• May
  • 20
  • 2012

Living allowance on deputation or for temporarily deployment Outside India not taxable

Living allowance paid in addition to the regular salaries and benefits in India to the employees of Indian Company who are temporarily deployed in US will be exempt from tax.

Honourable ITAT held that the living allowance was covered under 2(24)(iiia) of the Act on the following grounds:

The deputation agreement between the taxpayers and the Indian Company clearly states that the additional compensation in the US has been paid in lump sum without any reference to meet personal expenses at the place where the duties of office or employment were to be performed. The additional compensation received by the taxpayers was in the form of a special allowance or benefit. The taxpayers had clearly pointed out that living allowance was granted so as to enable them to meet the daily expenses in US like expenses on accommodation, expenses on food, expenses on washing of clothes, expenses on conveyance and other routine expenses, which were ordinarily incurred by any individual. The Honourable ITAT held that the living allowance was in the nature of special allowance or benefit and not covered by section 17(2) of the Act. Accordingly, taxpayers were entitled for exemption under section 10(14)(i) of the Act. On the basis of the following observations, the Honourable ITAT held that place of posting of the taxpayers had not changed, which was basic ingredient for deciding whether a person had been transferred or was on tour:

When a person is sent on tour from one place of his duty to another place then his place of employment is not shifted. While on tour, he has to discharge his functions at a specified place and then again has to come back to his original place of posting. In case, the place of employment is shifted, then it comes within the ambit of the term ‘transfer’ and not ‘tour’.  The basic criteria for deciding, whether a person is on tour or transfer is to examine his place of employment. If place of employment shifts, it is transfer else it is only a tour. Further, when a person is on tour, he is provided allowance only in order to meet his daily expenses on tour. However, his salary structure remains the same.  The allowance provided on tour is not an addition to salary but only for the purposes of additional expenses involved in the performance of duties at the touring place.

The duration of posting depends upon the specified nature of work to be performed at the place where the person is being sent. Even though it is quite relevant consideration but it cannot be a conclusive factor in deciding whether person has been sent on tour or transfer. It is clearly evident from the contents of deputation letter and agreement that the place of posting did not change to US and the employees were sent there with reference to the specific projects though the projects could change at the instance of the Indian Company. The taxpayers were required to report back to the Indian Company and serve the Indian Company after acquiring skill from US projects.  The salary structure of the taxpayers remained the same and the additional amounts were paid only for the purposes of additional routine expenses in US. The CIT (A) had wrongly concluded that headquarters had been shifted from Kolkata to US and had pointed out that as per the deputation agreement, the taxpayers were entitled to take their families but that also could not be a basis for deciding whether the taxpayers were to be treated on tour in terms of rule 2BB(1 )(b) of the Rules or not because that rule does not prohibit taking the family on tour. The Honourable ITAT also held that non-residents coming to India and Indian going abroad, are to be considered on same footing as far as the issue is in respect of exemption under section 10(14)(i) of the Act read with Rule 2BB(1) of the Rules.

With regards to actual spending of the expenditure, the Honourable ITAT relied on Madanlal Mohanlal Narang, wherein it has been held that “it is not open to the revenue to call for the details of expenses actually incurred unless the specific allowance are disproportionately high compared to the salary received by him or unreasonable with reference to the nature of the duties performed by the taxpayer”. Accordingly, negating the decision of CIT (A), the Honourable ITAT held that the taxpayers were to be treated on tour and therefore the living allowance received by them would be considered as exempt under Section 10(14)(i) of the Act read with Rule 2BB (1)(b) of the Rules.

INCOME TAX APPELLATE TRIBUNAL, KOLKATA

I.T.A No. 915/Kol/2010 – Assessment Year : 2006-07

Income Tax Officer -vs.- Shri Saptarshi Ghosh

Date of Pronouncement : 30.09.2011

ORDER

As Per BENCH :-

The assessees as well as the Department have filed these appeals for assessment year 2006-07 against order of ld. Commissioner of Income Tax (Appeals)-XIV, Kolkata dated 26.02.2010.

2. All the assessees in the present appeals were salaried employees of an Indian Company styled M/s. TCS Limited and were deployed on deputation in USA for rendering services as employees of TCS Limited. The services were rendered outside India and for rendering such services, employer-company paid additional amount to its employees in USA under the term “Living Allowance”. Assessing Officer was of the opinion that the living allowance was nothing but an increased salary under a new term. The assessees had claimed that the Living Allowance received by them was exempt under section 10(14) of the Income Tax Act. Assessing Officer noted that the assessees had also claimed DTAA relief on the tax paid in USA on the entire amount of Living Allowance granted by TCS Ltd., to the assessees for rendering services in USA. The assessees in their explanations pointed out that the Living Allowance was exempt under the provisions of section 10(14(i) of the Act. The assessees submissions have been reproduced at page 2 of the assessment order, which are as under :-

Section 10 in computing the total income of a previous year of any person, any income falling with any of the following clauses shall not included-

14(i) any such special allowance or benefit, not being in a nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred for the purpose 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,

Rule 2BB(1) of the Income Tax Rules, inter alia, prescribes the following allowance for the purpose of section 10(14)(i) of the Act “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.

It is placed on records that living allowance which was granted to the assessee while he was on tour and on duty in USA was made enable the assessee to meet the ordinary daily charges incurred by him on account of absence from his normal place of duty. His normal place of duty is Kolkata, India. He was sent to USA by his employer to work on certain projects. Living allowance was granted to him so as to enable him to  meet his daily expenses in USA like expenses on accommodation, expenses on food, expenses on washing of clothes, expenses on conveyances and other routine expenses which are ordinarily incurred by any individual, while on duty at a place outside his normal place of duty. Such allowance is in the nature of sustenance allowance paid to the employees, who are sent abroad or sent out of their normal place of duty for official work to enable them to support themselves during their stay abroad or outside their normal place of duty. Such allowances is paid to the employees wholly, exclusively and necessarily for enabling the employee to meet the expenses while they are posted in abroad”.

2.1. The Assessing Officer did not accept the assessees’ claim under section 10(14) read with Rule 2BB(1) and, inter alia, observed as under :-

“The Living Allowance” granted to the assessee in this case does not fulfill any of the conditions laid down in Rule 2BB(1). The assessee has claimed that the living allowances paid by TCS Ltd. to its employee in USA are in the nature of daily allowance to enable them to meet expenses which are required while they are on duty in USA. He has referred to Instruction No. 1407 dated 21.07.1981 of the CBDT in support of his contention. But the said instruction refers to only the daily allowances granted to the employees for official tours in India and abroad and states that such allowance are exempted only to the extent the expenses are actually incurred in the performance of duties.

The living allowance granted by TCS Ltd,. to its employees deputed to USA is not in the nature of 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 form his normal place of duty as specified in Rule 2BB(1)(b). The allowances referred to in Rule 2BB(1)(b) are, in fact, in the nature of daily allowance, transfer traveling allowance and daily allowance on tour etc. and definitely not living allowance as claimed by the assessee. The assessee has further claimed that living allowance is given to the employees to meet expenditure for food, lodging, and other essential routine expenditures for daily life in USA and as such the same is in the nature of reimbursement. The said contention of the assessee is also not tenable as evidence in support of reimbursement of actual expenses could not be produced by the assessee.

Assessing Officer, therefore, treated the living allowance granted to the assessees as perquisite within the meaning of provisions of section 17(2) of the Income Tax Act and denied the exemption claimed by assessees under section 10(14) of the Act. He further pointed out that assesses were entitled to relief under section 90 of the Income Tax Act on the income tax paid by them on the living allowance in USA with whom India has a Double Taxation Avoidance  Agreement (DTAA). He, therefore, allowed the tax relief in respect of the tax paid by the assessees in USA on the Living Allowance.

3. Before the ld. CIT(Appeals), the assesee had, inter alia, assailed the finding of Assessing Officer in respect of his finding regarding taxability of living allowance and also in regard to charging of interest under section 234B.

4. As regards taxability of living allowance, the assessees had, inter alia, made the following submissions :-

(i) Living Allowance was paid to enable the appellant-assessees to meet the ordinary daily charges incurred by them on account of absence from their normal place of duty, i.e. Kolkata, India.

(ii) The appellants were sent to USA by their employer to work at certain project.

(iii) The allowance was paid to the employees wholly, exclusively and necessarily for enabling the employees to meet the expenses while they were on tour.

(iv) Statement of detailed expenses incurred by the executives of TCS Ltd. for the period of their stay in USA. The appellants had utilized the amount of Living allowance for meeting foods expenses, rent, electricity, telephone, laundry, etc.

(v) The case of the appellants was not covered by sub-clause (ii) of clause (14) of section 10 or Rule 2BB(2). But was covered by sub-clause (i) of clause (14) to section 10 read with Rule 2BB(1).

(vi) The appellants relied on the CBDT Circular No. 6 of 2004 dated 06.12.2004 and similar circulars in the other financial years that deal with the subject of deduction of income tax at source from salaries under section 192 of the Act.

(vii) The appellants relied on the Instruction No. 1407 of CBDT dated 21.07.2001 in which the CBDT clarified that allowances given by employer within the Central  and State Government whether on official tours in India or abroad, the relevant provision is in section 10(14).

(viii) As regards the mandate of section 10(14)(i) that allowances are exempt to the extent of expenses incurred by the appellants, it was submitted that in course of assessment, Assessing Officer never asked the appellants to give details of expenses incurred for the purpose for which living allowance was granted.

(ix) The appellants relied on the CBDT’s Instruction No. 1801/CBDT dated 07.11.2008 in connection with the foreign nationals coming to India for training in various courses of study under the Technical Cooperation Schemes of Colombo Plan and its Special Commonwealth African Assistance Plan. In this Circular, the Board has clarified that the living allowance paid to the foreign nationals coming for training in the course of study under the aforesaid programme at the enhanced rate, may be treated as exempted under section 10(14) /10(16) upto the assessment year 1988-89.

The assessees relied on the following decisions :-

(a) Hindusthan Power Plus Limited [271 ITR 433 (AAR)];

(b) CIT –vs.- Goslino Mario [241 ITR 312 (SC)];

(c) CIT –vs.- Morgenstern Werner [259 ITR 486 (SC)];

(d) CIT –vs.- Shigerubaba [242 ITR 592 (Mad);

(e) Madhavrao J. Schindia –vs.- CIT [243 ITR 683 (Bom.)],

(f) CIT –vs.- Hans Beer [2007-TIOL-308-SCH-DEL-IT]

(g) Madanlal Mohanlal Narang [2007-TIOL-97-ITAT-Mum.).

Although the decisions cited above relate to eligibility of exemption under section 10(14(i) to non-residents while performing their duties in India, the principle laid down in the above referred cases and the ruling of the AAR are equally applicable to an assessee, who is resident in India and works abroad in connection with his assignment given by his employer.

(x) Appellants company relied on the decision of the Hon’ble Bombay High Court in the case of CIT –vs.- Information Architect [2010-TIOL-141-HC-MUM-IT dated 09.02.20 10, wherein the case was of a resident Indian sent to a foreign country on deputation. It was held that any  surplus arising out of living allowance for meeting the expenditure on lodging and boarding was not liable to income tax.

(xi) Living allowance was exempt in the hands of the employees under section 10(14) but the same was liable to fringe benefit tax in the hands of the employer. In answering in Question No. 79, the Board has clarified that such allowances will be exempt in the hands of the employees and that the employer will be liable to FBT on the same.

As regards TDS of expenses actually incurred, the appellants referred to CBDT Circular No. 33(LXXVI-5) dated 1.8.1955, wherein it has been clarified that where specific allowances are reasonable with reference to the nature of the duties performed by the assessees and are not disproportionately high compared to the salary received by him, no attempt will ordinarily be made to call for details of expenses actually incurred by him with a view to disentitling him to some extent from the exemption. In this regard, appellants relied on the decision of ITAT, Mumbai Bench in the case of Madanlal Mohanlal Narang –vs.- ACIT [2007- TIOL-97-ITAT-MUM)].

(xii). As regards the controversy whether the appellants were on tour or transfer from Kolkata to USA, assessees pointed out that they were deputed by the employer TCS Ltd. in USA depending upon the experience, knowledge and skill. They remained on the pay roll of TCS Ltd., Kolkata. Salary and other allowances were all paid by TCS Ltd., Kolkata. Appellants were not transferred from TCS, Kolkata to TCS’s Branch Offices in USA. The appellants contended that if they were transferred from TCS, Kolkata to USA, the Form No. 16 i.e. certificate under section 203 for TDS from salary, would have indicated “Base Branch” as TCS-USA. However, in Form No. 16, TCS, Kolkata was, therefore, shown as ‘base branch’ of each appellant implying that there was no transfer to USA..

(xiii) The period for which the appellants were on deputation does not alter the position. Even if some of the appellants were on deputation for more than 12 months, the fact remains that they were on deputation on foreign projects and were not transferred to the USA Branches of TCS Limited.

(xiv) The term ‘deputation’ in this context, does not mean transfer of employee from one place of duty to another place of duty. Rather the persons should be considered to be on tour in connection with official assignment.

(xv) In support of contention that period of stay does not decide whether it is tour or transfer, the appellants relied on the decision of the Hon’ble Kolkata High Court in the case of CIT – vs.- Kulasinghee A. Harith [107 CTR 328], wherein deputation for a period of 231 days was treated as tour. Similar view has been taken by the Hon’ble Kolkata High Court in the case of CIT –vs.- D.S. Blackwood [178 ITR 470].

5. Thus, it was submitted that quantum of living allowance and manner of paying such allowance does not decide the allowability or otherwise of the exemption under section 10(14)(i) read with Rule 2BB(1)(b).

6. Before ld. CIT(Appeals), the assessees had also assailed the finding of Assessing Officer in respect of charging of interest under section 234B relying on the decision of ITAT, Special Bench, Mumbai in the case of Sumit Bhattacharya –vs.- ACIT [300 ITR (AT) 347 (Mum.)(SB).

7. As regards the taxability of living allowance in the hands of the appellants, ld. CIT(Appeals) decided the issue against the appellants. However, as regards charging of interest under section 234B, he allowed the assessees appeals. Being aggrieved with the order of ld. CIT(Appeals), both the assessees and Department are in appeals before the Tribunal.

8. We first take up the assessee’s appeals. Ld. CIT(Appeals) examined each and every plea raised before him and decided the issue as under :-

In regard to assessees submission that the assessees were posted in USA on specific project and, therefore, they were on tour duty to that country and the living allowance was paid to them to meet ordinary daily charges on account of being away from normal place of duty which was Kolkata, India and, thus, these allowances were paid wholly, exclusively and necessarily for enabling them to meet the expenses while on tour to USA, ld. CIT(Appeals) held that the assessees were required to reside in USA full time and they shifted their residence and family from India to that country. Their headquarters had been shifted from Kolkata to USA when the employee is given a proposal to go to the USA on deputation. It is not compulsory for him to go. He had a choice to say no also. If it is an official tour, the employee cannot refuse as it is part of his duty. The employee worked under the supervision of the incharge of USA and not in India. The agreement which was signed between the employee and TCS for deputation to USA was initially made for a long period. He also staed that the headquarter and the normal place of duty of assessees were changed from India to USA and held that the living allowance received by the appellant-assessees in the USA cannot be exempt under Rule 2BB(1). Ld. CIT(Appeals), therefore, held that appellants could not be treated on tour to USA.

9. In regard to CBDT’s Circular, Ld. CIT(Appeals) pointed out that CBDT recommended that allowances received during tour should be treated as exempt under section 10(14) and not with reference to deputation to USA as in the present case. Appellants had not submitted any bills/ vouchers or any claim for getting the payment. The allowance was given to the employees like normal salary and they were not required to give any account to the employer for the expenditure made out of it and, therefore, is not in the nature of reimbursement of expenses. The decision of Authority for Advance Ruling in the case of Hindustan Power Plus Limited [271 ITR 433 (AIR)] were with reference to non-resident and were for the period prior to 1.4.1989 after which the provisions of section 10(14) have been changed substantially and now for assessment year 2006-07 allowances as provided in Rule 2BB only are exempt. The living allowance received by the assessee does not fall under Rule 2BB(1) and Rule 2BB(2). Ld. CIT(Appeals) held that the living allowance was covered under section 2(24)(iiib) and accordingly held that exemption was available under section 10(14)(ii) of the Act. However, since it was not covered under Rule 2BB(ii), no exemption was admissible.

10. As regards the decision of the Hon’ble Bombay High Court in the case of Information Architect (supra), ld. CIT(Appeals) pointed out that the same is with reference to an employer and not an employee. Further, the said decision has been given in respect of section 40(a)(iii) and not in respect of section 2(24) and section 10(14). As regards reliance placed by the assessee on CBDT Circular on FBT, ld. CIT(Appeals) pointed out that the same related to part time allowance given to employees during tour, which is normally exempt under section  10(14). This Circular was, therefore, not applicable to the facts of the case. As regards reliance placed on the decision of ITAT, Mumbai Bench in the case of Madanlal Mohanlal Narang – vs.- ACIT, ld. CIT(Appeals) pointed out that the same is not relevant because the living allowance is not an allowance specifically granted to meet expenses wholly, necessarily and exclusively for the performance of duties of an Office of employment of profit and, therefore, the question of allowing expenditure which are incurred does not arise at all. As regards assessee’ s contention that they had not been transferred from Kolkata to USA, ld. CIT(Appeals) observed that in the conventional sense that may be so but the fact was that headquarters had been temporarily shifted from Kolkata to USA where he works on a project. He pointed out that the deputation of assessees to the USA may not be a full fledged transfer but it was not a tour at all. Ld. CIT(Appeals) referred to the deputation agreement and pointed out that as per the definition of deputation contained in the agreement, deputation employees shifted all their personal establishments to USA. They had gone there with their family and were living there by renting house. He accordingly held that the living allowance received by the assessees from their employer TCS Ltd. was a part of their income and was not exempt under section 10(14).

11. Shri Bajoria, Ld. senior counsel for the assessee submitted that the deputation agreement had been entered into between TCS Ltd. and its employees. Company obtained Visa on the basis of deputation agreement. Shri Bajoria submitted that in view of the provisions contained under section 2(24)(iiia) and 2(24)(iiib), there is no dispute that the living allowance was income of assessee. However, the said income was exempt under section 10(14)(i) read with Rule2BB(1) because allowance was specifically granted to meet expenses wholly, necessarily and exclusively in the performance of duties of TCS Ltd. Shri Bajoria, ld. Sr. counsel further submitted that the assessees are not claiming exemption under section 10(14)(ii). Thus the issue in the present appeals is whether living allowance fall within section 10(14(i) read with Rule 2BB(1)(b) or not. Ld. counsel referred to section 10(14)(i) and Rule 2BB(1)(b), which are reproduced hereunder :-

“Section 10(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.

Rule 2BB(1)(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”.

12. With reference to the above provisions, Shri Bajoria, ld. senior counsel submitted that the main issue to be decided is whether the employees could be treated on tour or not in view of the terms of deputation. He submitted that in the present case, the company had paid lumpsum amount to its employees to meet the ordinary daily charges on account of absence from his normal place of duty in India. Ld. Sr. Counsel further referred to the deputation agreement and pointed out that deputation is project specific. He further submitted that no doubt duration as such can be a criteria for deciding whether the employees were sent on tour or not. However, the relevancy of the same is to be judged with respect to assignment. He submitted that one more criteria for deciding whether the employees were on tour or not is to examine whether the place of work had been shifted or not. Ld counsel pointed out that in the present case, living allowance has been paid as a compensation for not working at normal place of working. He referred to page 13 of the paper book filed in the case of Tarun Bandhopadhyay and others and pointed out that in the written submission filed before the ld. CIT(Appeals), it was pointed out that in the case of Hindusthan Power Plus Ltd.[271 ITR 433 (AAR), the Authority for Advance Ruling pronounced the ruling in case of a non-resident following the established law that since the non-resident was away from his headquarters while serving in India, living expenses and the value of facilities enjoyed during service in India would be eligible for exemption under section 10(14) of the Act. Ld. counsel further referred to page 17 of the paper book, wherein in the written submission, the decision in the case of Madanlal Mohanlal Narang –vs.- ACIT [2007-TIOL-97-ITAT-MUM has been referred to in which Tribunal has held that in view of CBDT Circular No. 01.08.1955, it was not open to the revenue to call for the details of expenses actually incurred unless the specific disallowances were disproportionately high compared to the salary received by them or unreasonable with reference to the nature of the duties performed by the assessee. Ld. senior counsel submitted that Assessing Officer treated this living allowance as perquisite under section 17(2) and ld. CIT(Appeals) treated the same as income under section 2(24)(iiib) and accordingly, held that assessees were eligible for exemption under section 10(14(ii) read with Rule 2BB(ii). In the course of hearing, ld. senior counsel filed before us the reply of TCS Ltd. dated 09.09.201 1regarding treatment of FBT on living allowance paid to Mr. Basudev Acharya for the assessment year 2006-07 to explain why FBT was not paid by TCS Ltd. on living allowance.. Ld. sr. counsel on the basis of instruction further submitted that the Department has not initiated any TDS proceeding against TCS Ltd. Ld. counsel further submitted that salary structure of the employees had not changed on account of posting to USA and only allowance was granted. He pointed out that allowance was not paid as per USA standard. In sum and substance, the submissions of the ld. senior counsel are as under :-

(i) The employees were not sent by way of transfer and salary pay structure remained same on deputation.

(ii) All benefits were enjoyed by the employees as if they were TCS employees in India.

(iii) No change was affected in service condition on deputation;

(iv) Living allowance paid by way of reimbursement only;

(v) Living allowance was paid for meeting personal expenses;

(vi) The amount was paid for performing duties connected with the Office;

(vii) The amount was given to meet additional cost of living on account of being away from normal place of duty.

12.1. Ld. senior counsel further referred to page 56 of the paper book in the case of Tarun Bandyopadhyay, wherein Instruction No. 1801/CBDT dated 07.11.1988 are contained where it was clarified that living allowance paid to foreign nationals coming to Ilndia for training in various courses of study under the Technical Cooperation Schemes of Colombo Plan and the Special Common-wealth African Assistance Plan (SCAAP) was exempted under section 10(14)/10(6) of the Income Tax Act, 1961 upto the assessment year 1988-89. After assessment year 1988-89, the exemption is to be governed, inter alia, by the new provisions of section 10(140/(i)(ii) as substituted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1.4.1989. Ld. senior counsel further referred to the Circular No. 701/1995 dated 23.03.1995 contained at pages 57 to 60 of the paper book, wherein it has been clarified as under :-

“It is clarified that consequent to the amendment of section 10(14) by the Direct Tax Laws (Amendment) Act, 1987 (with effect from 01.04.1989), all circulars, instructions and clarifications issued by the Board regarding section 10(14) upto 31.03.1989 ceased to have effect from the assessment year 1989-90 and onwards.

Ld. senior counsel Shri Bajoria referred to the decision of the Hon’ble Delhi High Court in the case of CIT –vs.- Mr. Hans Beer, wherein the Hon’ble Delhi High Court has observed as under :-

“If the amount paid be a kind of reimbursement for an expenditure incurred for the performance of the dutieis of the assessee, the same would not be liable to be taxed as salary. In those cases, as well as in the present case, the assessee were foreign technicians and were required to stay away from their homes and consequently the daily allowance given to them was related to the extra expenditure that they were required to undertake on food, etc. which was wholly, necessarily and exclusively for the purpose of the duties, and as such it was in the nature of reimbursement which would be excluded from the net cast by the Act”.

Shri Bajoria, ld. senior counsel further referred to the decision of ITAT, Mumbai in the case of Madanlal Mohanlal Narang in ITA No. 5561 & 5570/Mum./2002 for the assessment years 1997-98 and 1998-99. Ld. senior counsel further referred to the decision of the Hon’ble Bombay High Court in the case of CIT –vs.- M/s. Information Architects [2010-TIOL-141- HC-MUM-IT, wherein it has been held that in view of section 40(a)(iii), the sum paid to the employee as overseas maintenance allowance constitutes only reimbursement incurred by the employees per day and the same would not form part of the salary in the hands of the recipients. In that case, it has been observed by the Hon’ble Bombay High Court that in para 17 as under :-

“17. In so far as the second issue is concerned, it relates to the amounts paid by the assessee to its employees towards overseas maintenance allowance. These amounts were paid towards expenses at the rate of IEP 50 per day per employee. The Tribunal has correctly held that these amounts constitute only reimbursement for the expenses incurred by the employees at a particular amount per day and would not form part of the salary in the hands of the recipients. Hence, the question of applying sub-clause (iii) of sub¬section (a) of section 40 would not arise. The view of the Tribunal is correct and would not raise any substantial question of law”.

12.2. Ld. senior counsel further referred to the Hon’ble Kolkata High Court in the case of CIT –vs.- Kulasinghee A. Harith [107 CTR 328], wherein, inter alia held as under :-

“The rent-free accommodation provided to the assessee by his employer was exempt under section 10(14) of the Income Tax Act on the self same reason given by the Madras High Court in view of the decision of the Hon ’ble Madras High Court in the case of Addl. CIT –vs. – Brakes India Ltd. (1979) 118 ITR 820.

Ld. senior counsel referred to the decision of Authority for Advance Rulings in the case of Hindustan Powerplus Limited reported in 271 ITR 433. In this case one of the issue was regarding exemption under section 10(14) in respect of living expenses of Rs.35,000/- per month. Facts were that Mr. Steven D. Dickinson, technician, was deputed by Caterpillar-USA. The technician was inter alia provided living expenses of Rs.35,000/- per month and claimed as exempt under section 10(14)(i). In this regard, ld. senior counsel further referred to page 82 of paper book, internal page 437 to demonstrate that the period of stay was considerable even upto 307 days. Shri Bajoria submitted that after considering the provisions of various case laws, Authority of Advance Rulings accepted the contention of applicants and held that the amounts specified in the questions were not taxable in India. Ld. counsel further referred to the decision of Hon’ble Supreme Court in the case of CIT –vs.- Goslino Mario and Others [241 ITR 312], wherein entire amount of salaries and allowances paid by the Indian company to Italian company for services rendered by assessee, a foreign technician deputed to the Fertilizer Corporation of India Ltd. by the Italian concern, in terms of the agreement between the Fertilizer Corporation of India and the Italian concern, was held to be not assessable in the hands of the foreign technician. Shri Bajoria further referred to the decision of the Hon’ble Supreme Court in the case of CIT & Another –vs.- Morgenstern Werner reported in 259 ITR 486, wherein it has been held that daily expenses received for services in India by foreign technician is exempt under section 10(14) of the Act. Ld. senior counsel also relied on the decision of the Hon’ble Madras High Court in the case of CIT –vs.- Shigeru Baba reported in 242 ITR 592, wherein it was held that the amounts reimbursed related to expenses which were wholly, necessarily and exclusively incurred for the purpose of duties which the assessee was required to perform in India and, therefore, would be exempt from tax under section 10(14) of the Income Tax Act, 1961. The amount spent on reimbursement of daily expenses and out of pocket expenses of the foreign technician was exempt under section 10(14). Ld. senior counsel further relied on the decision of the Hon’ble Bombay High Court in the case of Madhavrao J. Scindia –vs.- CIT reported in 243 ITR 683, wherein it has been held that since assessee received daily allowance for performing duties of his office as Director the same could not be claimed exempt under Explanation to section 10(14) of the Income Tax Act.

12.3. Shri Bajoria, ld. senior counsel further clarified that assessees were not entitled to take any other job in USA and further assessees were not absorbed in USA Office also.

12.4. Ld. senior counsel for the assessees further fairly submitted that in case it is held that living allowance was exempt under section 10(14(i), then the assessees cannot avail tax credit in respect of tax paid in USA on living allowance because DTAA is applicable only where a particular receipt is taxable in both the countries.

13. Learned Departmental Representative for the Revenue relied on the order of ld. CIT(Appeals). He submitted that since the living allowance was given as personal expenses, therefore, it was covered under section 10(14)(ii) and not under section 10(14(i) of the Act. He further submitted that assessees could claim exemption to the extent provided under Rule 2BB(2), but living allowance is not covered under the said Rule. Ld. DR further submitted that the assessees got higher benefit on account of posting at USA and they must have saved something. Therefore, unless the details of amount actually spent by them were available, in any view of the matter, exemption could not be granted under section 10(14)(i).

14. We have considered the rival submissions. The facts are not disputed. The assessees have been paid living allowances in terms of deputation agreement between TCS Ltd. and assessees. The deputation allowance has been taxed in USA. The assessees had received living allowance from TCS Ltd. and had claimed exemption under section 10(14)(i). Before considering the nature of living allowance, it will be useful to advert to the definition of income in section 2(24) of the Income Tax Act. Section 2(24) defines income and start with phrase ‘income includes’. Thus, it is an inclusive definition. The definition encompasses within its ambit various categories of receipts, which have been treated as income under the Income Tax Act. In the present context, we are primarily concerned with section 2(24)(iiia) and (iiib), which reads as under :-

“2(24(iiia) :- Any special allowance or benefit, other than perquisite included under sub-clause (iii), 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;

2(24)(iiib) :- Any 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 a place  where he ordinarily resides or to compensate him for the increased cost of living.

Ld. counsel for the assessees fairly submitted that there is no dispute that the living allowance given to the assessees come within the ambit of section 2(24). However, his contention is that the living allowance comes within the ambit of section 2(24)(iiia) and not 2(24)(iiib) as held by the ld. CIT(Appeals). So, the first issue which arises for our consideration in the present appeals, is whether the living allowance was covered by section 2(24)(iiia) or 2(24)(iiib). The second aspect which has been contended by ld. Senior counsel, Shri Bajoria is that since the living allowance was covered under the provisions of section 2(24)(iiia), therefore, the assessees had claimed deduction under section 10(14)(i) and not under section 10(14)(ii). Section 10(14)(i) and 10(14)(ii) reads as under :-

“10(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.

10(14)(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.

With reference to the above mandate, ld. senior counsel submitted that though special allowance or benefit has been treated as income under section 2(24)(iiia) but simultaneously exemption has been allowed under section 10(14)(i) in respect of such special allowance or benefit. Shri Bajoria further explained that the income is covered under section 2(24)(iiib), then deduction is allowable under section 10(14)(ii), which is evident from the perusal of the mandate of section 10(14)(ii) reproduced above. He further clarified that in case the provisions of section 10(14)(i) is applicable to the assessees then Rule 2BB(1) would be applicable and not sub-Rule (2), which is applicable for claiming exemption under section 10(14)(ii). In view of the submissions, the second issue which arises for consideration is whether the assessees are  entitled for exemption under section 10(14)(i) read with Rule 2BB(1) or 10(14)(ii) read with section 2BB(2).

Answer to Issue No. 2 depends on the outcome to answer to Issue No. 1.

15. The third issue which arises for consideration in the present appeal is that if answer to the Issue No. 1 is in favour of assessees then whether the assessees fulfill the conditions laid down under section 10(14)(i) or not. Now, we take up the Issue No. 1. Clause 4(C) of the deputation terms agreement reads as under :-

“Compensation in the United States : In addition to the compensation and benefits you currently receive and will continue to receive in India while on deputation, you shall receive additional compensation in the United States in the gross amount of $ 50,000 less deductions required by law or otherwise voluntarily authorized by you. This compensation shall be for living and other expenses in the United States”.

16. From the above clause, it is evident that the additional compensation in the United States has been paid in lumpsum without any reference to meet personal expenses at the place where the duties of office or employment were to be performed. This additional compensation was in the form of a special allowance or benefit. In course of assessment proceedings, the assessees had placed on record the object and purpose of providing the additional compensation, which has been taken note by Assessing Officer and has already been reproduced earlier. It was clearly pointed out that living allowance was granted to assessees so as to enable them to meet the daily expenses in USA like expenses on accommodation, expenses on food, expenses on washing of clothes, expenses on conveyance and other routine expenses, which were ordinarily incurred by any individual. Therefore, the additional compensation referred to in the deputation agreement is to be read alongwith these submissions made before the Assessing Officer, which have not at all been controverted by the Department. Considering these aspects, it is to be held that the living allowance was in the nature of special allowance or benefit specifically granted to meet expenses wholly, necessarily and exclusively in the performance of duties of an Office or employment of profit. Therefore, the living allowance was covered under the provisions of section 2(24)(iiia) and not section 2(24)(iiib). In this regard, we may further observe that the nature of personal expenses contemplated under section 2(24)(iiib) are to be examined with reference to nature of allowances referred to in Rule  2BB(2). Where an employee is posted at such a place where he has to incur certain additional expenses on account of hazards of employment, such special compensatory allowance is eligible for exemption under section 10(14)(ii).

Admittedly, the compensation paid in the present case does not come within the ambit of clause 2(24)(iiib).

17. Now coming to the next issue regarding assessees claim for deduction under section 10(14). As we have already held that living allowance was covered under section 2(24)(iiia), therefore, assessees claim for exemption under section 10(14) is to be considered under the provisions of section 10(14)(i) and not under section 10(14)(ii).

18. The ingredients of section 10(14)(i) are as under:-

(i) The amount should be in the form of special allowance of benefit;

(ii) It should not be in the nature of perquisite within the meaning of section 17(2).

(iii) The allowance should have been specifically granted to meet expenses wholly, necessarily and exclusively incurred for the performance of duties of an Office or employment of profit.

(iv) The special allowance or benefit should have been specifically granted in the performance of duties of an Office as are prescribed under Rule 2BB(1).

(v) The special allowance or benefit is exempt to the extent to which expenses are actually incurred for that purpose.

19. If we examine the above aforementioned ingredients, we find that there is no dispute that living allowance was in the nature of special allowance or benefit. Further this special allowance or benefit was not covered by section 17(2). In this regard, we may observe that Assessing Officer had taxed it under section 17(2) but ld. CIT(Appeals) has held that it should be treated under section 2(24)(iiib) and not under section 17(2). The Department has not preferred any appeal on this aspect, therefore, in any view of the matter, the special allowance or benefit does not come within the ambit of section 17(2) of the Act.

20. The Third aspect of ingredient is also not disputed because the submissions of assessees have not been controverted in this regard.

21. Now coming to the issue regarding fulfilling the conditions laid down in Income Tax Rule 2BB(1)(b). The submission of ld. senior counsel for the assessees is that the assessees are to be treated on tour to United States. He submitted that the main controversy in the present appeals is this only. In order to decide whether the assessees were on tour or not, we have to examine first the real import of the term ‘tour’. This term has not been defined in the Rules and, therefore, we have to understand the meaning of this term in common parlance. When a person is sent on tour from one place of his duty to another place then his place of employment is not shifted. While on tour, he has to discharge his functions at a specified place and then again has to come back to his original place of posting. In case, the place of employment is shifted, then it comes within the ambit of the term ‘transfer’ and not ‘tour’. The basic criteria for deciding, whether a person is on tour or transfer is to examine his place of employment in consequence to the order. If place of employment shifts, it is transfer else tour only. Further, when a person is on tour, he is provided allowance only in order to meet his daily expenses on tour. But his salary structure remains the same. The allowance is not an addition to salary but only for the purposes of additional expenses involved in the performance of duties at the touring place. One more aspect which is relevant in this regard is duration for which the person has been sent to the other place of employment. Duration of posting depends upon the specified nature of work to be performed at the place where the person is being sent. Though it is quite relevant consideration but cannot be a conclusive factor in deciding whether person has been sent on tour or transfer. The next aspect is regarding the consent of the party before sending him on tour, whether necessary or not? Ld. CIT(Appeals) while considering this issue has, inter alia, observed that the consent of the party is of no relevance when a person is sent on tour because he has to obey the direction of his employer when he is being sent on tour. Generally, there cannot be any dispute in this regard but it all depends on facts of each case whether employee’s consent is to be taken before sending him on tour or not. Supposing a person is to be sent on tour to a place where the climatic conditions are such that a person cannot withstand the same. In such circumstances, consent of employee becomes necessary. Therefore, nothing turns on this aspect.

22. Now, we proceed to examine the facts of the present case in the context of principles discussed above. In order to appreciate the correct position in this regard, we reproduce hereunder certain contents from various documents. Before us, the details in regard to Saptarshi Ghosh have been filed. In the deputation letter dated 19.05.2005, it has been, inter alia, stated as under :-

“Your deputation is expected to last for a period of approximately 3 months. However, various factors could necessitate your being in the USA for a shorter or longer duration, and could result in a change of location or a transfer to a TCS project for a different client in the USA. If there are any such changes with respect to your deputation, we will give you as much advance notice as is practicable under the circumstances.

In order to prepare you for this deputation, I enclose a copy of the Overseas Deputation Manual for the USA. This Manual contains important information on the customers and practices in the USA as well as other information that will be helpful to you on your deputation. You should review the Manual carefully. Remember, while you are in the USA, you will be a representative of TCS, and are expected to maintain a professional image at all times.

After you have reviewed the enclosed materials, or if you have any questions while you are reviewing them, you should contact the personnel Department. It is essential that you fully understand all aspects and conditions of your deputation before choosing to proceed on this assignment and singing your Deputation Agreement and Service Agreement Addendum. Your signature below on the additional copy of this letter will confirm your understanding of this obligation and your agreement to fulfill it.

23. Deputation Agreement- United States (“Agreement”) dated 17.10.2004 between assessees and Tata Consultancy Limited is as under :-

A. In order to qualify the Employee for overseas assignment, or deputation (‘Deputation”), the Employer has provided the Employee with extensive specialized training and experience in Information Technology and its application, including trade secrets and the Employer’s proprietary information, for which the Employer incurs considerable costs and expenses.

B. The Employer has selected the Employee for Deputation to the United States and, by reading and signing this Deputation Agreement, and the annexed Deputation Terms Agreement the Employee agrees to go on Deputation where the Employee will be assigned to use his/her training and experience on one or more projects of the Employer for its clients in the United States.

C. The Employee shall acquire commercially useful experience, knowledge and skills white on Deputation in the United States, and such experience, knowledge and skills are of substantial value to the Employer for dissemination by the Employee to the Employer’s employees in India upon the Employee’s return to India after the conclusion of the Deputation.

D. The Employer is willing to send the Employee on Deputation only if the Employee agrees, and as provided below the Employee does agree and commit, to complete his/her Deputation in the United States, and to return to India at the conclusion of a Deputation in order to impart the experience, knowledge and skills acquired on the Deputation to employees of the Employer in India.

Therefore, in consideration of the mutual covenants and conditions set forth below and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by both parties, the parties agree as follows:

I. OVERSEAS DEPUTATION

1.1. General Provision. The Employee is an employee of the Employer pursuant to a Service Agreement entered into in India upon commencement of the Employee’s employment The Service Agreement, and all other current agreements between the Employee and the Employer regarding the employment relationship in India, remain in full force and effect This Agreement governs the terms of the Employee’s Deputation to the United States.

A “Deputation” is defined as an overseas assignment to the United Slates when, for this Deputation Agreement, unless otherwise terminated or amended according to its terms, shall govern and apply to each and every Deputation of the Employee to the United States, and it shall remain in effect during the Employees employment by the Employer. With respect to each separate Deputation of Employee to the United States a separately executed DTA SHALL GOVERN THE PARTICULAR TERMS OF THAT DEPUTATION and shall be in effect only during the Deputation to which it applies.

1.2. Period of Deputation. The Deputation will begin on the date the Employee leaves India for the United States following execution of a DTA, and shall continue until the stated term of the Deputation, or extension thereof, has expired,. The initial term of the Deputation is set forth in the applicable DTA. However, the Employer reserves the right to shorten or end the period of a Deputation at any time, with or without advance notice, and the Deputation may be extended by mutual agreement between the parties.

Place of Deputation- The Employee will be assigned to work an one of the Employer’s projects for a client identified in the DTA and at a location in the United States as stated in the DTA. However, the Employer reserves the right to change the location of the Deputation assignment in the United States, and to transfer the Employee to an Employer project for a different employer clilent in the United States. Upon any such change location or assignment, the provisions of this Agreement will continue to apply and remain in full force and effect, and Employer shall confirm to Employee in writing the details concerning the new location or assignment.

COMPENSATION AND BENEFITS

In connection with the Deputation, the Employee will receive compensation and benefits in India and in the United States, for services rendered by the Employee during the Deputation in the United States. The gross amount of the total compensation in India and the United States is set forth in the applicable DTA, and this total gross  amount of compensation shall be includable as earnings in the United States and reported on U.S. Internal Revenue Service form W-2. More specifically, the compensation and benefits on the Deputation will be as follows:

Initial Payments- Before the Employee embarks on his/her Deputation, the Employer will make the following payments to the Employee:

(a) The Employer will compensate to the Employee an amount in rupees that is designed to enable the Employee to purchase any usual and necessary outfits for the Deputation, and to cover initial incidental travel-related expenses in embarking on this overseas assignment.

(b) The Employer will compensate the Employee an amount in US. dollars or travelers cheques for the Employee’s use in his/her discretion for expenses such as housing and transportation expenses incurred on arrival in the United States and for the purpose of settling down.

(c) The amounts and details of these payments may be specified in the DTA and/or other documents furnished to the Employee prior to the commencement of a Deputation.

2.2. Airfare- Before the Employee embarks on his/her Deputation, the Employer will obtain a round trip airline ticket for the Employee’s travel between India and the United States. The Employer will bear the cost of this airfare, and this amount will not be included in gross compensation. The Employer shall also bear the cost of transportation within the United States between the place of arrival and the site where Employee shall report to work.

Compensation and Benefits in India – During the period of the Deputation, the Employee will continue to receive his/her salary and benefits in India, as if the Employee had continued to work for the Employer in India, subject to any tax requirements under the laws of the United States and its states. Moreover, the period of the Deputation will be treated as approved service with the employer and counted for all of the following purposes in India, based on the salary the employee continues to receive in India while on Deputation, Privilege Leave, Promotion, Annual Increment and payment of Housing Subsidy, performance reward, Provident Fund contributions and Superannuation Fund contributions.

Compensation in the United States- During the period of the Deputation the Employee will receive additional compensation in U.S. dollars, in the amount stated in the DTA. This compensation shall be for living and other expenses in the United States. It shall be part of Employee’s total compensation for purposes of U.S. Department of Labor ‘prevailing wage’ determinations.

Total Gross Compensation- Amounts of salary paid by the Employer in India (under Paragraph 2.3) and compensation paid for living expenses in the United States (under Paragraph 2.4) shall be aggregated and thus shall be treated as the Employees total gross compensation under U.S. law with respect to the Employee’s employment in the United States.

Your Deputation shall begin on or about 17th October, 2004, you shall initially be assigned to perform IT consulting services on behalf of TCS for GE Healthcare at Milwankee.

3. Your Deputation in the United States is scheduled for a period of 12 months. However, various factors could require you to render services to TCS for its clients in the United States for a shorter or longer duration, and could result in a change of location or transfer to a TCS project for a different client in the United States. If there are any changes with respect to the period of your deputation or the location of your assignment, we will give you as much advance notice as is practicable under the circumstances. It is understood that you have no right to serve any particular fixed period of deputation or to serve at any particular location or clilent project. However, if the period of your deputation is extended beyond the scheduled 12 month period, the extension shall be reflected in a mutual written agreement.

4. The following specific provisions shall govern your deputation :-

(A) OverseasTravel and Reimbursement TCS shall be used travelers cheques, which is designed for your use in meting initial expenses for transportation and housing when you arrive in the United States.

(B) Salary and benefits in India :- As stated in the Deputation Agreement, you will continue to receive your salary and benefits in India during the period of the Deputation, subject to any tax requirements of the United States and its states.

(C) Compensation in the United States.. In addition to the compensation and benefits you currently receive and will continue to receive in India who on Deputation, you shall receive additional compensation in the United States in the gross amount of US$50000 less deductions required by law or otherwise voluntarily authorized by you. This compensation shall be for living and other expenses in the United States.

(D) Total Gross Compensation Amounts of salary paid by TCS in India (under Paragraph 4 (b) above) and the additional compensation in the United States (under Paragraph 4(c) above) shall be aggregated and thus shall be treated as your total gross compensation for purposes of U.S. law with respect to your employment in the United States.

24. From the above noted contents of deputation letter and agreement, etc. it is clear that the place of posting did not change to USA and the employees were sent there with reference to the specific projects though the projects could change at the instance of employer. The employees were to report back to the employer and serve the employer after acquiring skill from USA projects. The salary structure of employees remained same and the additional amounts were paid only for the purposes of additional routine expenses in USA. This is evident from deputation agreement, which deals with compensation and benefits noted above. It is specifically mentioned in para 2.3 that during the period of deputation, the employee will continue to receive his salary and benefits in India. This clearly shows that place of posting had not changed, which is basic ingredient for deciding whether a person had been transferred or was on tour. Ld. CIT(Appeals) has wrongly concluded that headquarters had been shifted from Kolkata to USA. Ld. CIT(Appeals) has also pointed out that employees had a choice to say no also. In the present case, the employees were to be sent to USA and, therefore, their choice had to be taken before sending them abroad. Since the assessees were to be sent abroad, they had to obtain Visa also for that purpose. In that regard, all the specific requirements had to be fulfilled by the employer. But that should not detract us from examining the true import of the term ‘tour’. Ld. CIT(Appeals) has also pointed out that as per the deputation agreement, the assessees were entitled to take their families but that also cannot be a basis for deciding whether the assessees were to be treated on tour in terms of Rule 2BB(1)(b) or not because that Rule does not prohibit taking the family on tour. We are, therefore, of the considered opinion that keeping in view the entirety of the facts and circumstances of the case, assessees were to be treated on tour and, therefore, eligible for claiming deduction under section 10(14)(i) read with Rule 2BB(1)b). Further, we find that the issue relating to living allowance has been considered by various decisions relied upon by the ld senior counsel for the assessees with reference to non-residents. Ld. CIT(Appeals) has distinguished all such case laws on the ground that they relate to non-residents and not with reference to the employees being sent abroad. We do not find any rationale in distinguishing the case laws noted in ld. Senior counsel’s submissions merely on the ground that they related to non-residents. Non-residents coming to India and Indian going abroad, are to be considered on same footing as far as the issue is in respect of exemption under section 10(14)(i) read with Rule 2BB(1). It does not lay down separate consideration for non-residents vis-à-vis residents.

25. Further, one more aspect which is to be considered is with regard to actual incurring of expenditure. In this regard, we find that the issue is squarely covered by the decision of ITAT, Mumbai dated 21.04.2006 in ITA Nos. 5561 & 5570/Mum./2002 for the assessment years 1997-98 and 1998-99 in the case of Madanlal Mohanlal Narang –vs.- ACIT(supra), wherein it  has been held that “it is not open to the revenue to call for the details of expenses actually incurred unless the specific allowance are disproportionately high compared to the salary received by him or unreasonable with reference to the nature of the duties performed by the assessee”.

Further, the assessees had submitted that FBT must have been paid by the employer. However, as noted earlier, employer has not paid FBT. In our opinion, the considerations for eligibility of exemption under section 10(14)(1) are entirely different and nothing turns around on the applicability or non-applicability of the provisions of FBT.

In view of above discussions, the appeals of the assessees as well as the Cross Objections are allowed.

26. With regard to the Departmental appeals, we have already held that living allowance is not taxable. Therefore, interest levied under section 234B cannot be sustained. Even otherwise, we find that the issue is covered by the decision of ITAT, Special Bench in the case of Sumit Bhattacharya –vs.- ACIT reported in [2008] 300 ITR page 347 (Mumbai)(SB).

In view of the above, the Departmental appeals are dismissed.

27. Before parting, we may further observe that, in any view of the matter, the entire controversy is almost revenue neutral because even if it is held that assessees were not eligible for exemption under section 10(14)(i) in respect of living allowance, then in view of DTAA with USA, the assessees would become entitled to get tax credit in respect tax paid on living allowance in USA. However, as we have already held that living allowance is not taxable in India, therefore, assessees are entitled for exemption under section 10(14(i). Therefore, they cannot claim tax credit in respect of tax paid in USA on living allowance because as very fairly pointed out by the ld. senior counsel for the assessees, DTAA would come into play only when a particular receipt is taxable in both the countries.

28. In the result, the appeals as well as the Cross Objections filed by the assessees are allowed and the appeals filed by the Department are dismissed.

ORDER PRONOUNCED IN THE OPEN COURT ON 30/09/2011.


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