Case Law Details
Life Insurance Corporation of India Vs. ITO (TDS) (Orissa High Court)
The short question that arises is whether LIC had a statutory obligation to deduct tax at source while paying the conveyance/additional allowance to its development officers?
In support of the contention that conveyance/additional allowance are not income and therefore not liable for deduction of tax at source, LIC relies on a CBDT Circular dated 19th November 1986. The contention of the Department on the other hand is that in terms of instructions dated 18th March, 1991 the CBDT followed by another circular dated 23rd March, 1995 consequent upon the amendment to Section 10 (14) of the Direct Taxation Laws (Amendment), 1980 with effect from 1st April, 1989 all circulars/instructions and clarifications earlier issued by the CBDT as regards Section 10 (14) of the Act would cease to have with effect from AY 1989-90 onwards. Therefore, it is to no avail for LIC to rely on its earlier instructions which were based on earlier circulars. A clarification to this effect was issued by the CBDT to the LIC on 4th January, 2001.
As pointed out by the Department, the relevant Rule 2BB (1) of the IT Rules only prescribes the types of allowances and not the extent of their allowability. After the aforesaid amendment to Section 10 (14) of the Act, the legal position, as explained in the CBDT circulars issued thereafter, is that the expenditure reimbursed by LIC would qualify for deduction under Section 10 (14) of the Act. If the expenditure is incurred by the Development Officer, he cannot claim deduction under Section 10 (14) of the Act.
It appears that LIC devised a proforma for the development officer to fill up certifying the expenditure incurred by them for development of insurance business. A portion of the allowance thus granted was then treated as exempt under Section 10 (14) of the act. Way back on March 12th, 1997 the CBDT informed the Chairman LIC that such procedure was not in accordance with Section 10 (14) of the Act read with Rule 2 BB (i) of the IT Rules and that “unless an allowance is notified under Section 10 (14) (i) of the Act no portion of it can qualify for tax exemption.”
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