Case Law Details
Challa Kondaiah And Ors. Vs Commissioner of Income-Tax and Anr. (Andhra Pradesh High Court)
The sumptuary allowance is a specific benefit provided to judicial officers in India to cover entertainment expenses. This allowance raises the question of whether it is exempt from income tax. This article delves into the legal framework governing the sumptuary allowance, including relevant sections of The Supreme Court Judges (Salaries and Conditions of Service) Act, 1958, and The High Court Judges (Salaries and Conditions of Service) Act, 1954. Additionally, it examines court decisions and interpretations by the Income Tax Appellate Tribunal to determine the tax treatment of this allowance.
In the case of Challa Kondaiah And Ors. Vs Commissioner of Income-Tax and Anr. (Andhra Pradesh High Court), the petition concerned whether the late Justice Challa Kondaiah, former Chief Justice of the Andhra Pradesh High Court, was entitled to exemption on his house rent allowance (HRA) received as a Member of a Commission of Enquiry. The court considered whether his post-retirement appointment entitled him to the same exemptions as sitting High Court judges under Section 22D of the High Court Judges (Conditions of Service) Act, 1954. The court ruled that retired judges do not qualify for such exemptions, affirming the Commissioner of Income-tax’s decision to revise the assessment order, thereby dismissing the writ petition.
THE SUPREME COURT JUDGES (SALARIES AND CONDITIONS OF SERVICE) ACT, 1958
SECTION 2(e)
“Judge” means a Judge of the Supreme Court and includes the Chief Justice and an acting Chief Justice;
SECTION 23D
23D. Exemption from liability to pay Income-tax on certain perquisites received by a Judge.―
Notwithstanding anything contained in the Income-tax Act, 1961 (43 of 1961),―
(a) the value of rent-free official residence provided to a Judge under sub-section (1) of section 23 or the allowance paid to him under sub-section (1A) of that section;
(b) the value of the conveyance facilities provided to a Judge under section 23A;
(c) the sumptuary allowance provided to a Judge under section 23B,
(d) the value of leave travel concession provided to a Judge and members of his family.
shall not be included in the computation of his income chargeable under the head “Salaries” under section 15 of the Income-tax Act, 1961 (43 of 1961).
THE HIGH COURT JUDGES (SALARIES AND CONDITIONS OF SERVICE) ACT, 1954
SECTION 2(g)
“Judge” means a Judge of a High Court and includes the Chief Justice, an acting Chief Justice, an additional Judge and an acting Judge of the High Court;
SECTION 22D
22D. Exemption from liability to pay income-tax on certain perquisites received by a Judge.—
Notwithstanding anything contained in the Income-tax Act, 1961 (43 of 1961),—
(a) the value of rent-free official residence provided to a Judge under sub-section (1) of section 22A or the allowance paid to him under sub-section (2) of that section;
(b) the value of the conveyance facilities provided to a Judge under section 22B;
(c) the sumptuary allowance provided to a Judge under section 22C;
(d) the value of leave travel concession provided to a judge and members of his family,
shall not be included in the computation of his income chargeable under the head “Salaries” under section 15 of the Income- tax Act 1961 (43 of 1961).
It is being claimed that the hon’ble Income Tax Appellate Tribunal – Jaipur in its decision dt 14.09.2018 in the case of Shilpa Sameer vs ITO, Jaipur [ITA 818/JP/2016] and decision dt 19.06.2018 in the case of Shri Ajay Godara Vs ITO [ITA No. 614/JP/2016] had held that the Sumptuary Allowance is exempt. A careful reading of the decision makes it clear that the Tribunal did not held so and in fact discussed the HC /SC Judges Acts too. What was held in this decision is that the Sumptuary Allowance is to be treated as “Entertainment Allowance” .
The decisions mentioned above refers to the CBDT’s letter No. 35/32/66-IT(B), dated 24-9-1966 which had made it clear that sumptuary allowance has to be treated as an entertainment allowance
Entertainment Allowance is dealt with under the Income Tax Act,1961 in section 16(ii).
16. Deductions from salaries.
– The income chargeable under the head “Salaries” shall be computed after making the following deductions,
(ii) a deduction in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less
There is a difference between “deductions’ and allowances being “exempt”. Exempt allowances are dealt with in section 10 of the Income Tax Act. Section 10 does not give any exemption for sumptuary allowance or Entertainment allowance .
In conclusion, the sumptuary allowance for judges as defined under the Supreme Court and High Court Judges Acts is exempt from being treated as income under the Income Tax Act, 1961. However, for other judicial officers, this allowance is classified as entertainment allowance, subject to a deduction limit of Rs. 5,000 per annum. This distinction underscores the need for a clear understanding of the specific provisions and judicial interpretations to accurately determine tax liabilities for judicial officers receiving sumptuary allowances.
FULL TEXT OF THE JUDGMENT/ORDER OF ANDHRA PRADESH HIGH COURT
1. This writ petition was initially filed by the late Justice Challa Kondaiah, a former retired Chief Justice of the High Court of Andhra Pradesh. While the writ petition was pending, he died and his legal representatives were brought on record as petitioners Nos. 2 to 5 by order of the court dated August 21, 2001 passed in WPMP No. 21006 of 2001.
2. A short question that arises for decision in this writ petition is whether the deceased-petitioner was entitled to claim exemption in respect of house rent allowance (HRA) of Rs. 30,000 received by him during the accounting year corresponding to the assessment year 1989-90 as a Member, Commission of Enquiry.
3. The assessee, after retirement as Chief Justice of the Andhra Pradesh High Court, was appointed as Member, Commission of Enquiry, by the Government of Andhra Pradesh to enquire into cases under the Urban Land Ceiling Act, 1976. The income-tax assessment of the assessee for the assessment year 1989-90 was completed under Section 143(3) on November 27, 1990, on a total income of Rs. 1,29,680 by the Income-tax Officer, Ward 4(3), Hyderabad, the second respondent herein. Subsequently, the assessment records relating to the assessee were examined by the Commissioner of Income-tax, Andhra Pradesh-I, Hyderabad (the CIT), the first respondent herein and he found that the assessee had claimed full exemption in respect of the house rent allowance of Rs. 30,000 received by him during the accounting year corresponding to the assessment year 1989-90 as a Member, Commission of Enquiry. The Commissioner of Income-tax opining that the assessee was not actually entitled to exemption of the house rent allowance and, therefore, the Income-tax Officer committed an error in granting exemption to the assessee in respect of the house rent allowance received by the assessee and the said action of the Income-tax Officer was prejudicial to the interests of the Revenue, issued show-cause notice to the assessee directing him to show cause why proceedings under Section 263 of the Act should not be taken recourse to in his case.
4. Before the Commissioner of Income-tax, it was argued on behalf of the assessee that since the assessee was holding the post of Member, Commission of Enquiry, a post which could be filled up only by sitting or retired High Court judges, the assessee should be considered as a High Court judge of the Andhra Pradesh High Court and on that basis all the benefits that accrue to a High Court judge should be extended to the assessee also and if they are so extended, the assessee was entitled to seek exemption from income-tax in respect of the house rent allowance of Rs. 30,000 received by him as a Member, Commission of Enquiry. The said contention was rejected by the Commissioner of Income-tax and he revised the assessment order dated March 26, 1993, passed by the second respondent and set aside the same with a direction to the Assessing Officer to reframe it, taking into consideration the legal position relating to exemptability of house rent allowance as recorded by him in his order. Hence, this writ petition assailing the validity and legality of the order of the Commissioner of Income-tax dated March 26, 1993.
5. Sri M. Srinivas Rao, learned counsel appearing for the petitioners, while assailing the impugned order of the Commissioner of Income-tax would contend that in terms of the appointment order issued to the deceased-assessee, he was entitled to salary and other perquisites and other allowances to which a High Court judge is entitled. It was argued by learned counsel that since the house rent allowance payable to a High Court judge is fully exempt from income-tax, similar treatment should be extended to the assessee also. On the other hand, learned standing counsel for the Income-tax Department would support the order of the Commissioner of Income-tax passed under Section 263 of the Act
6. In appreciating the contention of learned counsel for the petitioners, should it be noticed at the threshold that the Income-tax Act does not provide any exemption in respect of house rent allowance payable to judges of High Courts. It is only the High Court Judges (Conditions of Service) Act, 1954, has made a provision exempting the house rent allowance payable to the High Court judges from income-tax. Sections 22A and 22D of the High Court Judges (Conditions of Service) Act, 1954, at the relevant period read:
“22A. (1) Every judge shall be entitled without payment of rent to the use of an official residence in accordance with such rules as may, from time to time, be made in this behalf.
(2) Where a judge does not avail himself of the use of an official residence, he may be paid every month an allowance of ten thousand rupees only.
22D. Notwithstanding anything contained in the Income-tax Act, 1961, –
(a) the value of rent-free official residence provided to a judge under Sub-section (1) of Section 22A or the allowance paid to him under Sub-section (2) of that section;
(b) the value of the conveyance facilities provided to a judge under Section 22B;
(c) the sumptuary allowance provided to a judge under Section 22C;
(d) the value of leave travel concession provided to a judge and members of his family, shall not be included in the computation of his income chargeable under the head ‘Salaries’ under Section 15 of the Income-tax Act, 1961.”
7. The word “judge” is defined in Section 2(g) of the Act as under:
” ‘judge’ means a judge of a High Court and includes the Chief Justice; an acting Chief Justice, an additional judge, and an acting judge of the High Court;”
8. It is quite clear from the definition of the word “judge” as defined under Section 2(g) of the Act, that judge means only a sitting High Court judge, not a retired High Court judge. Therefore, retired Chief Justices and judges of the High Court cannot be brought under the exemptability clause contained under Section 22D of the Act. If that is so, simply because the petitioner was appointed as Member, Commission of Enquiry, on the basis that he earlier held the post of Chief Justice of a High Court, he could not claim that he should be treated as a sitting Chief Justice or a judge of a High Court so as to entitle him to seek exemption from payment of income-tax in respect of the house rent allowance received by him as a Member, Commission of Enquiry on par with exemption provided to the High Court judges under Section 22D of the Act. If a retired Chief Justice or a retired judge of a High Court is appointed by the State Government or the Central Government for any purpose or to any post, those appointments would be under the Government of India or the concerned State Government as the case may be, and those posts cannot be treated as constitutional posts of Chief Justice or judge of a High Court to attract the provisions of Section 22D of the High Court Judges (Conditions of Service) Act, 1954. With the retirement, a Chief Justice or a judge of a High Court ceases to be the Chief Justice or a judge of a High Court, as the case may be, and his reappointment by the Government for any purpose or to any post would not revive his status as Chief Justice or judge of a High Court. It is equally important to notice that the State Government is incompetent to grant exemption from payment of tax in respect of house rent allowance paid by it to its appointees. As noticed above, the Income-tax Act as such does not grant any exemption from payment of income-tax in respect of the house rent allowance paid to the High Court judges. A retired judge who has been appointed by the State Government or the Central Government to any post cannot be brought under the purview of the High Court Judges (Conditions of Service) Act, 1954, and he, therefore, cannot claim exemption from income-tax in respect of the house rent allowance received by him as an appointee to such post Therefore, the opinion of the Commissioner of Income-tax impugned in this writ petition is un-exceptionable.
9. In the result and for the foregoing reasons, the writ petition is dismissed with no order as to costs.
Author Bio
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN
Before Shri Chandra Poojari, AM & Shri George George K, JM
ITA No.468/Coch/2016 : Asst.Year 2011-2012
Sri.Bathisha Kalam Pasha Vs. The Pr.Commissioner of Income-tax
C/o.V.Suresh, Advocate, Thiruvananthapuram-
TC 82/4237, 1st Floor ( Respondent)
Crescent Tower, Vanchiyoor
Thiruvananthapuram Pin 695035
PAN : AEPPP4561G
(Appellant)
ITA No.469/Coch/2016 : Asst.Year 2011-2012
Sri.S.V.Unnikrishnan Nair Vs. The Pr.Commissioner of Income-tax
C/o.V.Suresh, Advocate Thiruvananthapuram
TC 82/4237, 1st Floor (Respondent)
Crescent Tower, Vanchiyoor
Thiruvananthapuram-
Pin 695035
PAN : ABQPN5965J.
(Appellant)
Appellants by : Sri.P.G.Jayasankar, Advocate
Respondent by : Sri.A.Santham Bose, CIT-DR
Date of Hearing : 19.03.2018 Date of Pronouncement : 22.03.2018
ORDER
Per Bench
These appeals at the instance of two assessees are directed against two orders of the Commissioner of Income-tax, passed u/s 263 of the Income-tax Act, 1961, both dated 14.03.2016. The relevant assessment year is 2011-2012.
2. Common issue is raised in these appeals, hence they were heard together and are being disposed of by this consolidated order.
3. There is a delay of 128 days in filing both the appeals. The assessees have filed petitions for condonation of delay along with Affidavits, stating therein the reasons for delay in filing these appeals. On perusal of the reasons stated in the Affidavits, we hold the delay of 128 days in filing these appeals cannot be attributed to any latches on the part of the assessees, hence we proceeded to dispose of the case on merits.
4. The solitary issue raised in these appeals is whether the CIT is justified in setting aside the assessment orders passed u/s 143(3) of the I.T.Act and directing the Assessing Officer to deny the claim of exemption for medical allowances, conveyance allowances and sumptuary allowances etc.
5. The brief facts of the case are as follow:-
5.1 The assessees are Officers in the State Judicial Services and are functioning as District Judges in the State of Kerala.
For the assessment year 2011-2012, returns of income was filed by the two assessees by claiming exemption for the amount of sumptuary, conveyance and medical allowances. The assessments were completed u/s 143(3) of the I.T.Act, wherein exemption claimed under sumptuary, conveyance and medical allowances etc. were allowed by the Assessing Officer. Subsequently, the CIT had issued notice u/s 263 of the I.T. Act for revising the assessment completed u/s 143(3) of the I.T.Act. The CIT had held that the allowances claimed as exemption on the basis of the recommendation of Shetty Commission Report as approved by the Hon’ble Supreme Court were not exempted under the I.T.Act and hence the assessments are to be revised. The assessees had filed written objections against the notice issued proposing revision of the assessment orders. The assessees had brought to the notice of the CIT the nature and characteristics of the claim. The CIT, however, rejected the objections raised by the assessees and passed an order u/s 263 of the I.T.Act setting aside the assessment orders and directing the A.O. to deny exemption claimed for sumptuary, conveyance and medical allowances etc. The relevant finding of the Administrative CIT while passing the order u/s 263 of the I.T.Act in the case of ITA No.469/Coch/2016, reads as follow:-
“4. I have considered the submission of the assessee’s A.R. and also the observations made by the Hon’ble Supreme Court relied on this regard. The Hon’ble Supreme Court as quoted supra has ordered that –
`Subject to the various modifications in this judgment, all other recommendations of the Shetty Commission are accepted.
WE are aware that it will become necessary for service and other rules to be amended so as to implement this judgment.’ The Hon’ble Supreme Court’s decision in this regard is crystal clear. The Court has directed the State and Central Governments to implement the Shetty Commission’s recommendations.
5. In order to give effect to the Shetty Commission recommendations, the Income tax Act and relevant rules ought to have been amended. In the absence of such an amendment, the direction by the Hon’ble Supreme Court to the Central Government would not directly render the sumptuary allowance, conveyance allowance, special allowance etc., tax free.
I find from the record that there are no notifications or amendment in this regard by the Central government. Therefore, till such time such amendments are made to implement the Shetty commission recommendations, the existing: rules will apply. If the assessee is aggrieved that the said recommendations have not been implemented by the appropriate authority then he ought to have sought judicial redress of the same rather than claiming these allowances as tax-free.
6. In the absence of any amendment to the Act or the Rules there to, the admission of the claims of exemption made by the assessee and allowed by the Assessing Officer are erroneous and prejudicial to revenue. It appears that the Assessing Officer mistook the direction of the Hon’ble Supreme Court to implement the Shetty Commission recommendation as implementation per se. Such an understanding is not correct and it leads to an incorrect application of law.
In view of the facts discussed supra, I set aside the order of the Assessing Officer made u/s143(3) on 24.03.2014 with direction to verify the claims of exemption of medical allowance, conveyance allowance, sumptuary allowance etc. and allow as per provisions of the Income Tax Act. The A.O will give the assessee an opportunity for being heard before passing the order.”
6. Aggrieved by the orders passed u/s 263 of the I.T.Act, the assessees have filed present appeals before the Tribunal. The learned Counsel for the assessees submitted that the Shetty Commission Report which is the basis for payment of sumptuary, medical and conveyance allowances has been approved by the Hon’ble Apex Court in the case of All India Judges’ Association v. Union of India and Others Writ Petn. (Civil) 1022 of 1989, D/- 13.11.1991 [AIR 1992 Supreme Court 165]. It was submitted that the sumptuary allowances had been specifically stated by the Hon’ble Supreme Court is a payment made in the course of performance of duty and cannot be considered as a perk for being included as an income in the hands of the recipient. It was stated by the learned Counsel that this is a declaration of law by the Hon’ble Apex Court and in view of the judgment of the Hon’ble Apex Court, sumptuary allowance received by the assessees cannot be considered as income.
7. The learned Departmental Representative, on the other hand, strongly supported the revisionary orders passed u/s 263 of the I.T.Act.
8. We have heard the rival submissions and perused the material on record. The CIT while passing the order u/s 263 of the I.T.Act noted that the allowances claimed as exempt on the basis of recommendation of Shetty Commission Report, which is approved by the Hon’ble Apex Court, has not been exempt under the Income-tax Act. It was further noticed by the CIT that the Assessing Officer mistook the direction of the Hon’ble Apex Court to implement the Shetty Commission Report as implementation per se and such understanding of the A.O. is not correct and it leads to incorrect application of law.
8.1 The Oxford English Dictionary defines “sumptuary” means as a private expenditure in the interest of the State. The salient feature arising from it are (1) the expenditure is in the public interest and (2) it is spent by an individual, generally a public officer, with due regard and restriction keeping the State’s interest in view. The sumptuary allowances paid to the District Judges was made part of the salary and the allowance following the Shetty Commission Recommendation on the pay and allowance which was approved by the Hon’ble Apex Court in the case of All India Judges’ Association v. Union of India and Others (supra).
8.3 The Division Bench of the Hon’ble High Court has confirmed a learned single Judge judgment wherein, the learned Judge had rejected the plea of Kerala Judicial Officers’ Association that acceptance of recommendation of Shetty Commission Report by the Hon’ble Supreme Court should be considered as declaration of law. A copy of the judgment of Hon’ble Division Bench in W.A. No.2069/15 (judgment dated 03.03.2016) is placed on record. The relevant observation of the Hon’ble High Court reads as follow:-
“4. Having bestowed our anxious consideration, we do not find our way to disagree with the finding rendered by the learned single Judge following the afore-noted precedents. The learned single Judge, therefore, rightly refused to accept the contention of the Association that the acceptance of the recommendations of the Shetty Commission Report has to be considered as declaration of law by the Hon’ble Supreme Court for the purpose of its enforcement. Those recommendations are matters which may generate room for relief in cases where no rules have been framed; in which event, the learned single Judge has rightly found that the remedy does not lie before this Court.
5. For the aforesaid reasons, we are of the view that this has writ appeal has to fail.
6. Before parting, we may note that an attempt was made even by the Division Bench during the pendency of this appeal to find out whether there could be a re-look at the issue by the executive. The Assistant Solicitor General of India was required to bring the issue involved in the case to the notice of the authorities concerned in the Central Government.
7. We have seen the provisions of the Income Tax Act and the limited extent of power which is given through delegation. We think that this is not a matter which could succeed through judicial review at our hands.”
8.4 Since the Hon’ble High Court had held that acceptance of the Shetty Commission Report by the Hon’ble Apex Court is not a declaration of law and since there is no provision under the Income-tax Act or the Rules, whereby Medical, Conveyance and Sumptuary allowances are exempt from taxation, we hold that CIT is justified in invoking his revisionary jurisdiction u/s 263 of the I.T.Act. It is ordered accordingly.
9. In the result, the appeals filed by the assessees are dismissed.
Order pronounced on this 22nd day of March, 2018.
Sd/- Sd/-
(Chandra Poojari) (George George K.)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Cochin ; Dated : 22nd March, 2018.
Devdas*
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The Pr.CIT Thiruvananthapuram.
4. DR, ITAT, Cochin
5. Guard file.
BY ORDER,
(Asstt. Registrar)
ITAT, Cochin
Hon’ble Division Bench of Kerala High Court in W.A. No.2069/15 (judgment dated 03.03.2016) held :
“4. Having bestowed our anxious consideration, we do not find our way to disagree with the finding rendered by the learned single Judge following the afore-noted precedents. The learned single Judge, therefore, rightly refused to accept the contention of the Association that the acceptance of the recommendations of the Shetty Commission Report has to be considered as declaration of law by the Hon’ble Supreme Court for the purpose of its enforcement. Those recommendations are matters which may generate room for relief in cases where no rules have been framed; in which event, the learned single Judge has rightly found that the remedy does not lie before this Court. ”
This decision was followed by the Cochin Tribunal in ITA No.468/Coch/2016 [Sri.Bathisha Kalam Pasha Vs CIT] & ITA No.469/Coch/2016[Sri.S.V.Unnikrishnan Nair Vs PCIT]- decsion dt 22.03.2018 –
It is being claimed that the honble Income Tax Appellate Tribunal – Jaipur in its decision dt 14.09.2018 in the case of Shilpa Sameer vs ITO, Jaipur [ITA 818/JP/2016] & decision dt 19.06.2018 in the case of Shri Ajay Godara Vs ITO [ITA No. 614/JP/2016] had held that the Sumptuary Allowance is exempt. A careful reading of the decisions makes it clear that the Tribunal did not held so and in fact discussed the HC /SC Judges Acts too. What was held in this decision is that the Sumptuary Allowance is to be treated as “Entertainment Allowance”