Court affirms tax exemption on per-diem allowances under Income Tax Act

The High Court upheld the Tribunal's decision regarding per-diem allowances, ruling that allowances within a reasonable range are exempt under Section 10(14) of the Income Tax Act without the need for verification of actual expenses. The Court supported the reliance on circulars from the Ministry of External Affairs and a Kolkata Tribunal decision, emphasizing that TDS deduction is not applicable if allowances are for legitimate expenses incurred in the line of duty. The appeals were dismissed as no substantial legal questions arose, affirming the tax exemption for per-diem allowances under Section 10(14).

---

---

Issues:
1. Interpretation of circulars issued by the Ministry of External Affairs in relation to per-diem allowances.
2. Reliance on a decision by the Tribunal, Kolkata bench in a similar case.
3. Tax deduction at source (TDS) liability on per-diem allowances under section 192.

Issue 1: Interpretation of Circulars by Ministry of External Affairs:
The High Court analyzed the Tribunal's reliance on circulars issued by the Ministry of External Affairs regarding per-diem allowances. The Tribunal considered the circulars dated 11/11/1996 and 21/9/2010, concluding that per-diem allowances of $50 to $75 paid to employees on official trips to the USA and Europe were reasonable and exempt under Section 10(14) of the Income Tax Act. The Court upheld this decision, emphasizing that verification of actual expenses is not required if the allowances are not disproportionately high compared to the salary received.

Issue 2: Reliance on Kolkata Tribunal's Decision:
The Court also examined the Tribunal's reliance on a decision by the Kolkata bench in a similar case. It was held that the employer is not obligated to verify proof of journey or actual expenditure for per-diem allowances unless the allowances are unreasonably high compared to the salary or duties performed. The Court agreed with this approach, further supporting the exemption of per-diem allowances based on the circulars issued by the Ministry of External Affairs.

Issue 3: TDS Liability on Per-diem Allowances:
Regarding the TDS liability under section 192, the Court considered the argument that per-diem allowances should be treated as perquisites under Section 17(1)(iv) of the Income Tax Act. However, it was clarified that if such allowances are for reimbursement of expenses wholly, necessarily, and exclusively incurred in the performance of duties, they fall under Section 10(14) and are not taxable. The Court emphasized that verification of actual expenses does not alter the nature of the payment, and therefore, TDS deduction was not applicable in this case.

In conclusion, the High Court dismissed all the appeals, stating that no substantial question of law arose for consideration. The judgment highlighted the importance of considering circulars and judicial precedents in determining the tax treatment of per-diem allowances, ultimately upholding the exemption of such allowances under Section 10(14) of the Income Tax Act.

---