not necessary to give our decision whether the amount of Rs. 8,546 granted to the assessee was wholly and exclusively incurred by him to meet travelling expenses in performance of his duties as a duties as a development officer. It is sufficient to indicate that we do not agree with the observation of he AAC in paragraph 8 of his order. In view of his finding it was not necessary for the ITO to determine whether the assessee actually spent the entire amount in performance of his official duties and as such his omission to discuss this aspect could not be relied upon by the AC in deleting the addition made by the ITO.
10. On a careful consideration of the facts and circumstances of the case and materials on record, we are of the opinion that the ITO was correct in making the addition of Rs. 8,546 and the AAC was not justified in deleting this amount. As such we set aside the order of the AAC and restore that of the ITO.
11. In the result, the appeal is allowed and the cross-objection is dismissed.