Case Law Details
Shri M. Ranga Reddy Vs. Income Tax Officer (ITAT Hyderabad)
Assessee being MLA, was provided with allowances by the State Legislative Assembly as referred to the salary certificate issued by the Legislature Secretariat dated 30.10.2006 at page 55 of the paper book, where the consolidated monthly amount of Rs. 40,000 was paid including salary of Rs.2500 per month. These allowances are paid to Members for their constituency works which consists of conveyance allowance, contingency allowance, telephone allowance, security Car allowance and Medical allowance. Generally as a Member of Legislative Assembly, the Member incurs expenditure at various times irrespective of place and maintaining vouchers and bills is a non-realistic considering the movement and time and there is no dispute of incurring of expenditure by the A. O. except not producing the evidence in respect of claim. The assessee filed letter dated 24.12.2008 explaining that Rs.4,80,000 was received by the assessee and treated as receipt in the cash flow statement and withdrawn. The difficulty of Assessee- MLA was that, he could not obtain bills which is considered mandatory by the A.O.
Relying on CBDT Circular dated on 1st Aug., 1955 it was held that Special allowance or benefit being reasonable and not disproportionately high – No details of expenses actually incurred need be asked for the purpose of granting exemption under Section 4(3)(vi) of 1922 Act.
Full Text of the ITAT Order is as follows:-
This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)- 7, Hyderabad, dated 18-03-20 16, for the AY. 2005-06.
2. Condonation: The appeal was filed with a delay of 191 days. The delay was attributed to the Counsel, who it seems misplaced the order and could not prefer appeal in time. Affidavit by Counsel, Advocate Shri Mohd. Afzal was filed in support. Considering the affidavit of the Counsel, I hereby condone the delay and admit the appeal.
3. The grounds raised by assessee are as under:
“1. The order of the learned Commissioner of Income Tax. (Appeals)-7 Hyderabad, is against the law, weight of evidence and probabilities of case.
2. The learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 4,26,000/- which was received by way of allowances by the assessee as a Member of Legislative Assembly.
3. The learned Commissioner of Income Tax (Appeals) ought to have appreciated that the aggregate allowance of Rs. 4,26,000/- were received with a specific purpose and incurred the same for the purpose it was granted, therefore, not taxable u/s 10(14) of the IT Act.
4. The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary”.
4. Briefly stated, assessee is an individual deriving salary income from A P Legislative Assembly as Member and is engaged in transport business and also has share income in partnership He filed his return of income for the AY. 2005-06 on 31-03-2006 declaring total income of Rs. 2,54,433/- and agricultural income of Rs. 1,00,000/-. The Assessing Officer (AO) completed the assessment u/s. 143(3) r.w.s. 147 of the Income Tax Act [Act] by treating the income from allowances received as MLA at Rs. 4,26,000/- and determined the total income at Rs. 6,80,430/-.
5. CIT(A) on appeal confirmed the same by stating as under:
“4. The only issue in appeal is regarding the addition of Rs. 4.26,000/ which is received by way of allowance by the assessee as a Member of Legislative Assembly taxed as income from other sources by the Assessing Officer. The Assessing Officer held that in the absence of employee and employer relationship, the assessee is eligible only for deduction u/s 10(17) which was allowed. The assessee claims that he is eligible for deduction u/s 10(14) and whole of the allowance should is exempt. The assessee relied on the decision of Hon’ble ITAT in case of Shri Bijjam parthasarathi Reddy, Banaganapalli, Kurnnol Dist. VS Asst. commissioner of Income Tax, Circle-I, Kurnool ITA No.1 158/Hyd/06 Asst. Year 2001-02 &. ITA No. 1159/Hyd/06 Asst. Year 2002-03. As the assessee has not produced any evidence regarding incurring of expenditure with regard to allowances, the decision in case of Shri. N. Indrasena Reddy, Hyderabad Vs The Income-tax Officer, ward-9(1), Hyderabad ITA Nos. 218 &. 219/Hyd/2005 Asst. Year 2000-01 & 2001-02 is applicable to the facts of the case. Accordingly, the addition made by Assessing Officer is confirmed are that ground of appeal is dismissed”.
6. At the outset, both the parties fairly admitted that similar issue was decided by the Co-ordinate Bench in assessee’s own case for AY. 2006-07, wherein, the issue was discussed and decided as under:
“5. We heard the rival submissions and perused the material on record and judicial decisions cited. The Ld. A.R’s argument that the assessee being MLA, was provided with allowances by the State Legislative Assembly as referred to the salary certificate issued by the Legislature Secretariat dated 30.10.2006 at page 55 of the paper book, where the consolidated monthly amount of Rs. 40,000 was paid including salary of Rs.2500 per month. These allowances are paid to Members for their constituency works which consists of conveyance allowance, contingency allowance, telephone allowance, security Car allowance and Medical allowance. Generally as a Member of Legislative Assembly, the Member incurs expenditure at various times irrespective of place and maintaining vouchers and bills is a non-realistic considering the movement and time and there is no dispute of incurring of expenditure by the A. O. except not producing the evidence in respect of claim. The assessee filed letter dated 24.12.2008 explaining that Rs.4,80,000 was received by the assessee and treated as receipt in the cash flow statement and withdrawn. The difficulty of Assessee- MLA was that, he could not obtain bills which is considered mandatory by the A.O. In this connection, the Ld. A.R. drew our attention to page 77 of the paper book wherein similar issue was discussed (Shri Bijjam Parthasarathi Reddy vs. ACIT, Circle-1 Kurnool) (supra), by the Coordinate Bench of the Tribunal and held at page-4 para-7 which read as under :
“7. We have considered the rival submissions and perused the material on record. As for the claim of exemption in respect of the salary and allowances received by the assessee in his capacity as an MLA, we find that this issue is covered by the decision of the Tribunal dated 31.1.2006 in ITA No. 218 and 219/Hyd/200 in the case of N Indrasena Reddy, Hyderabad vs., ITO, a copy of which is filed before us. The Tribunal by its order dated 31.1.2006 in that case, after detailed consideration of the relevant provisions of the Act, concluded vide para 6.1 thereof that in the case of a Member of Legislative Assembly of the State, provisions of both S.10(14)(i) and S.10( 17) (iii) will be applicable. In the case of CIT vs. Maddi Sudarshanam (174 ITR 659), Hon’ble Andhra Pradesh High Court has observed that so as to be entitled to the benefit of exemption under S.10( 14), it is enough if a person is holding an office and for the purpose of performing the duties/associated with that office, he is granted an allowance or benefit specifically to meet the expenses. In the case before us, the assessing officer himself has noted in para 3 (f) of the assessment order that the assessee was a high profile MLA and a renowned person and in order to maintain dignity, status and life style of a high profile MLA’s reputation, the assessee should have incurred an amount of Rs. 25,000 per month, viz. Rs. 3 lakhs per annum. Considering totality of the facts and circumstances of the case, we accept the contention of the assessee and direct the assessing officer to allow deduction in respect of the expenditure incurred by the assessee in connection with performance of duties of his office as MLA.”
5.1. Similarly, the above decision was considered by the Tribunal in the case of Shri B. Durga Prasad, Ex.MLA, Venkatagiri vs. ITO, Ward-1, Gudur, Nellore District (ITA. Nos. 826 to 830/H/2007 dated 28.09.2012) and relief was granted. The Mumbai Bench of ITAT in the case of Madanlal Mohanlal Narang vs. ACIT (2007) 104 ITD 190 (Mum.) emphasize on the allowances and has observed at para-7 as under:
“7. The expression to the extent to which such expenses are actually incurred, as finds place in section 10(14)(i), is not new to the I.T. Act. It was first introduced w.e.f. 1st April, 1955, in Section 4(3)(vi) of the Indian I.T. Act, 1922 which dealt with the exemption of allowance to the salaried employees. This amendment was made in the backdrop of Hon ‘ble Bombay High Court’s judgment in the case of Tejaji Frasaram Kharawalla v. CIT (1948) 16 ITR 260 (Bom.) wherein their Lordships had held that exemption under Section 4(3)(vi) was available even if portion of the allowance was not consumed and stood as surplus in the hands of the employees. Subsequently, though this decision was reversed by the Hon’ble Supreme Court in the case of CIT v. Tejaji Frasaram Kharawalla, not before Section 4(3)(vi) was amended, w.e.f. 1st April, 1955, by Finance Act, 1955· This amendment, it appears, resulted in considerable apprehension amongst the salaried employees as to how can they be expected to maintain meticulous details and evidence of expenditure incurred by them for the actual usage of allowance. To allay these apprehensions, the CBDT, on 1st Aug., 1955, issued a circular which is reproduced below for ready reference:
“Special allowance or benefit being reasonable and not disproportionately high – No details of expenses actually incurred need be asked for the purpose of granting exemption under Section 4(3)(vi) of 1922 Act.
The exemption under Section 4(3)(vi) in respect of any special allowance or benefit will be available from the asst.yr. 1955-56 only to the extent of the sanctioned amounts. Generally speaking, where the specific allowance is reasonable with reference to the nature of the duties performed by the assessee and are not disproportionately high compared to the salary received by him, no attempt will ordinarily be made to call for details of the expenses actually incurred by him with a view to dis entitling him to some extent from the exemption. An inquiry will, of course, be justified and will be made in cases where the allowances are prima facie unreasonably high.”
We respectfully follow the Coordinate Bench decisions and the issue is similar in the present case. Accordingly we direct the Assessing Officer to delete the addition and allow the ground”.
7. Respectfully following the same, I hold that the impugned allowances are exempt and consequently, allow the grounds of appeal raised. In the result, appeal of assessee is allowed.
Order pronounced in the open court on 29th November, 2017
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