Per F.I Rebello, J.:— The question to be considered and decided in this petition is whether Conveyance Allowance paid to the members of the petitioners Association is exempted from payment of tax under section 10(14) of the Income Tax, 1961.

2. Section 10(14) of the Income Tax Act, 1961 reads as under:—

(14)(i) any such special allowance or benefit, not 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), to the extent to which such expenses are actually incurred for that purpose;

(ii) any such allowance granted to the assesses either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, (as may be prescribed and to the extent as may be prescribed).

(Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence.

3. Then Rule 2-BB(1)(c) of the Income Tax Rules reads as under:

“Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit;

PROVIDED that free conveyance is not provided by the employer.”

4. In the present petition we are required to consider section 10(14)(i) read with Rule 2-BB(1)(c) and to decide whether conveyance allowance of Rs. 100/- given to the employees to meet expenses incurred in performance of duties of an Office. It would be clear from following discussions that payment of Rs. 100/- as conveyance allowance is not granted to meet expenses incurred in performance of duties of an office and has no connection with the expenditure incurred on conveyance in performance of duties of an office. The petitioner is an Association of Class - I Officers in employment of respondent No. 1 Corporation. By a notification dated 18th July 1996 rules were framed known as the Life Insurance Corporation of India Class - I Officers (Revision of Terms and Conditions of Service) (Amendment) Rules, 1996 to further amend the Life Insurance Corporation of India Class - I Officers (Revision of Terms and Conditions of Service) Rules 1985, the amended rules shall hereinafter be referred to as the rules. By virtue of clause 11 of the said rules, rule 9b has been introduced which reads as under:—

“9b. Conveyance Allowance:

Every Class I Officer, other than an officer who is in receipt of any conveyance allowance under any of the schemes of the Corporation shall be paid conveyance allowance of Rs. 100/- per month.”

5. It is the contention of the petitioner that in 1996 pursuant to negotiations between representative of employees including petitioner and the Management of respondent No. 1 a Wage Settlement took place whereby various terms and conditions of the service were amended/revised. One such service condition viz. Rule (9b) provided that an amount of Rs. 100/- be paid as Conveyance Allowance with retrospective effect from 1st August 1994 to enable the Officers to meet the expenditure incurred on conveyance in performance of duty. As a result of the said decision every employee was to get Rs. 3200/- for 32 months period from 1st August 1994 to 31st March 1997. Petitioner contends that it was understood by all concerned that the allowance would be exempted from income tax. In fact the respondent No. 1 according to the petitioner issued a circular/fax message on 21st March 1996 expressly endorsing this position. It is further contended that in January 1997 Yogakshema an official publication of respondent No. 1 carried an article clarifying that conveyance allowance granted was not subject to tax. The petitioner however contends that on 14th February 1997 a Circular/fax message was received by respondent which completely reversed the position. The said Circular cited instructions of respondent No. 2 which the petitioner believe to be non-existent. By the said Circular respondent No. 1 declared that conveyance allowance is to be considered as part of salary and taxed. The petitioner has also relied on an affidavit filed by Shiri Sharad Chandra Kapoor, the President of the Association setting out therein that during the course of discussions, it was clearly explained that conveyance allowance would not be taxable. It was in these circumstances that the petitioners had accepted the said conveyance allowance as it was non-taxable as held out by respondent No. 1. Petitioners rely on the judgment of this Court in the case of (Commissioner of Income Tax, Bombay City - I v. D.R Pathak)1, reported in 1975 (99) ITR 14.

6. On behalf of respondent No. 1 besides the affidavit-in-reply an additional affidavit dated 9th April 1997 has been filed on its behalf by Diwakar S. Shetty, Deputy Secretary. It is pointed out in the said affidavit that the conveyance allowance of Rs. 100/- per month is not “expended in the performance of duties.” It is further averred, that the payment of Rs. 100/- per month to every Class - I Officer as conveyance allowance under rule 9b of the rules, who is not covered by any Conveyance Scheme of 1st respondent, is a lumpsum payment and is made even if the employee concerned be on leave of any kind other than Extra Ordinary Leave on toss of pay for any duration. An illustration has been given wherein it is pointed out that a lady officer who has availed the maternity leave is also entitled to this allowance. It is further pointed out that this amount is paid in all the offices of the Corporation all over the country numbering more than 2000 irrespective of classification of the city/town, or the proximity which the staff quarters/place of residence have with the office of the concerned officer. As exhibit to the said affidavit is annexed a letter from the Ministry of Finance dated 15th April 1996 addressed to the Chief General Manager, Reserve Bank of India (Establishment Section) wherein it has been pointed out that the matter of conveyance allowance has been examined by the Central Board of Direct Taxes and it is informed that the conveyance allowance paid by the Reserve Bank of India to its employees as part of salary in accordance with the terms of employment is to be treated as a part of salary and is not exempted from tax. It is pointed out that in view of the said letter issued to the Chief General Manager, Reserve Bank of India, the Central Board of Direct Taxes has informed that conveyance allowance is part of a salary and as such the respondent No. 1 was bound to consider the same as part of the salary following which respondent No. 1 and its officers would be liable for prosecution under the provisions of the Income Tax Act. Counsel relied on the Judgments in the matter of (Commissioner Of Income-Tax v. Shriram Refrigeration Industries Ltd.)2, reported in 1992 (197) ITR 431 and in the matter of (J.G Mankad v. Commissioner of Income Tax, Gujarat)3, reported in (1965) LV ITR Gujarat 448 to contend that conveyance allowance paid to its officers is “not expended in the performance of duties.”

7. On behalf of the petitioner learned Counsel contends that Notification No. GSR-286(E) dated 18th July 1996 by which the conveyance allowance is granted to the members of petitioner's Association does not specify that the allowance is meant for coming to work or going home from work. Therefore, if the employees submit a declaration in the prescribed form that they have used the allowance “in performance of the duties of” their “office or employment of profit” then, “provided that free conveyance is not provided by the employer,” the employees would be entitled to exemption prescribed in Rule 2-B(i)(c) of the Income Tax Rules 1962. It is next contended that respondent No. 2 has not directly communicated about conveyance allowance to the respondent No. 1 and that the Reserve Bank of India settlement has no bearing on the notification issued by respondent No. 1 as in the case of the petitioners the conveyance allowance has been given in the nature of reimbursement whereas in Reserve Bank of India's case it was part of the salary and that this distinguishing feature is crucial for determining the question of taxability of the allowance.

8. The question, therefore, which has to be decided is as to whether conveyance allowance which is paid to the officers represented by the petitioner's Association is salary or is it an allowance as set out in Rule 2-BB(1)(c) of the Income Tax Rules and therefore exempt and as such is exempted from taxation. Section 10 of the Income Tax Act specifies incomes which do not form part of total income. Sub-section (14) of section 10 includes special allowance of benefit not being a nature of 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 to the extent to which such expenses are actually incurred for that purpose. In other words, the said allowance must have been used wholly, necessarily and exclusively in the performance of duty of office or employment of profit. It must be spent in the course of employment by the person concerned.

9. Can it be said that the conveyance allowance paid pursuant to rule 9b of the rules is such special allowance or benefit. The affidavit filed on behalf of respondent No. 1 indicate that the said allowance is paid to an employee whether such employee is on duty or not. It is explained that the said money is an allowance to meet the cost of expenditure spent on transportation by the Officer from his residence to his office. But the allowance is not reimbursement for expenses wholly and exclusively incurred in the performance of duty as it is payable also for the period when the person is not on duty and even in case an eligible officer is on maternity leave and irrespective of the distance from the residence to the office or the place of posting at any of the 2000 offices of the respondent No. 1.

10. A similar question, whether the expenses on conveyance, wholly and necessarily incurred in the performance of duty of office of part-time professor of accountancy merits deduction under section 7(2)(iii) of the Income Tax Act, 1922 came up for consideration before the Division Bench of the Gujarat High Court in the case of J.G Mankad (supra). In that case the assessee who was an accountant practising and residing at Ahmedabad and who had accepted the post of part-time professor of accountancy at a College at Bhavnagar on a monthly salary of Rs. 400/- including travelling allowances and all other allowances, incurred expenses for travelling between Ahmedabad and Bhavnagar and claimed the same as an exemption under section 4(3)(vi) of the Income Tax Act, 1922 or as a deduction under section 7(2)(iii) of the Act. The Division Bench of the Gujarat High Court held that in order to merit deduction under section 7(2)(iii) of the Act, the expenses must be wholly and necessarily incurred in the performance of duties of the office and secondly the assesses is required by the conditions of service to incur out of his remuneration. The Division Bench held that these are the two tests which have to be satisfied before any deduction can be claimed under section 7(2)(iii) of the Act. The Division Bench of the Gujarat High Court in answering the question relied on a Judgment of the House of Lords in (Ricketts v. Colquhoun)4, 1925 (10) Tax Cas. 118 wherein a similar provision viz. Rule 9 of Schedule E of English Act had come up for consideration and which rule read as under:—

“If the holder of an office or employment of profit is necessarily obliged to incur and defray out of the emoluments thereof the expenses of travelling in the performance of the duties of the office of employment or of keeping and maintaining a horse to enable him to perform the same, or otherwise to expend money wholly, exclusively and necessarily in the performance of the said duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed.”

11. The Division Bench held that the assessee failed to satisfy the twin tests and consequently rejected his claim.

12. The question whether car allowance could not be treated as part of salary for the purpose of calculating the excess amount of perquisites to be disallowed under section 40-A(5) of the Income Tax Act came up for consideration before the Division Bench of the Delhi High Court in the case of Commissioner Of Income-Tax v. Shriram Refrigeration Industries Ltd. (supra). The Division Bench of the Delhi High Court relying on another Division Bench Judgment held as under:—

“In our opinion, on a correct reading of section 17 of the Act, it is clear that any money given by an employer to an employee by virtue of that relationship must be regarded as salary. This Court, therefore, rightly, in Instalment Supply P. Ltd.'s case (1984) 149 ITR 457, observed that such cash payment may not be recorded as perquisite, but could well be regarded as payment of salary.”

13. The Apex Court in the case of (Commissioner of Income Tax, Gujarat v. Tejaji Farasram Kharawalla Ltd.)5, reported in 1968 (67) ITR 95 had occasion to consider whether certain commission received, was wholly exempt from tax under section 4(3)(vi) of the Indian Income Tax Act, 1922 (prior to its amendment in 1955) as a special allowance, benefit or perquisite specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit from his place.

14. In that case the respondent acted as a selling agent of Ciba (India) Ltd. and was entitled to a commission of 12 ½% on the sales of which 7 ½% was to be treated as selling commission and 5% as compensation in lieu of the contingency expenses which it had to meet, such as commission to dyeing masters, agents etc. For the assessment year 1949-1950, the respondent received Rs. 1,90,538/- towards the 5% of the selling agency commission but had spent only Rs. 1,32,512/- for meeting the contingency expenses and the question was whether the 5% of the selling agency commission was wholly exempt from tax under section 4(3)(vi) of the Indian Income-tax Act, 1922 (prior to its amendment in 1955).

15. section 4(3)(vi) of the Indian Income Tax Act, 1922 as it then stood read as under:—

“Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them:……

(vi) Any special allowance, benefit or perquisite specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit.”

16. The words herein are similar to the language employed in Rule 2BB(i)(c) of the Income Tax Rules. The Apex Court on a consideration of the facts and law observed as under:

“The clause grants exemption in respect of expenses “incurred” but on that account an allowance granted to meet expenses to be incurred in future in the performance of the duties of an office or employment of profit is not outside the exemption claimed. In the context in which the expression “incurred” occurs, it undoubtedly means “incurred or to be incurred.” To qualify for exemption, the allowance must, it is clear, be granted to meet expenses incurred or to be incurred wholly and necessarily in the performance of the duties of an office or employment of profit. But the purpose for which the allowance is granted, in our judgment, is alone not determinative of the claim to exemption. An allowance, though made to a person holding an office or employment of profit, intended for appropriation towards expenditure incurred or to be incurred in the discharge of the duties, does not constitute any real income of the grantee. It is in truth expenditure incurred by the employer through the agency of the grantee. The intention of the framers of the Act was to grant exemption in respect of amounts received by the assessee, not for his own benefit, but for the specific purpose of meeting the expenses wholly and necessarily incurred or to be incurred in the performance of his duties as an agent. It would, therefore, be reasonable to hold that the allowance granted to meet the expenses wholly and necessarily incurred or to be incurred in the performance of the duties of the office or employment of the grantee alone qualifies for exemption under the Act and any surplus remaining in the hands of the grantee after meeting the expenses does not bear the character of the allowance for meeting the expenses but for performing the duties of the office or employment. This would be so even if the employer has disabled himself from demanding refund of the amount not expended for meeting the expenses incurred or to be incurred in the performance of the duties of an office or employment of profit, and the surplus remaining in the hands of the grantee acquires for the purpose of Income-tax Act the character of additional remuneration.”

17. From a consideration of the above judgments, it is clear that 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 or as observed by the Division Bench of the Gujarat High Court in the case of J.G Mankad (supra). The assessee must satisfy two tests viz. that they are expenses of which it can be said at the least that they are wholly and necessarily incurred in the performance of the duties of the office and secondly, the expenses were also the expenses which the assessee is required by the conditions of his services to incur out of his remuneration. In view of the judgment of the Apex Court, we have no hesitation to hold that mere use of phrase ‘conveyance allowance’ by itself would not mean that it is to be exempted from tax. It can only be exempted in the event the amount is expended or spent on conveyance in performance of duties of an office or employment of profit.

18. In the instant case, the affidavit filed on behalf of respondent No. 1 clearly demonstrate that the conveyance allowance in terms of rule 9b of the rules is not reimbursement for expenditure incurred on conveyance in performance of duties of office. It is an allowance paid to all employees whether on duty or not irrespective of his place of residence and the place of his work and also irrespective of whether he is posted in any of the 2000 offices of the respondent No. 1. Clearly, therefore, there is no doubt whatsoever that the said allowance would not be exempt under section 10(14) of the Income-tax Act, 1961 read with Rule 2BB(i)(c) of the Income Tax Rules, 1961. In view of the above there is no need to consider the Judgment of the Division Bench cited by the petitioners in the case of Commissioner of income-Tax, Bombay City-I (supra).

19. For the aforesaid reasons writ petition is rejected. Rule is discharged. In the circumstances of the case there shall be no order as to costs.

20. Writ petition rejected.