Case Law Details
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.
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Hi,
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”.
Is there any definition to decide what percentage is considered “disproportionately high” compared to the Indian Salary?