2015 (9) TMI 1224 - AT - Income Tax

Tax Tribunal Rules Living Allowance Exempt, Dismisses Interest Levy Appeal

The Tribunal upheld the deletion of interest levied under section 234B by the Commissioner of Income Tax (Appeals) regarding the exemption for living ... Exemption under section 10(14)(i) - Held that:- The entire controversy is almost revenue neutral because even if it is held that assessees were not eligible for exemption under section 10(14)(i) in respect of living allowance, then in view of DTAA with USA, the assessees would become entitled to get tax credit in respect tax paid on living allowance in USA. However, as we have already held that living allowance is not taxable in India, therefore, assessees are entitled for exemption under section 10(14)(i). Therefore, they cannot claim tax credit in respect of tax paid in USA on living allowance because as very fairly pointed out by the ld. senior counsel for the assessees, DTAA would come into play only when a particular receipt is taxable in both the countries. - Decided in favour of assessee. Issues Involved:1. Exemption under section 10(14) of the Income Tax Act for living allowance.2. Levy of interest under section 234B due to disallowance of living allowance exemption.Issue-wise Detailed Analysis:1. Exemption under section 10(14) of the Income Tax Act for living allowance:The assessee, an employee of M/s. TCS Limited, claimed exemption for living allowance received during his deputation to the USA under section 10(14) of the Income Tax Act. The Revenue challenged the deletion of interest levied under section 234B by the Commissioner of Income Tax (Appeals), arguing that the living allowance should not be exempt.The Tribunal examined the facts of the case in the context of principles discussed in previous decisions, specifically referencing the case of ITO vs. Sri Saptarshi Ghosh & Others. It was noted that the employees' place of posting did not change to the USA; they were sent there for specific projects and were expected to return to India. The salary structure remained the same, and additional amounts were paid for routine expenses in the USA. The Tribunal concluded that the employees were on tour, not transferred, and thus eligible for deduction under section 10(14)(i) read with Rule 2BB(1)(b).The Tribunal also addressed the issue of actual expenditure, citing the ITAT Mumbai decision in Madanlal Mohanlal Narang vs. ACIT, which held that it is not open to the Revenue to call for details of expenses unless the allowances are disproportionately high or unreasonable. The Tribunal found no rationale in distinguishing case laws based on the residency status of employees and concluded that the exemption under section 10(14)(i) applies equally to non-residents and residents.2. Levy of interest under section 234B due to disallowance of living allowance exemption:The Tribunal held that since the living allowance is not taxable, the interest levied under section 234B cannot be sustained. This conclusion was supported by the ITAT Special Bench decision in Sumit Bhattacharya vs. ACIT, which established that if the underlying tax liability is not valid, the interest levied on it cannot be upheld.Moreover, the Tribunal noted that the entire controversy was almost revenue neutral due to the Double Taxation Avoidance Agreement (DTAA) with the USA. If the living allowance were taxable in India, the assessee would be entitled to a tax credit for taxes paid in the USA. However, since the living allowance is not taxable in India, the DTAA provisions do not apply.Conclusion:Respectfully following the decision of the Coordinate Bench, the Tribunal upheld the finding of the Commissioner of Income Tax (Appeals) in canceling the levy of interest under section 234B. Consequently, the appeal filed by the Revenue was dismissed.Final Order:The appeal filed by the Revenue stands dismissed. The order was pronounced in the open Court on 1st May 2014.