Sri Maganti Venkateswara Rao,, Eluru v. The ACIT, Circle-1., Eluru

ITA 8/VIZ/2008 | 2005-2006
Pronouncement Date: 05-10-2010 | Result: Partly Allowed

Appeal Details

RSA Number 825314 RSA 2008
Bench Visakhapatnam
Appeal Number ITA 8/VIZ/2008
Duration Of Justice 2 year(s) 9 month(s)
Appellant Sri Maganti Venkateswara Rao,, Eluru
Respondent The ACIT, Circle-1., Eluru
Appeal Type Income Tax Appeal
Pronouncement Date 05-10-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 05-10-2010
Date Of Final Hearing 29-09-2010
Next Hearing Date 29-09-2010
Assessment Year 2005-2006
Appeal Filed On 04-01-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 8 /VIZAG/ 20 08 ASSESSMENT YEAR : 2005 - 06 MAGANTI VENKATESWARA RAO ELURU ACIT CIRCLE - I ELURU (APPELLANT) VS. (RESPONDENT) PAN NO.ADIPM 1397H APPELLANT BY: SHRI G.V.N. HARI CA RESPONDENT BY: SHRI J. SIRI KUMAR DR ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER : - THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAIN ST THE ORDER OF THE CIT(A) ON VARIOUS GROUNDS WHICH ARE AS UNDER: 1. THE ORDER OF THE CIT(A) RAJAHMUNDRY IN ITA NO.237/C1 ELR/ CIT(A) RJY/06 - 07 DATED 29.10.2007 UPHOLDING THE ADDITIONS MADE IN RESPECT OF THE ALLOWANCES RECEIVED BY THE APPELLANT IN THE CAPA CITY AS MLA AND THE ADDITION MADE BY ESTIMATING INCOME FROM FISH TANKS @ RS.15000/ - PER ACRE NET OF EXPENSES IS CONTRARY TO LAW THE WEIGHT OF EVIDENCE AND PROBABILITIES OF THE CASE. 2. THE LD. CIT(A) FAILED TO SEE THAT THE REOPENING OF THE ASST. U/S 147 WAS BAD IN LAW IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE CIT(A) ERRED IN HOLDING THAT THE ALLOWANCES RECEIVED BY THE APPELLANT IN HIS CAPACITY AS MLA DID NOT QUALIFY FOR EXEMPTION U/S 10(14) OF THE ACT. 4. THE CIT(A) SHOULD HAVE SEEN THAT THE SAID ALLOWANC ES IN THE ALTERNATIVE QUALIFY FOR DEDUCTION U/S 57(III) OF THE ACT ALSO. 5. THE CIT(A) SHOULD HAVE SEEN THAT ALL THE ALLOWANCES RECEIVED BY THE APPELLANT QUALIFY FOR EXEMPTION FROM TAX AS THEY WERE SPENT WHOLLY NECESSARILY AND EXCLUSIVELY IN THE PERFORMANC E OF HIS DUTIES. 6. THE CIT(A) ERRED IN ESTIMATING THE INCOME FROM FISH TANKS @ RS.15000 PER ACRE WITHOUT GIVING REFERENCE TO ANY COMPARABLE CASE OR THE DETAILS OF THE ENQUIRY MADE BY THE AO IN THIS REGARD. 7. THE CIT(A) FAILED TO JUSTIFY THE ESTIMATION AT A HUG E AMOUNT WHEN UNDER SIMILAR CIRCUMSTANCES FOR THE SAME TANKS IN THE APPELLANTS OWN CASE THE INCOME WAS ESTIMATED AT RS.5000 IN A SCRUTINY ASST. FOR THE YEAR 2001 - 02. 8. FOR THESE AND OTHERS THAT MAY BE URGED AT THE TIME OF APPEAL HEARING APPELLANT PRAY THE APPEAL MAY BE ALLOWED. 2 2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND DOCUMENTS PLACED ON RECORD. WITH REGARD TO THE GROUND NOS.3&4 IT WAS CANDIDLY ADMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT T HESE GROUNDS ARE COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF M. VENKATA SUBBAIAH ITA NOS.381 TO 385/VIZAG/2008. THE LD. D.R. DID NOT DISPUTE THIS FACTUAL ASPECT. 3. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM CAREFUL PERUSAL OF THE ORDER OF THE TRIBUNAL WE FIND THAT THE IMPUGNED ISSUES ARE SQUARELY COVERED BY THE AFORESAID ORDER OF THE TRIBUNAL IN WHICH THE TRIBUNAL HAS HELD AS UNDER: 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND VARIOUS ORDERS/JUDGEMENTS REFERRED TO BY THE ASSESSEES. WE HAVE CAREFULLY EXAMINED THE VARIOUS ORDERS OF THE TRIBUNAL PASSED ON THIS SUBJECT AND WE FIND THAT DIFFERENT BENCHES OF THE TRIBUNAL HAVE HELD IN ONE VOICE THAT THE SALARY GIVEN TO THE MLAS CANNOT BE ASSE SSED UNDER THE HEAD SALARY. IT IS RATHER AN INCOME FROM OTHER SOURCES. THE ISSUE REGARDING NATURE OF RECEIPT WAS EXAMINED BY THE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. SHIVCHARAN MATHUR (SUPRA) AND HAS CATEGORICALLY HELD THAT THE FUNDAMENTAL REQUIRE MENT FOR ATTRACTING SECTION 15 IS THAT THERE SHOULD BE A RELATIONSHIP OF EMPLOYER AND EMPLOYEE WHETHER IN EXISTENCE OR IN THE PAST. OBVIOUSLY AND NECESSARILY IN THE VERY NATURE OF THINGS FOR BRINGING ABOUT SUCH RELATIONSHIP THE ASSESSEE BEING THE PERSO N CONCERNED EMPLOYED BY THE EMPLOYER AND HAS A NECESSARY COROLLARY THE EMPLOYER SHOULD HAVE RIGHT TO DISCHARGE OR TERMINATE THE EMPLOYEE. THE BASIC INGREDIENT IS MISSING IN THE CASE OF MLAS AND MPS AS THEY ARE NOT EMPLOYED BY ANYBODY RATHER THEY ARE ELE CTED BY THE PUBLIC FORMING THEIR ELECTION CONSTITUENCIES AND IN CONSEQUENT UPON SUCH ELECTION THAT THEY ACQUIRE CONSTITUENCY POSITION AND DISCHARGE CONSTITUENCY FUNCTIONS AND OBLIGATIONS. MAY BE THAT THEY RECEIVE REMUNERATIONS AFTER SWEARING IN BUT THAT CANNOT BE SAID TO BE THE SALARY WITHIN THE MEANING OF SECTION 15. THEREFORE THE REMUNERATIONS RECEIVED BY THE MLAS & MPS CANNOT BE TAXED UNDER THE HEAD INCOME FROM SALARY BUT CAN ONLY BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. THEREFORE THERE I S NO CONTROVERSY IN THIS REGARD AND FOLLOWING THE AFORESAID ORDERS WE HOLD THAT IN THE INSTANT CASE THE REVENUE HAS RIGHTLY TREATED THE REMUNERATION RECEIVED BY THE ASSESSEE MLAS UNDER THE HEAD INCOME FROM OTHER SOURCES. 3 10. WITH REGARD TO ANOTHER ISS UE WHETHER THE PROVISIONS OF SECTION 10(14) OF THE ACT CAN BE INVOKED FOR OTHER ALLOWANCES GIVEN TO THE MLAS IN THE INSTANT CASE WE FIND THAT THE VARIOUS BENCHES OF THE TRIBUNALS IN THE AFORESAID CASES HAVE CATEGORICALLY HELD IN ONE STREAM THAT ASSESSEE I S ENTITLED TO THE BENEFIT OF EXEMPTION U/S 10(14) OF THE I.T. ACT FOLLOWING THE JUDGEMENTS OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MADDI SUDARSANAM (SUPRA) IN WHICH IT HAS BEEN HELD THAT SECTION 10(14) 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. THEIR LORDSHIP FURTHER IN THAT CASE HELD THAT THE EXTENT OF EXPENSES NOT ACTUALLY INCURRED FOR THE PURPOSE WOULD NOT EARN EXEMPTION. THE LANGUAGE OF SECTION 10(14) WOULD CLEARLY SHOW THAT ANY SPECIAL ALLOWANCE OR BENEFIT SPECIFICALLY GRANTED TO MEET EXP ENSES WHOLLY NECESSARILY AND EXCLUSIVELY INCURRED IN THE PERFORMANCE OF DUTIES OF AN OFFICE OR AN EMPLOYMENT OF PROFIT WOULD BE EXEMPT. THE SECTION 10(14) DOES NOT USE THE EXPRESSION OFFICE OF PROFIT. THE EXPRESSION USED IS OFFICE OR EMPLOYMENT OF PROFIT. THE EXPRESSION OF PROFIT QUALIFIES ONLY EMPLOYMENT AND DOES NOT QUALIFY OFFICE. IT IS ENOUGH IF A PERSON IS HOLDING AN OFFICE AND FOR THE PURPOSE OF PERFORMING THE DUTIES ASSOCIATED WITH HIS OFFICE IS GRANTED AN ALLOWANCE OR BENEFIT SPECIF ICALLY TO MEET THE EXPENSES. IN THE CASE OF AN MLA HE MAY NOT BE HOLDING AN EMPLOYMENT OF PROFIT BUT HE IS CERTAINLY HOLDING AN OFFICE OF MLA AND AS SUCH WHATEVER ALLOWANCES OR BENEFIT GRANTED TO IT TO MEET THE PARTICULAR EXPENSES HE IS ENTITLED FOR EXE MPTION UPTO THE APPLICABILITY OF SECTION 10(14) OF THE I.T. ACT TO THE ALLOWANCES GRANTED TO THE ASSESSEE MLAS. THERE IS NO DIFFERENCE IN ANY OF THE AFORESAID ORDERS OF THE TRIBUNALS WITH REGARD TO APPLICABILITY OF SECTION 10(14) OF THE ACT. 11. THE ON LY DIFFERENCE OF THE OPINION IS WITH REGARD TO THE ALLOWABILITY OF THE EXPENSES. IN THE CASE OF SHRI N. INDRASENA REDDY (SUPRA) THE TRIBUNAL HAS HELD THAT THE MLA IS HOLDING AN OFFICE THOUGH NOT ON OFFICE OF PROFIT AND SECTION 10(14) OF THE ACT WOULD APP LY TO HIS CASE. HOWEVER THE EXPENSES WHICH ARE EXEMPT ARE REQUIRED TO BE PRESCRIBED BY THE COMPETENT AUTHORITIES AND THE ASSESSEE IS REQUIRED TO FILE THE EVIDENCE THAT SUCH EXPENDITURE HAS ACTUALLY BEEN INCURRED BY HIM AND FOR THAT PURPOSE THE ALLOWANCE S AND ITS EXPENSES ARE TO BE GOVERNED BY RULE 2BB (1) OF THE I.T. RULES. IN ORDER TO ESTABLISH THAT THE ALLOWANCES GRANTED TO THE ASSESSEES WERE SPENT FOR A PARTICULAR PURPOSE TO WHICH IT WAS GRANTED THE ASSESSEE IS REQUIRED TO FILE SOME EVIDENCE TO THE SATISFACTION OF THE ASSESSING OFFICER. IN THAT CASE SINCE THE ASSESSEE DID NOT FILE ANY DOCUMENTARY EVIDENCE IN SUPPORT OF THE EXPENDITURE INCURRED THE TRIBUNAL HELD THAT ASSESSEE WAS NOT ENTITLED TO THE EXEMPTION U/S 10(14) OF THE ACT OF THOSE EXPENSES WHICH ARE COVERED AS PER RULE 2BB(1) OF THE I.T. RULES. THIS ORDER WAS FOLLOWED BY ANOTHER BENCH IN THE CASE OF SHRI B. PARTHASARATHI 4 REDDY VS. ACIT (SUPRA) BUT WHILE ALLOWING THE ENTIRE CLAIM THE BENCH HAS NOT DISCUSSED THE PROVISIONS OF RULE 2BB AS DI SCUSSED BY THE TRIBUNAL IN ITS EARLIER ORDER IN THE CASE OF N. INDRASENA REDDY AND THE TRIBUNAL HAS DIRECTED THE A.O. TO ALLOW DEDUCTIONS IN RESPECT OF THE ALL ALLOWANCES GIVEN TO THE ASSESSEES. THEREAFTER OTHER ORDER OF THE SAME BENCH WAS PASSED IN THE C ASE OF SHRI P. KISTA REDDY (SUPRA) IN WHICH THE TRIBUNAL HAS FOLLOWED THE ORDER OF ITS BENCH IN THE CASE OF B. PARTHASARATHI REDDY AND ALLOWED THE ENTIRE CLAIM OF ALLOWANCES GIVEN TO THE ASSESSEES WITHOUT REALIZING AS TO WHY THE PROVISIONS OF RULE 2BB ARE NOT APPLICABLE WHILE GRANTING THE EXEMPTION U/S 10(14). THE SIMILAR WAS THE POSITION IN THE CASE OF R. RAVINDRANATH REDDY IN WHICH THE SMC BENCH HAS ALSO FOLLOWED THE CASE OF B. PARTHASARATHI REDDY. WHEREAS THE OTHER SMC BENCH OF THE TRIBUNAL IN THE CAS E OF Y. YELLA REDDY VS. ITO (SUPRA) HAS DIRECTED THE A.O. TO VERIFY THE GENUINENESS OF THE EXPENDITURE CLAIMED BY THE ASSESSEE IN CONNECTION WITH THE PERFORMANCE OF DUTIES OF HIS OFFICE AS MLA AND TO ALLOW DEDUCTIONS OF EXPENDITURE AFTER DUE VERIFICATIONS. 12. NOW THE QUESTION POSED BEFORE US IN THE LIGHT OF THESE AFORESAID ORDERS OF THE TRIBUNAL WHETHER THE COMPLIANCE OF RULE 2BB IS IMPOSED WHILE ALLOWING AN EXEMPTION U/S 10(14) OF THE I.T. ACT. IN THIS REGARD WE EXTRACT THE PROVISIONS OF RULE 2BB AS UN DER: - 2BB (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. (B) ANY ALLOWANCE WHETHER GRANTED ON TOUR OR FOR THE PERIOD OF JOURNEY IN CONNECTION WITH TRANSFER TO MEET THE ORDINARY DAILY CHARGES INCURRED BY AN EMPLOYEE ON ACCOUNT OF ABSENCE FROM HIS NORMAL PLACE OF DUTY; (C) 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. (D) ANY ALLOWANCE GRANTED TO MEET THE EXPENDITURE INCURRED ON A HELPER WHERE SUCH HELPER IS ENGAGED FOR THE PERFORMANCE OF THE DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT; (E) ANY ALLOWANCE GRANTED FOR ENCOURAGING THE ACADEMIC RESEARCH AND TRAINING PURSUITS IN EDUCATIONAL AND RESEARCH INSTITUTIONS. (F) ANY ALLOWANCES GRANTED TO MEET THE EXPENDITURE INCURRED ON THE PURCHASE OR MAINTENANCE OF UNIFORM FOR WEAR DURING THE PERFORMANCE OF THE DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT. EXPLANATION: FOR THE PURPOSE OF CLAUSE (A) ALLOWANCE GRANTED TO MEET THE COST OF TRAVEL ON TRANSFER INCLUDES ANY SUM PAID IN 5 CONNECTION WITH TRANSFER PACKI NG AND TRANSPORTATION OF PERSONAL EFFECTS ON SUCH TRANSFER. 13. IN ORDER TO ASCERTAIN WHETHER THE SPECIAL ALLOWANCES OR THE BENEFITS OTHER THAN THE PERQUISITES FORMS PART OF THE TOTAL INCOME DEFINED IN SECTION 2(24) OF THE ACT WE HAVE TO CAREFULLY EXAM INE THE PROVISIONS OF SEC.2(24) OF THE ACT. SEC.2(24)OF THE ACT DEFINES THE INCOME OF THE ASSESSEE AND IT INCLUDES DIFFERENT TYPE OF RECEIPTS. AS PER CLAUSE (IIIA) OF THIS DEFINITION INCOME INCLUDES ANY SPECIAL ALLOWANCE OR BENEFIT OTHER THAN THE PERQUISI TES INCLUDED UNDER SUB - CLAUSE (III) OF THIS SUB - SECTION SPECIFICALLY GRANTED TO THE ASSESSEE TO MEET EXPENSES WHOLLY NECESSARILY AND EXCLUSIVELY FOR THE PERFORMANCE OF THE DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT. IN ORDER TO BRING THE SPECIAL ALLOWAN CES WITHIN THE FOLD OF INCOME THE SUB CLAUSE (IIIA) WAS INSERTED BY THE DIRECT TAX LAWS AMENDMENT ACT 1989 RETROSPECTIVELY W.E.F. 1 ST APRIL 1962. THIS ALLOWANCES WHICH THE LEGISLATURE ENTITLED TO SHOWER THE BENEFICIAL TREATMENT MAY BE SEEN IN SECTION 1 0(14). THUS ALL THOSE SPECIAL ALLOWANCES OTHER THAN THOSE SPECIFICALLY EXEMPT WOULD BE TAXED AS AN INCOME OF THE ASSESSEES. WE HAVE ALSO EXAMINED THE PROVISIONS OF SECTION 10(14) AND RULE 2BB OF THE I.T. RULES AND WE FIND THAT RULE 2BB IS SUPPLEMENT TO S ECTION 10(14) OF THE ACT AND IT PUTS A CAP ON THE QUANTUM OF THE ALLOWANCE OR BENEFIT GRANTED TO THE ASSESSEES. IN SECTION 10(14) A GENERAL REFERENCE WAS MADE WITH REGARD TO THE SPECIAL ALLOWANCES BUT THE NATURE OF THE ALLOWANCES WERE NOT SPELLED OUT IN T HAT SECTION. THIS LEFT OVER WORK IS DONE BY RULE 2BB IN WHICH THE SPECIAL ALLOWANCES WERE IDENTIFIED AND THEIR QUANTUM OF EXEMPTION FROM TAX WAS ALSO FIXED TO THE EXTENT AS NOTIFIED IN THE NOTIFICATION. THESE EXEMPTIONS IS IN RESPECT OF AFORESAID SPECIAL ALLOWANCES TO THE EXTENT TO WHICH THE SAID EXPENSES ARE ACTUALLY INCURRED IN THAT PURPOSE. 14. THE SUB CLAUSE 1 OF SECTION 10(14) GRANTS EXEMPTION IN RESPECT OF ANY SPECIAL ALLOWANCE OR BENEFIT NOT BEING THE NATURE OF PERQUISITE WITHIN THE MEANING OF CLAUSE (2) OF SECTION 17 SPECIFICALLY GRANTED TO MEET THE EXPENSES WHOLLY NECESSARILY AND EXCLUSIVELY INCURRED IN THE PERFORMANCE OF DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT AS MAY BE PRESCRIBED TO THE EXTENT TO WHICH SUCH EXPENSES ARE ACTUALLY INCURR ED FOR THAT PURPOSE. THE SUB CLAUSE (II) GRANTS EXEMPTION IN RESPECT OF ANY ALLOWANCE GRANTED TO THE ASSESSEES EITHER TO MEET HIS PERSONAL EXPENSES AT THE PLACE WHERE THE DUTIES OF HIS OFFICE OR EMPLOYMENT OF PROFIT OR ORDINARILY PERFORMED BY HIM OR THE P LACE WHERE HE ORDINARILY RESIDES OR TO COMPENSATE THE ASSESSEES FOR THE INCREASED COST OF LIVING. THE ALLOWANCES SHALL BE ONE WHICH IS PRESCRIBED AND THE EXEMPTION SHALL BE TO THE EXTENT AS MAY BE PRESCRIBED. RULE 2BB HAS PRESCRIBED THE ALLOWANCE AS WELL THE AMOUNT EXEMPT U/S 10(14)(II). FROM 1 ST APRIL 1989 TO 30 TH JUNE 1995 THE SAID ALLOWANCES HAD TO BE ONE SPECIFIED BY THE CENTRAL GOVERNMENT AND QUANTUM OF EXEMPTION WAS TO THE EXTENT SPECIFIED IN THE CONCERNED NOTIFICATION. SECTION 14 DEALS WITH 2 TYPES OF ALLOWANCES (1) SUCH ALLOWANCES OR 6 BENEFIT NOT BEING THE NATURE OF THE 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 AN EMPLOYMENT OF PROFIT AS MAY BE PRESCRIBED TO THE EXTENT TO WHICH SUCH EXPENSES ARE ACTUALLY INCURRED FOR THAT PURPOSE. (2) ANY SUCH ALLOWANCES GRANTED TO THE ASSESSEES EITHER TO MEET HIS PERSONAL EXPENSES AT THE PLACE WHERE THE DUTIES OF HI S 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. THE SPECIAL ALLOWANCES OR THE BENEFITS PRESCRIBED IN CLAUSE 1 ARE TO BE GOVERNED BY SUB RUL E 1 OF RULE 2BB IN WHICH THE SPECIAL ALLOWANCES WERE IDENTIFIED AND ARE ALSO ALLOWED TO BE EXEMPTED TO THE EXTENT TO MEET THE EXPENDITURES INCURRED FOR THAT PURPOSE. WHEREAS SUB CLAUSE (2) OF CLAUSE 14 OF SECTION 10 IS GOVERNED BY SUB RULE (2) OF RULE 2BB IN WHICH THE ALLOWANCES WERE ALSO IDENTIFIED BUT THEY WERE ALLOWED TO BE EXEMPTED UPTO A PARTICULAR LIMIT. AS PER SUB RULE (2) THE EXEMPTION OF ALLOWANCE IS LIMITED IRRESPECTIVE OF THE FACT THAT THE ENTIRE ALLOWANCE WAS SPENT OR NOT FOR THE PURPOSE TO W HICH IT WAS GRANTED. 15. IN THE CASE OF COAL MINES OFFICERS ASSOCIATION OF INDIA VS. UOI AND OTHERS 181 ITR 346 MP IT WAS HELD THAT ANY PARTICULAR ALLOWANCE UNLESS IT IS NOTIFIED BY THE CENTRAL GOVERNMENT FOR ITS EXEMPTION U/S 10(14) READ WITH RULE 2BB IT CANNOT BE ALLOWED TO BE EXEMPTED. MEANING THEREBY THAT THE ALLOWANCE SHALL BE ONE WHICH IS PRESCRIBED AND THE EXEMPTION SHALL BE TO THE EXTENT AS MAY BE PRESCRIBED. RULE 2BB HAS PRESCRIBED THE ALLOWANCES AS WELL AS THE AMOUNT EXEMPT UNDER SECTION 10( 14)(II) [FROM 1 ST APRIL 1989 TO 30 TH JUNE 1995 THE SAID ALLOWANCE HAD TO BE ONE SPECIFIED BY THE CENTRAL GOVT. AND THE QUANTUM OF EXEMPTION WAS TO THE EXTENT SPECIFIED IN THE CONCERNED NOTIFICATION.] IT HAS ALSO BEEN CLARIFIED THROUGH VARIOUS JUDICIAL P RONOUNCEMENTS THAT IN ORDER TO AVAIL THE EXEMPTION UNDER THIS CLAUSE THE ASSESSEE HAS TO PROVE THAT THE EXPENDITURE IN RESPECT OF WHICH SPECIAL ALLOWANCE OR BENEFIT WAS GRANTED HAS BEEN INCURRED WHOLLY NECESSARILY AND EXCLUSIVELY IN THE PERFORMANCE OF H IS DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT. THE REQUIREMENT OF `WHOLLY NECESSARILY AND EXCLUSIVELY IS CUMULATIVE AND NOT ALTERNATIVE. ASSESSEE MUST ESTABLISH THAT HE IS REQUIRED TO SPEND SUCH SPECIAL ALLOWANCE OR BENEFIT NOT ONLY WHOLLY BUT ALSO NE CESSARILY AND EXCLUSIVELY IN THE PERFORMANCE OF HIS DUTIES. IN THE CASE OF J.G. MANKED VS. CIT 55ITR 448 (GUJ.) ASSESSEE WHO WAS PRACTISING CHARTERED ACCOUNTANT WAS APPOINTED AS A PART TIME PROFESSOR IN A COLLEGE SITUATED AT ANOTHER PLACE. HE WAS PAID A CERTAIN MONTHLY SALARY INCLUDING TRAVELLING ALLOWANCES AND ALL OTHER ALLOWANCES. THE GUJARAT HIGH COURT HELD THAT ASSESSEE WAS NOT ENTITLED TO CLAIM EXEMPTION U/S 4(3)(VI) OF 1922 ACT (CORRESPONDING TO SECTION 10(14) OF THE I.T. ACT 1961) AS IT FELT T HAT THE SAID TRAVELLING ALLOWANCE WAS NOT A SPECIAL ALLOWANCE OR BENEFIT GRANTED TO THE ASSESSEES MUCH LESS SPECIFICALLY GRANTED TO MEET THE EXPENSES OF TRAVELLING. 7 16. WE THEREFORE OF THE VIEW THAT WHILE DEALING WITH THE ISSUE OF SPECIAL ALLOWANCES GIVE N TO THE ASSESSEES ONE HAS TO EXAMINE THE PROVISION OF SECTION 2(24) & 10(14) OF THE I.T. ACT AND RULE 2BB OF THE I.T. RULES. AS PER SECTION 2(24) ALL ALLOWANCES FORMS PART OF THE INCOME OF THE ASSESSEES. SECTION 10(14) DEALS WITH THE EXEMPTION OF CERTAI N SPECIAL ALLOWANCES AND RULE 2BB IDENTIFY THE ALLOWANCES AND THEIR LIMIT OF EXEMPTION FROM TAX. 17. SO FAR AS PROOF OF ACTUAL EXPENDITURE OF THE ALLOWANCES ARE CONCERNED WE HAVE EXAMINED THE VARIOUS JUDGEMENTS INCLUDING THE JUDGEMENT OF THE APEX COURT I N THE CASE OF CIT VS. TEJAJI FARASHRAN KARAWALA LTD. 67 ITR 1995 (SC) IN WHICH IT HAS BEEN OBSERVED THAT TO QUALIFY THE EXEMPTION THE ALLOWANCE MUST BE GRANTED TO MEET EXPENSES INCURRED OR TO BE INCURRED WHOLLY AND NECESSARILY IN THE PERFORMANCE OF DUTIES OF AN OFFICE OR EMPLOYMENT OF PROFIT. THE PURPOSE FOR WHICH THE ALLOWANCE IS GRANTED IS ALONE NOT DETERMINATIVE OF CLAIM OF EXEMPTION. THE INTENTION OF THE FRAMERS OF THE ACT WAS TO GRANT EXEMPTION IN RESPECT OF AMOUNTS RECEIVED BY THE ASSESSEES NOT FOR HIS OWN BENEFIT BUT FOR THE SPECIFIED PURPOSE OF MEETING THE EXPENSES WHOLLY AND NECESSARILY TO INCUR OR TO BE INCURRED FOR THE PERFORMANCE OF THE DUTIES. THEREFORE THE ALLOWANCES GRANTED TO MEET THE EXPENSES WHOLLY AND NECESSARILY INCURRED OR TO BE INC URRED FOR 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 ALLOWANCES FO R THE MEETING EXPENSES BUT FOR PERFORMING THEIR DUTIES OF THE OFFICE FOR 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 PERF ORMANCE OF DUTIES OF 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 THE ADDITIONAL REMUNERATION. MEANING THEREBY THE ONUS IS UPON THE ASSESSEE TO PLACE RELE VANT EVIDENCE IN ORDER TO PROVE THAT THE ALLOWANCES GIVEN TO HIM ARE SPENT FOR THE PURPOSE TO WHICH IT WAS GRANTED. 18. TURNING TO THE FACTS OF THE CASE WE FIND THAT THE ASSESSEE WAS GRANTED THE CONSTITUENCY ALLOWANCE CONVEYANCE ALLOWANCE TELEPHONE ALL OWANCE CLERICAL ALLOWANCE MEDICAL ALLOWANCE AND CONTINGENCY ALLOWANCE BESIDES SALARY. DURING THE RELEVANT ASSESSMENT YEAR AS PER SECTION 10(17) THE MLAS ARE ENTITLED FOR EXEMPTION OF THE DAILY ALLOWANCES AND ALL OTHER ALLOWANCES NOT EXCEEDING RS.2000/ - P.M. THOUGH W.E.F 1.4.2007 MLAS ARE ALSO ENTITLED FOR EXEMPTION OF ANY CONSTITUENCY ALLOWANCE RECEIVED BY THEM BY VIRTUE OF AN AMENDMENT IN SECTION 10(17) BUT IT WAS WITH THE PROSPECTIVE EFFECT AND IN THE IMPUGNED ASSESSMENT YEARS THE ASSESSEE CANNOT TA KE THE BENEFIT OF IT AND ALL OTHER ALLOWANCES ARE LIMITED TO RS.2000/ - P.M. ONLY. THOUGH IN SECTION 10(17) THE 8 LEGISLATURE HAS RESTRICTED THE EXEMPTION OF ALL OTHER ALLOWANCES UPTO RS.2000/ - P.M. YET THROUGH VARIOUS JUDICIAL PRONOUNCEMENTS IT HAS BEEN HEL D THAT THE MLAS ARE ENTITLED TO TAKE THE BENEFIT OF SECTION 10(14) ALSO. WE THEREFORE OF THE VIEW THAT ACCORDING TO THE RULE 2BB READ WITH SECTION 10(14) OF THE ACT ONLY THE CONVEYANCE ALLOWANCE OR THE CLERICAL ALLOWANCE ARE REQUIRED TO BE EXEMPTED SUBJ ECT TO PROOF THAT IT WAS INCURRED IN PERFORMANCE OF DUTIES OF AN OFFICE. SO FAR AS THE TELEPHONE ALLOWANCE AND CONSTITUENCY ALLOWANCE ARE CONCERNED WE DO NOT FIND ANY SPECIFIC CLAUSE IN RULE 2BB(1) OF THE I.T. RULES. THUS THESE ALLOWANCES CANNOT BE ALL OWED U/S 10(14) OF THE I.T. ACT. WITH REGARD TO THE MEDICAL ALLOWANCES THE COMPLETE FACTS ARE NOT AVAILABLE ON RECORD WHETHER IT WAS A REIMBURSEMENT OR IT WAS AN ALLOWANCE LIKE OTHER ALLOWANCES GRANTED TO THE MLA. IF IT IS A REIMBURSEMENT OF THE MEDICAL EXPENDITURE IT CAN BE ALLOWED IN THE LIGHT OF THE JUDGEMENT OF THE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. SHIVCHARAN MATHUR (SUPRA). OTHERWISE NO DEDUCTION CAN BE ALLOWED AS IT DOES NOT FIND PLACE IN RULE 2BB(1) OF THE IT RULES. 19. WE DO NOT AGREE WITH THE PROPOSITION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ALL TYPE OF ALLOWANCES GRANTED TO THE ASSESSEE ARE ELIGIBLE FOR EXEMPTION U/S 10(14) OF ACT. IF THAT BE THE CASE THERE WAS NO NEED OF PROVIDING A SEPARATE SUB SECTION 17 IN SECTION 10 FOR ALL OWING CERTAIN OTHER ALLOWANCES; LIKE DAILY ALLOWANCE TO MLAS FOR ITS EXEMPTION FROM THE TOTAL INCOME OF THE ASSESSEE. MEANING THEREBY BOTH THE PROVISIONS RELATING TO THE EXEMPTION OF THE ALLOWANCES I.E. 10(14) & 10(17) ARE TO BE READ TOGETHER AND IN CASE OF MLAS & MPS THEY ARE ENTITLED FOR THE EXEMPTION OF ALLOWANCES UNDER BOTH THE CLAUSES SIMULTANEOUSLY. IN THE CASE OF SECTION 10(17) THE MLAS & MPS ARE GRANTED A LUMPSUM EXEMPTION OF PARTICULAR ALLOWANCE WITHOUT PRODUCING ANY EVIDENCE WITH REGARD TO ITS EXPENDITURE WHEREAS U/S 10(14) THE ALLOWANCES ARE ONLY ALLOWED TO BE EXEMPTED SUBJECT TO PROOF THAT IT WAS INCURRED TO MEET A PARTICULAR PURPOSE. 20. WE HAVE ALSO GONE THROUGH THE HISTORY OF PROVISIONS OF SECTION 10(17) OF THE ACT AND WE FIND THAT AT THE TIME OF ENACTMENT OF THE INCOME TAX ACT 1961 ONLY DAILY ALLOWANCES RECEIVED BY THE MPS OR THE MLAS OR ANY MEMBER OF THE COMMITTEE THERE OF ARE EXEMPTED FROM THE TOTAL INCOME. THE SCOPE OF THE EXEMPTION WAS WIDENED TIME TO TIME AND BY TAXATION LAWS AMENDMENT AND MISCELLANEOUS PROVISIONS ACT 1986 W.E.F. 1 ST APRIL 1986 THE AMENDMENT WAS MADE AND BESIDES THE DAILY ALLOWANCES ALL OTHER ALLOWANCES UPTO RS.1250/ - P.M. IN AGGREGATE IN THE CASE OF MP AND RS.600/ - P.M. IN THE CASE OF MLA WERE EXEMPTED FRO M TAX. FURTHER AMENDMENT WAS MADE IN THIS CLAUSE BY THE FINANCE ACT 1997 AND THE AMOUNT OF RS.600/ - P.M. IN CASE OF MLAS WAS INCREASED TO RS.2000/ - P.M. THEREAFTER FURTHER AMENDMENT WAS ALSO MADE BY THE FINANCE ACT 2006 AND LIKE THE MPS THE CONSTITUE NCY ALLOWANCE RECEIVED BY THE MLAS WAS ALSO MADE EXEMPTIVE FROM THE TOTAL INCOME OF THE ASSESSEES. AMENDMENT BY FINANCE ACT 2006 WAS 9 BROUGHT IN ORDER TO BRING THE UNIFORMITY OF CONSTITUENCY ALLOWANCES ALLOWED BY DIFFERENT STATES THROUGH THEIR INDEPENDENT NOTIFICATIONS WITH RESPECT TO OTHER ALLOWANCES BY AMENDING CLAUSE 3 OF SECTION 10(17) AND THE LEGISLATURE HAS ALLOWED THE EXEMPTION OF THE ENTIRE CONSTITUENCY ALLOWANCE GRANTED TO MLAS. 21. FROM A CAREFUL STUDY OF THE AMENDMENTS BROUGHT TIME TO TIME IN SECTION 10(17) OF THE ACT WE ARE OF THE VIEW THAT LEGISLATURE HAS BEEN QUITE CONSCIOUS ABOUT THE ALLOWANCES GRANTED TO THE MLAS OR THE MPS AND TIME TO TIME THEY ARE BRINGING ENACTMENTS TO GRANT EXEMPTION OF PARTICULAR TYPE OF ALLOWANCES FROM THE TOTAL INC OME OF THE MLAS OR MPS. HAD IT BEEN A CASE THAT FOR ALL ALLOWANCES SECTION 10(14) CAN BE INVOKED SUBJECT TO PROOF OF THE EXPENDITURE TO BE INCURRED IN RESPECT OF THAT PURPOSE TO WHICH THE ALLOWANCES ARE GIVEN THERE WOULD BE NO NEED TO MAKE A NECESSARY AM ENDMENT TIME TO TIME IN SECTION 10(17). WE THEREFORE OF THE VIEW THAT WHILE DEALING WITH THE ISSUE OF SPECIAL ALLOWANCES GRANTED TO THE MLAS OR MPS ONE HAS TO KEEP IN MIND BOTH THE PROVISIONS OF SECTION 10(17) AND 10(14) OF THE ACT AND ONLY THOSE ALLOWAN CES ARE TO BE EXEMPTED FROM THE TOTAL INCOME OF THE ASSESSEES WHICH ARE SPECIFIED IN THESE SECTIONS OR RULE 2BB OF THE I.T. RULES. UNDER SECTION 10(17) THE LEGISLATURE HAS PRESCRIBED A PARTICULAR LIMIT UPTO WHICH THE ALLOWANCES ARE TO BE EXEMPTED FROM TH E TOTAL INCOME OF THE ASSESSEES BUT SECTION 10(14) IS TO BE READ WITH RULE 2BB OF THE I.T. RULES AND ONLY THOSE ALLOWANCES ARE TO BE ALLOWED TO BE EXEMPTED FROM THE TOTAL INCOME OF THE ASSESSEES WHICH ARE SPECIFICALLY MENTIONED IN RULE 2BB SUBJECT TO PROOF OF ITS BEING SPENT FOR THE PURPOSE TO WHICH IT IS RECEIVED OR GRANTED. WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF A.O. WITH A DIRECTION TO RE - EXAMINE THE ISSUE AND GRANT AN EXEMPTION OF THE CONVEYANCE ALLOWANCE AND THE CLERICAL ALLOWANCE AFTER MAKING NECESSARY VERIFICATION OF THE EXPENDITURE INCURRED FOR THE SAID PURPOSE. REST OF THE ALLOWANCES I.E. TELEPHONE ALLOWANCE CONSTITUENCY ALLOWANCE AND CONTINGENCY ALLOWANCE DO NOT FALL EITHER IN THE PURVIEW OF SECTION 10(14) OR 10(17) AND THEY CANNOT BE ALLOWED TO BE EXEMPTED FROM THE TOTAL INCOME OF THE ASSESSEES. SO FAR AS MEDICAL ALLOWANCES ARE CONCERNED THE A.O. SHOULD VERIFY THE NATURE OF THESE ALLOWANCES. IF IT IS A REIMBURSEMENT OF THE MEDICAL EXPENSES INCURR ED BY THE MLA IT MAY BE ALLOWED IN THE LIGHT OF THE JUDGEMENT OF THE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. SHIVCHARAN MATHUR. OTHERWISE NO EXEMPTION CAN BE ALLOWED AS IT DOES NOT FALL EITHER IN THE PURVIEW OF SECTION 10(14) AND 10(17) OF THE I.T. ACT. ACCORDINGLY THESE APPEALS ARE DISPOSED OFF. 22. IN THE RESULT APPEALS OF THE ASSESSEES ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10 4. WE THEREFORE FOLLOWING THE SAME DIRECT THE A.O. TO PASS AN ORDER IN ACCORDANCE WITH THE AFORESAID ORDER OF THE TRIBUNAL. 5. THE REMAINING ISSUES RELATE TO THE ESTIMATION OF INCOME OF FISH TANKS. IN THIS REGARD THE FACTS BORNE OUT FROM THE RECORD ARE THAT ASSESSEE HAS OFFERED LEASED RENTAL IN COME IN RESPECT OF LEASED OUT FISH TANKS AT RS.5000/ - PER ACRE. WHE REAS THE ASSESSING OFFICER HAS ESTIMATED IT TO BE AT RS.15000/ - PER ACRE. THE MATTER WENT TO THE CIT(A) AND THE CIT(A) CONFIRMED THE ADDITIONS MADE BY THE A.O. IN THIS REGARD AFTER HAVING OBSERVED THAT ALTHOUGH THE ASSESSING OFFICER HAS NOT GIVEN ANY COMP ARABLE CASE OF LEASED RENTAL INCOME IN RESPECT OF LEASED OUT FISH TANKS BY OTHER LESSORS YET HE HAS UNDERTAKEN AN INQUIRY WITH LOCAL GOVERNMENT AUTHORITIES AND THE KOLLERU LAKE AREA AND ASCERTAINED THE MINIMUM LEASED RENTAL RATE PREVALENT DURING THE RELEV ANT ASSESSMENT YEAR. CIT(A) HAS ALSO OBSERVED THAT PISCICULTURE IN THE KOLLER U LAKE AREA HA D TURNED INTO A BOOMING BUSINESS ACTIVITY SINCE LAST MANY YEARS AND FISH OF THE SOFT WATER VARIETY THAT WERE REARED IN TH AT AREA WERE EXPORTED TO OTHER STATES SUCH AS ORISSA WEST BENGAL JHARKHAND BIHAR ASSAM ETC. ON DAILY BASIS. 6. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT IN EARLIER YEARS THE LEASED RENTAL INCOME WAS ESTIMATED AT RS.5000/ - AND THE A.O. HAS ESTIMATED THE INCOME IN THIS YEAR WITHOUT MAKING ANY NECESSARY INQUIRY. 7 . THE LD. D.R. ON THE OTHER HAND HAS SUBMITTED THAT THE ASSESSING OFFICER HAS ESTIMATED THE LEASED RENTAL INCOME AT A LOWER SIDE. AS PER THE LEASED AGREEMENT FOUND FROM THE OTHER CASES THE LEASED RENTAL INCOME WAS FIXED AT RS.16000/ - PER ACRE. COPY OF THE LEASED RENT IS ALSO PLACED ON RECORD BY WAY OF ADDITIONAL EVIDENCE. 8 . HAVING GIVEN A THOUGHTFUL CONSIDERATION TO RIVAL SUBMISSIONS AND FROM PERUSAL OF RECORD WE FIND THAT DURING THE IMP UGNED ASSESSMENT YEAR ASSESSING OFFICER HAS NOT BROUGHT OUT ANY COMPARABLE CASE TO ESTIMATE THE RENTAL INCOME AT RS.15000/ - PER ACRE. THE ASSESSMENT YEAR 2001 - 02 IN WHICH 11 LEASED RENT AT RS.5000/ - PER ACRE WAS ACCEPTED. THE A.O. HAS NOT MADE ANY ENQUIRY OR INVESTIGATION IN THIS REGARD. THE A.O. HAS MADE A GENERAL ENQUIRY WHILE ESTIMATING THE LEASED RENT AL INCOME AT RS.15000/ - PER ACRE BUT HE HAS NOT BROUGHT OUT ANY CASE IN RESPECT OF HIS ESTIMATION. 9 . WE HAVE CAREFULLY EXAMINED THE ORDER OF THE A.O. AN D ARE OF THE VIEW THAT HE HAS ESTIMATED THE LEASED RENTAL INCOME AT A HIGHER SIDE AND IN ORDER TO MEET THE ENDS OF JUSTICE WE ESTIMATE THE INCOME AT RS.13000/ - PER ACRE. WE ACCORDINGLY MODIFY THE ORDER OF THE CIT(A) AND DIRECT THE A.O. TO RECALCULATE T HE LEASED RENTAL INCOME AT RS.13000/ - PER ACRE AND TO RESTRICT THE NECESSARY ADDITION. 10 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 5.10 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) A CCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 5 TH OCTOBER 20 10 COPY TO 1 SRI M. VENKATESWARA RAO MINISTER FOR MINOR IRRIGATION DR.NO.23A - 3 - 19 R.R.PET ELURU 2 ACIT CIRCLE - 1 ELURU 3 THE CI T RAJAHMUNDRY 4 THE CIT (A) RAJAHMUNDRY 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM