N.N. Mathur, J. - (1.) 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 CIT v. Shiv Raj Bhatia [1997] 227 ITR 7, a brief resume of facts would be necessary for focussing the issue involved in these appeals. 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?" The Division Bench relying on judgments of the various High Courts, i.e., CIT 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." 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 employer-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 CIt 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."
(3.) THE instant special appeal being D. B. Civil Special Appeal No. 406 of 2001, is against the aforesaid judgment of the learned single judge. After the judgment of the learned single judge, the Income-tax Officer (IDS), 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." 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." ;