1998 (11) TMI 3 - HC - Income Tax

Conveyance maintenance reimbursements for employee-owned official travel u/s10(14): employer's s.192 TDS estimate upheld, no liability.

Whether conveyance maintenance reimbursement paid to employees was exempt under s.10(14) for TDS purposes turned on whether the employer could reasonably ... Allowance of exemption from tax u/s 10(14) - deducting tax at source on salaries paid to the employees - Conveyance maintenance reimbursement of expenditure payment to the employee ('CMRE') - HELD THAT:- The tax at source in the case of an employee in receipt of salaries is deducted on the basis of estimate of income under the head 'Salary' emanating from the employer. That estimate also includes a fair estimate by the employer whether any amount paid by him is not likely to be subjected to tax under any provisions of the Income-tax Act. As we have noticed, the evidence regarding operation of the scheme clearly attracted the provisions of section 10(14) inasmuch as reimbursement is granted for use of one vehicle owned and possessed by the employee for expenses incurred in undertaking official journeys and the payment is made on the employee issuing a certificate that he has incurred more expenses than the amount which is being reimbursed to him at the end of the month. The fact that reimbursement is up to a maximum limit and not more does not detract from the fact that expenses are being paid as far as the employer is concerned towards reimbursing actual expenses incurred by the employee in undertaking official journeys up to the extent the amount is actually reimbursed. Nor does the fact that the employee, during the course of his assessment, is not found entitled to full benefit under section 10(14), in any way reflect on the estimate of income-tax payable on the income of the employee at the time when such amount is paid. Whether an employee actually incurs such amount for official purposes is relevant for assessment of the employee because the exemption operates in his terms and conditions of availing of such exemption that is to be fulfilled by him. Whether the employee is able to substantiate his claim to exemption has no bearing on the estimate of income liable to tax to be made by the employer. These findings do not give rise to any question of law. The fact that ultimately on the assessment of the employees they have been found in not utilising the full amount received by them from the employer does not reflect in any manner on the estimate of the employer at the end of each month about the income of the employee received from his employer liable to tax as per the mark it bears. Issues Involved:The judgment involves the interpretation of provisions u/s 256(2) of the Income-tax Act, 1961 regarding the submission of a statement of case by the Tribunal for referring questions of law arising from an order. The main issues revolve around the exemption of conveyance maintenance reimbursement of expenditure (CMRE) under section 10(14) and the implications of tax deductions on such reimbursements.Issue 1 - Exemption of CMRE under Section 10(14):The Tribunal's order dealt with whether CMRE paid to employees, conditioned on ownership and possession of a vehicle for official purposes, qualifies as conveyance allowance fully exempt u/s 10(14) despite the requirement that expenses must be wholly, necessarily, and exclusively incurred for official duties. The scheme aims to promote efficiency by encouraging employees to own and maintain conveyances for official use, with reimbursement subject to conditions ensuring actual usage and maintenance of the vehicle. The Tribunal found that the reimbursement, up to a fixed limit, is not automatically granted but upon certification of actual expenses exceeding the claimed amount. The Income-tax Officer held that the amounts disbursed were not fully exempt under section 10(14) due to insufficient evidence of actual expenses, leading to penalty proceedings and interest charges. Ultimately, the taxable amount was determined and recovered from the employees.Issue 2 - Tax Deductions and Employee Assessments:The judgment clarifies that tax deductions on salaries are based on employer estimates, including considerations of amounts not likely to be taxed. The operation of the CMRE scheme falls under section 10(14) as it reimburses actual expenses for official journeys up to the reimbursed amount, despite the maximum limit. The employee's ability to substantiate claims for exemption does not impact the employer's tax estimate, as the employer's obligation is to estimate the income liable to tax at the time of payment. The assessment of employees not utilizing the full amount received does not affect the employer's monthly income tax estimate for tax deduction purposes.In conclusion, the court rejected the application u/s 256(1) as it found no question of law arising from the Tribunal's order, given the clear interpretation of the provisions and the factual circumstances presented.