The Judgment of the Court was delivered by
N.N Mathur, J.:— The issue arising for decision in these two special appeals is whether the additional conveyance allowance paid by the Life Insurance Corporation of India (in short, “the LIC”) to its Development Officers in terms of the norms of the business fetched by them as per circular dated March 3, 1987, issued by the Life Insurance Corporation is exempt under section 10(14) of the Income-tax Act, 1961, hereinafter referred to as “the Act of 1961”, as special allowance or not?
2. Since the learned single judge has disposed of the writ petitions by a brief order having found the controversy covered by an earlier decision of this court rendered in Commissioner Of Income-Tax v. Sheo Raj Bhatia., [1997] 227 ITR 7, a brief resume of facts would be necessary for focussing the issue involved in these appeals.
3. The appellant, Shivraj Bhatia, Development Officer with the Life Insurance Corporation of India, during the assessment proceedings for the year 1986–87, claimed 40 per cent, deduction (Rs. 27,282) from a sum of Rs. 68,206 received as an incentive bonus from the Life Insurance Corporation. The Assessing Officer found that the incentive bonus being part of the salary, the deduction as claimed by the assessee, was not permissible. The Assistant Commissioner (Appeals) relying on a judgment of the Income-tax Appellate Tribunal, Chandigarh, as well as the judgment of the Income-tax Appellate Tribunal, Jaipur Bench, allowed the appeal and directed the Income-tax Officer to allow deduction as claimed by the assessee. The Revenue preferred an appeal against the said judgment before the Income-tax Appellate Tribunal, Jaipur. The Tribunal dismissed the appeal vide order dated January 19, 1990. The Revenue filed an application before the Tribunal to refer the question of law as mentioned in the application for the opinion of the High Court under section 256(1) of the Act. The Income-tax Appellate Tribunal by order dated April 15, 1991, referred the following question of law for the opinion of this court:
“Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in directing to allow 50 per cent, deduction of incentive bonus received by the assessee from the Life Insurance Corporation of India relying on the Board's Circular No. 14/9/65-IT (A-I), dated September 22, 1965, which, in fact, is applicable to the Life Insurance Corporation agent and not to the Development Officer. The cases of the Development Officer are governed by the Board's Circular F. No. 200/127/84 IT(A), dated September 29, 1987.October 14, 1987?”
4. The Division Bench relying on judgments of the various High Courts, i.e, The Commissioner Of Income-Tax, Guntur v. B. Chinnaiah, [1995] 214 ITR 368 (AP) and CIT v. Govind Chandra Pani, [1995] 213 ITR 783 (Orissa), held that the incentive bonus paid to a Development Officer is a part of the salary and, thus, exigible to tax and the assessee is entitled to only standard deduction permissible under section 16 of the Act. Thus, the question was answered by the court as follows (page 23 of 227 ITR):
“We, therefore, answer the question in the negative, i.e, in favour of the Revenue and against the assessee, and it is held that the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, was not justified in directing to allow 50 per cent, deduction of the incentive bonus received by the assessee from the Life Insurance Corporation of India, relying on the Board's circular, which is applicable only to Life Insurance Corporation agents and not to Development Officers and the case of Development Officers is governed by the Board's Instruction No. 1774.”
5. It is, thus, evident that the judgment in Shiv Raj Bhatia's case, [1997] 227 ITR 7 (Raj) pertains to incentive bonus and not to conveyance or additional conveyance allowance. The instant writ petition was filed by the appellant Shivraj Bhatia in the year 1991 seeking direction to declare that the conveyance allowance and the additional conveyance allowance received by the petitioner is exempt from income-tax under section 10(14) of the Act. He also sought a direction to quash the assessment order dated November 27, 1990, pertaining to the assessment year 1990–91. The petitioner placed on record certain correspondence between the Life Insurance Corporation and the Central Board of Direct Taxes about the exemption of additional conveyance allowance from income-tax under section 10(14) of the Act, which indicates that the Central Board of Direct Taxes has taken a view that the additional conveyance allowance is exempt from income-tax under section 10(14), provided a certificate was appended with the return of income filed by the Development Officers to the effect that the additional conveyance allowance received by him during the previous year was actually incurred by him as expenditure for performance of his duties. It is asserted that the certificates issued by the Life Insurance Corporation to the effect that the additional conveyance allowance received by the petitioner was actually spent for performance of his duties, was filed along with the return. It is also asserted that many of the Income-tax Tribunals in the country have taken the view that the amount of additional conveyance allowance is exempt under section 10(14) of the Act. It is further contended that the conveyance allowance and the additional conveyance allowance were received by the assessee from his Empioyer-Life Insurance Corporation as a reimbursement for actual expenditure incurred by him on account of conveyance in relation to the performance of his duties and the said expenditure has a direct nexus with the performance of his duties in order to develop the insurance business by meeting several people and also to increase new life insurance agents. It is also asserted that the assessee is required to meet persons for encouraging them to take insurance policies and in this connection, he has to incur expenses on conveyance, which are reimbursed by the employer as per the prescribed norms. Thus, according to the assessee, the expenditure was incurred in relation to performance of duties and merely on technical reasons that the assessee had not produced any voucher in support of the said expenditure, that cannot be a valid reason to put him to tax. The learned single judge disposed of the writ petition by a brief order dated November 3, 1999, as follows:
“Learned counsel Shri Bhandawat states that this petition is squarely covered by the judgment of this court delivered in S.B Civil Writ Petition No. 1335 of 1997 and the judgments reported in Life Insurance Corporation Class I Officers (Bombay) v. Life Insurance Corporation of India, [1998] 229 ITR 510 (Bom) and Commissioner Of Income-Tax v. E.A Rajendran., [1999] 235 ITR 514 (Mad).
In terms of the aforesaid judgments, this petition is dismissed and it is held that conveyance allowance and additional conveyance allowance are not exempted under section 10(14) of the Income-tax Act, 1961.”
6. The instant special appeal being D.B Civil Special Appeal No. 406 of 2001, is against the aforesaid judgment of the learned single judge.
7. After the judgment of the learned single judge, the Income-tax Officer (TDS), Jodhpur, served a notice on the Divisional Manager, LIC, Jodhpur, to deduct the income-tax at source in respect of the income of conveyance and additional conveyance allowance. The officers of the corporation have also been threatened with penalty, interest and prosecution under the Income-tax Act on failure to deduct the tax at source. This led to filing of another writ petition by none else than the Life Insurance Corporation itself, which was registered as S.B Civil Writ Petition No. 700 of 2000 — Life Insurance Corporation v. Union of India. It is averred that the Ministry of Finance, Government of India, through its Central Board of Direct Taxes Circular dated November 28, 1986, has accepted the position that the additional conveyance allowance would be treated as exempt under section 10(14) of the Act, provided that a certificate is issued by the Life Insurance Corporation to the effect that additional conveyance allowance was granted to the concerned Development Officer to meet the expenses wholly, necessarily and exclusively for the performance of the duties of the office and had been actually incurred for that purpose. The said instructions are extracted as follows:
“On a representation from the Life Insurance Corporation of India, the Board considered the question of taxability of the additional conveyance allowance received by the Development Officers of the Corporation with reference to section 10(14) of the Income-tax Act, 1961. It was stated by the Life Insurance Corporation that it has now devised a suitable internal system which will enable it to satisfy itself regarding the expenditure incurred by each individual Development Officer having regard to the details of his actual performance, type of vehicle used, areas of operation, etc. It has further been stated that the Life Insurance Corporation would now be in a position to append a certificate in the salary certificate to the effect that the additional conveyance allowance granted to the concerned Development Officer, was granted specifically the meet the expenses wholly, necessarily and exclusively for the performance of the duties of the office and had been actually incurred for that purpose.
It has been decided that the exemption under section 10(14) of the Income-tax Act, 1961, in respect of the said additional conveyance allowance should be allowed in cases where the Life Insurance Corporation appends a certificate, as stated above, in the salary certificate.”
8. In view of the circular of the Government of India, the Central office of the LIC issued a circular dated March 3, 1987, which is extracted as follows:
“1. The full amount of fixed conveyance allowance paid to Development Officers will be treated as exempt from tax and no tax need be deducted at source from monthly payments.”
9. Still, the department created a demand under sections 201(1) and 201(1A) of the Act. The assessing authority in a number of assessment proceedings took the view that a Branch Manager of the LIC, who was the principal officer as well as the drawing and disbursement officer having not deducted the amount of income-tax from the conveyance and additional conveyance allowance at source, committed default under section 201(1). The Income-tax Appellate Tribunal, Jaipur, disposed of a number of appeals by a common judgment dated September 17, 1997, and held that whereas the Board had required the D.D Os. to satisfy themselves by insisting on production of evidence of making actual payment/expenditure, exemption in respect of which is claimed under sections 10(13A), 80CCA, 80CCB, etc. of the Act, no such insistence was stressed by the Board in respect of a claim for exemption under section 10(14)(i) of the Act. Thus, the Income-tax Appellate Tribunal held that the principal officer was justified in not deducting tax at source from the conveyance and additional conveyance allowance received by the Development Officers. In view of this, the Income-tax Appellate Tribunal cancelled the demand raised by the Assessing Officer under sections 201(1) and 201(1A). The Revenue filed an application under section 256(1) of the Act for making a reference to this court for opinion on the following questions:
“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in cancelling the demands raised under sections 201(1) and 201(1A) of the Act?
Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the Principal Officer (DDO) was justified in not deducting tax at source from conveyance allowance and additional conveyance allowance without certifying and verifying that the amount of these allowances had been actually incurred wholly, necessarily and exclusively for the performance of the duties of office?”
10. The said application was rejected by the order of the Income-tax Appellate Tribunal dated March 5, 1991. Thus, the Revenue preferred an application under section 256(2) of the Act before this court. The reference application has been registered as D.B Income-tax Reference No. 34 of 1999. The said reference application is also decided today by a separate order against the Revenue.
11. It was contended before the learned single judge that as the conveyance allowance and additional conveyance allowance are paid to the Development Officers for meeting actual expenditure incurred by them in discharge of their field duties and, thus, wholly, necessarily and exclusively for meeting such expenditure as per the norms provided under the circular of 1987, it clearly falls under the exempt category of section 10(14) of the Act. However, the learned single judge dismissed the writ petition by a brief order dated April 17, 2000, following the order dated November 3, 1999 (supra), passed in the writ petition filed by Shivraj Bhatia. Thus, the Life Insurance Corporation has also preferred the special appeal against the aforesaid judgment dated April 17, 2000.
12. It is contended by Mr. Vineet Kothari, learned counsel appearing for the appellant-LIC, that the learned single judge has committed illegality in dismissing the writ petition solely on the basis of the statement made by learned counsel for the Revenue that the controversy involved was covered by the judgment dated March 9, 1998, rendered in S.B Civil Writ Petition No. 1335 of 1997 and the judgments reported in Life Insurance Corporation Class I Officers (Bombay) Association v. Life Insurance Corporation of India, [1998] 229 ITR 510 (Bom) and Commissioner Of Income-Tax v. E.A Rajendran., [1999] 235 ITR 514 (Mad). The judgment of the learned single judge dated March 9, 1998 reads as follows:
“Perused the averments made in the writ petition as well as reply filed on behalf of the answering respondents.
From the perusal of the decision, rendered by a Division Bench of the Bombay High Court in the case of Life Insurance Corporation Class I Officers (Bombay) Association v. Life Insurance Corporation of India, [1998] 229 ITR 510, I am satisfied that the controversy involved in the present case is squarely covered by the aforesaid decision. I respectfully concur with the decision taken by the Division Bench of the Bombay High Court in the case of Life Insurance Corporation Class I Officers (Bombay) Association v. Life Insurance Corporation of India, [1998] 229 ITR 510 and propose to decide the present writ petition in the terms and conditions of the aforesaid decision.
As a result of aforementioned discussion, the present writ petition is dismissed in limine at the admission stage. The ad interim order is vacated.
Both the parties are directed to bear their own costs.”
13. The learned single judge has found the controversy involved in the instant writ petition covered by the decision of the Bombay High Court reported in Life Insurance Corporation Class I Officers (Bombay) Association v. Life Insurance Corporation of India, [1998] 229 ITR 510 without elaboration and further discussion. We have read the judgment of the Bombay High Court reported in Life Insurance Corporation Class I Officers (Bombay) Association v. Life Insurance Corporation of India, [1998] 229 ITR 510. We are in agreement with the contention of learned counsel for the appellant that it does not decide the controversy relating to additional conveyance allowance but only conveyance allowance, which was held to be not exempt under section 10(14) of the Act. It further appears that the court was concerned with the question whether conveyance allowance paid pursuant to rule 9(b) of the Life Insurance Corporation of India Class-I Officers (Revision of Terms and Conditions of Service) Rules, 1985, is such a special allowance or benefit as is envisaged under section 10(14) of the Income-tax Act. The court held that such an allowance was not covered under section 10(14) of the Act, as the mere use of the word conveyance allowance is not enough. The court noted that such an allowance is paid to the employee whether such employee is on duty or not and also the fact that such allowance is not reimbursement for expenses wholly and exclu-sively incurred in the performance of duty as it is payable also for the period when the person is not on duty, even in case an eligible officer is on maternity leave irrespective of the fact of distance from the residence to the office. In the instant case, the Development Officers are Class-II Officers. They are being paid conveyance allowance and additional conveyance allowance as special allowance to meet the cost of running and maintaining of the vehicle which they use for the performance of their duties. The rules also provide that they are not entitled to the additional conveyance allowance while on leave, including the maternity leave.
14. As far as another case reported in Commissioner Of Income-Tax v. E.A Rajendran., [1999] 235 ITR 514 is concerned, the Madras High Court was mainly dealing with the controversy relating to deduction of 40 per cent, of incentive bonus. The words “additional conveyance allowance” are mentioned along with 40 per cent, of incentive bonus in the referred question and the High Court was not directly deciding the controversy of exemption of such additional conveyance allowance under section 10(14) but on the contrary, the deduction of 40 per cent, incentive bonus and conveyance allowance as deductible expenditure from the income of the assessee. This judgment has been distinguished by another decision of the same High Court in Life Insurance Corporation Of India v. Cit, [2000] 245 ITR 224. The court held that the judgment in Commissioner Of Income-Tax v. E.A Rajendran., [1999] 235 ITR 514 (Mad) was with reference to section 10(14) of the Act. The court had no occasion to deal with the import of rule 2BB as the said rule was inserted by the Income-tax (Eighth Amendment) Rules, 1995, with effect from July 1, 1995. Thus, we are of the view that the learned single judge has wrongly placed reliance on the decision of the Madras High Court in Commissioner Of Income-Tax v. E.A Rajendran., [1999] 235 ITR 514. As far as the earlier decision of this court in Commissioner Of Income-Tax v. Sheo Raj Bhatia., [1997] 227 ITR 7, is concerned, it is evident from the question of law referred, as extracted in the preceding para, that in the said case, the question involved was with respect to incentive bonus. A reading of the judgment further shows that after setting out the facts and the relevant provisions of law, the court posed the question for consideration as follows (page 17):
“Whether the ‘incentive bonus’ earned by the assessee falls within the meaning of ‘salary’ or is a business or professional income and if so, the assessee is entitled to deduction on the amount of the part of the incentive bonus spent by the assessee for earning of the incentive bonus?”
15. The instant case pertains to additional conveyance allowance. Thus, apparently the said case has no application to the issue involved in the present case.
16. It is further contended by Mr. Vineet Kothari, learned counsel appearing for the appellant-LIC, that the learned single judge did not look into the fact that there was no dispute at least to the fact that as per rule 2BB of the Income-tax Rules, 1962, framed under section 10(14) of the Income-tax Act, 1961, vide clause 10 of the Table, there is an exemption on the conveyance allowance at least to the extent of Rs. 800 per month. Learned counsel has further submitted that the additional conveyance allowance is different from the conveyance allowance. According to the corporation, the additional conveyance allowance is given to the employees as special allowance for meeting the actual expenditure incurred by them in accordance with the guidelines dated March 3, 1987, and March 18, 1991. The exemption under section 10(14) was available upon certificate of actual expenditure, given by the employer-LIC in terms of the Central Board of Direct Taxes circulars. It is further contended that the respondents could not insist on making deduction of tax at source in view of the fact that there is serious doubt as to whether the entire conveyance allowance/additional conveyance allowance is taxable.
17. On the other hand, Mr. Sundeep Bhandawat, learned counsel appearing for the Revenue, has supported the view taken by the learned single judge. It is submitted that in the instant case, there is no material to show that there was reimbursement of the expenditure incurred by the Development Officers. Thus, the expenditure incurred by the Development Officers, by itself, cannot qualify for exemption under section 10(14)(i) of the Act. Learned counsel has heavily relied on a decision of the Division Bench of this court in Commissioner Of Income-Tax v. Sheo Raj Bhatia., [1997] 227 ITR 7. Learned counsel has also placed reliance on a decision of the Orissa High Court in Commissioner Of Income-Tax v. Sri Anil Singh., [1995] 215 ITR 224.
18. In order to consider the point germane to the controversy, it would be appropriate to make mention of some of the relevant provisions of law and the circulars which have material bearing on the controversy involved.
19. Chapter III of the Income-tax Act, 1961, contains provisions for exemption of certain incomes. Its 33 clauses display different shades and colours pointing to different objectives. Section 10(14) reads as follows:
“10. Incomes not included in total income.— 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—
(14)(i) 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 to the extent to which such expenses are actually incurred for that purpose;
(ii) any such allowance granted to the assessee 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”
20. The notification dated June 9, 1989, is extracted as follows (see [1989] 178 ITR (St.) 43):
“In exercise of the powers conferred by sub-clause (i) of clause (14) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies any allowance granted to meet the expenditure incurred on conveyance in the performance of the duties of an office or employment of profit, for the purposes of the said sub-clause for the for the assessment year 1989–90 and subsequent assessment years.”
21. There was further amendment in the Finance Act, 1995, with effect from July 1, 1995, which substituted the words “as may be prescribed” for the expression “as the Central Government may, by notification, in the Official Gazette, specify”. In pursuance of the aforesaid provision, rule 2BB of the Income-tax Rules was inserted by the Income-tax (Eighth Amendment) Rules, 1995, with effect from July 1, 1995. The relevant notification is extracted as follows (see [1995] 214 ITR (St.) 117):
“2. In the Income-tax Rules, 1962,—
(a) after rule 2BA, the following rule shall be inserted, namely:—
‘2BB. Prescribed allowances for the purposes of clause (14) of section 10.— (1) For the purposes of sub-clause (i) of clause (14) of section 10, prescribed allowances, by whatever name called, shall be the following, namely:—
(a) any allowance granted to meet the cost of travel on tour or on transfer;…
(c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit;…
(2) For the purposes of sub-clause (ii) of clause (14) of section 10, the prescribed, allowances, by whatever name called, and the extent thereof shall be the following, namely:—
SI. No.
Name of allowance
Place at which allowance is exempt
Extent to which allowance is exempt
(1)
(2)
(3)
(4)
101
Transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of” his residence and the place of his duty.
Whole of India
Rs. 800 per month’.”
1. Inserted by the Income-tax (Seventh Amendment) Rules 1998, with effect from 1-8-1997: see [1998] 231 ITR (St.) 269-Ed.
22. Thus, under section 10, income falling under the clauses set out therein, are excluded in computing the total income of the previous year. Clause (14) deals with the special allowance. In order to avail of exemption under clause (14), it is required to be established that—
(i) the payment has been made by way of special allowance or benefit, which is not a perquisite within the meaning of clause (2) of section 17;
(ii) it has been granted to meet expenses “wholly, necessarily and exclusively incurred” in the performance of duties of an office or employment of profit;
(iii) it has been exempted to the extent such expenses are actually incurred for the purpose.
23. Thus, for enabling an assessee to take the benefit of section 10(14), it is imperative on his part to satisfy that the special allowance, benefit or perquisite in respect of which the claim is made, has been granted to him to meet expenses wholly, necessarily and exclusively incurred in the performance of duties of office or employment of profit. Thus, the assessee in order to claim exemption under the provision, is required to show that the amount in question was not for his own benefit but for the purpose of meeting the expenses wholly, necessarily and exclusively incurred in the performance of duties. As a result of amendment of section 10(14)(i) by the Finance Act, 1995, referred to above, such special allowance or benefit has to be prescribed by the Board by framing a rule in that regard. Rule 2BB has made such prescriptions. As per this provision, the allowance should be granted to meet the expenditure incurred on conveyance in the performance of duties of an office. This excludes the employee provided with the free conveyance. It is of course true that the assessing authority is required to satisfy as to whether the expenses have been incurred on conveyance in the performance of duties of the assessee-Deve-lopment Officer and the claim is justified or not. The provision imposes an obligation on the Department to grant the exemption, if it comes within the four comers of the prescriptions.
24. The Life Insurance Corporation of India is a statutory body. The duties of a Development Officer are provided under the relevant rules, which are extracted as follows:
“Duties of Development Officers and obligations.— A. (i) To develop and increase the production of life insurance business in a planned way as far as may be practicable in the area that may be allotted to work from time to time through the agents placed under his supervision by the corporation and in consonance with the corporate objectives of the corporation.
(ii) To guide, supervise and direct the activities of the agents placed under his supervision by the corporation.
(iii) To introduce suitable persons to the corporation for appointment as new agents.
(iv) To act generally in such a way as to activise existing agents and motivate new agents so as to develop a stable agency force.
(v) To render all such services to policyholders conducive to better policy servicing.
(vi) To carry out the investigation of claims, revival of lapsed policies and liaison work in connection with S.S.S business.
(vii) To perform such other duties as may be entrusted to him.”
25. It is, thus, clear that the Development Officers of the Life Insurance Corporation are full-time employees of the corporation whose main task is to develop the business in life insurance. They are required to discharge the duties and obligations which, inter alia, include development of life insurance business of the corporation. The very first duty enumerated for the Development Officer is to develop and increase the production of new insurance business in the planned way, as far as practicable in the area that may be allotted to him from time to time. The other duties and obligations include the duty to supervise and to guide the activities of the agents placed under the supervision of the Development Officers; to recruit new agents so as to develop agency force; and to act generally in such a way as to activate existing agents and to motivate new agents and to render certain services to policyholders. The officer is also required to perform such duties that are entrusted and assigned to him from time to time.
26. As per the practice, the Life Insurance Corporation has been giving the utilisation certificate for the purpose of income-tax as follows:
“This is to certify that during the financial year…………………(assessment year……………), Shri……………………has been paid Rs.………………………to meet the expenses wholly, necessarily and exclusively incurred in performance of development duty and that the said amount has actually been incurred wholly for that purpose. As such this amount is exempt from income-tax under section 10(14) of the Income-tax Act, 1961, and, therefore, no tax has been deducted at source thereon.
(Branch Manager)”.
27. It is, thus, evident that the conveyance allowance and the additional conveyance allowance are paid to the Development Officers for meeting actual expenditure incurred by them in discharge of their field duties and, thus, wholly, necessarily and exclusively for meeting such expenditure, the allowance is being exempt as per the norms set out in the Life Insurance Corporation circular dated August 3, 1987, referred to in the preceding para. It appears that the Life Insurance Corporation has worked out the additional conveyance allowance to the Development Officers considering the probable expenditure for procuring the business. The Life Insurance Corporation appears to have devised the general formula having a reference to the parameters of the business and, thus, the payment of additional conveyance allowance is a reimbursement for actual expenditure incurred by the Development Officers on account of conveyance in relation to performance of their duties and the said expenditure has a direct nexus with the performance of duties for development of the insurance business by way of meeting several people and to enrol new life insurance agents and to meet the insurance persons for encouraging them to take insurance policies. Naturally, in such circumstances, touring expenses are incurred on conveyance. Such conveyance expenses are reimbursed by the employer as per the prescribed norms in the name of additional conveyance allowance. The certificate is given by the LIC-employer of the minimum amount which the Life Insurance Corporation certifies that it is the amount actually spent by the Development Officers in the performance of their duties. The ultimate liability of claiming exemption and proving the same is on the employee-assessee (Development Officers). The exemption limit is restricted by the instructions issued by the Central Board of Direct Taxes from time to time. Therefore, we hold that the Development Officers in the Life Insurance Corporation are entitled to claim exemption under section 10(14) of the Act in respect of conveyance allowance/additional conveyance allowance upon satisfying the conditions that such allowances have actually been spent for the purpose for which they were given wholly, necessarily and exclusively in the performance of duties. Therefore, the Life Insurance Corporation cannot be insisted for deduction of tax to be deducted at source to the extent such conveyance allowance/additional conveyance allowance is exempt under rule 2BB and further such minimum limit is set from time to time. The ultimate liability of claiming exemption and proving the same is on the employee-assessees, i.e, the Development Officers.
28. We may also deal with the cases referred to by learned counsel for the appellant. In Commissioner Of Income-Tax v. L.D Satija, [2000] 246 ITR 629, the Punjab and Haryana High Court held that the deduction of conveyance allowance and additional conveyance allowance could not be denied to the assessee without giving opportunity of hearing to him, therefore, the Income-tax Officer could not make addition of the same in the declared income while making the assessment under section 143(1)(a) of the Act. In Commissioner Of Income-Tax v. Nestle India Ltd., [2000] 243 ITR 435 (Delhi), the assessee-company did not include the conveyance allowance as part of taxable salary and did not deduct any income-tax at source. The Income-tax Officer sought to impose penalty, interest and also required the company to pay such TDS. The Tribunal decided in favour of the respondent company. The Division Bench of the Delhi High Court found that no question of law arises in the matter.
29. Consequently, we allow these special appeals and set aside the judgments of the learned single judge dated April 17, 2000, and November 3, 1999, in S.B Civil Writ Petitions Nos. 700 of 2000 and 1617 of 1991, respectively. We declare that the notice annexure 8 dated February 25, 2000, and annexure 10 dated February 29, 2000, in S.B Civil Writ Petition No. 700 of 2000 are quashed and set aside. We direct the Department not to insist upon the Life Insurance Corporation of India to deduct the income-tax at source in respect of conveyance and additional conveyance allowance, paid by it to its Develop-ment Officers. The assessment order dated November 27, 1990 (annexure 11), in S.B Civil Writ Petition No. 1617 of 1991 is quashed and set aside. The assessing authority shall pass a fresh order in accordance with the law laid down in the instant judgment. There shall be no order as to costs.