Assessees' Appeals Granted: Exemption for Compensatory Allowance, Free Electricity Deemed Non-Taxable

The Tribunal allowed the appeals of the assessees, directing the Assessing Officer to accept the claim of exemption for compensatory allowance under section 10(14)(i) and to delete the addition for free electricity provided, treating it as non-taxable under rule 3(d)(i).

---

---

Issues Involved:
1. Disallowance of compensatory allowance of Rs. 14,400.
2. Disallowance of electricity payment of Rs. 3,600.

Detailed Analysis:

1. Disallowance of Compensatory Allowance of Rs. 14,400
The first issue pertains to the disallowance of compensatory allowance. The assessees, who are officers/engineers of MPSEB, claimed compensatory allowance for expenses incurred in employing Orderlies to perform official duties at their residences. The Assessing Officer disallowed the claim, stating that no evidence was provided regarding the employment and payment to Orderlies. The officer concluded that the compensatory allowance received by the assessees is taxable as a perquisite under section 17(2)(iv) of the Income-tax Act.

The assessees argued that the allowance was a reimbursement of expenses incurred for official duties, hence exempt under section 10(14) read with rule 2BB(1)(d). They cited the CBDT notification No. SO 267(E), dated 29-8-1990, and the decision of the Hon'ble MP High Court in Bishamber Dayal v. CIT [1976] 103 ITR 813. However, the CIT(A) upheld the Assessing Officer's decision, stating the assessees failed to prove that the expenses were incurred wholly, necessarily, and exclusively for official duties, and the provided certificates were self-serving and insufficient as evidence.

Upon appeal to the Tribunal, the assessees reiterated that the compensatory allowance was for official duties and not a personal benefit. They argued that similar allowances were accepted in previous and subsequent years and cited the ITAT Jaipur Bench decision in Rajasthan State Electricity Board v. ITO [1994] 48 ITD 100, which supported their claim under section 10(14)(i). The Tribunal agreed with the assessees, noting that the decision of the Jaipur Bench was applicable and that the assessees had fulfilled the requirements for exemption under section 10(14)(i). Therefore, the Tribunal directed the Assessing Officer to accept the assessees' claim of exemption.

2. Disallowance of Electricity Payment of Rs. 3,600
The second issue concerns the disallowance of Rs. 3,600 for free electricity provided to the officers of MPSEB. The Assessing Officer treated the free electricity as a taxable perquisite, arguing that the electricity supplied was not solely generated by MPSEB but also purchased from external sources. The CIT(A) upheld this view, stating that since MPSEB purchased electricity from outside sources, the supply to employees at concessional rates was a perquisite under rule 3(d)(ii) of the Income-tax Rules.

The assessees contended that MPSEB's generation capacity was sufficient to cover the free electricity provided to employees, and thus it should not be treated as a taxable perquisite. They argued that the concession did not exceed the electricity generated by MPSEB and fell within rule 3(d)(i), which exempts such benefits when supplied from resources owned by the employer.

The Tribunal, after considering the arguments and evidence, found that MPSEB generated sufficient electricity to cover the free supply to its senior officers. Therefore, the concession provided fell within the purview of rule 3(d)(i) and should not be treated as a taxable perquisite. The Tribunal directed the deletion of the addition of Rs. 3,600 in all the cases.

Conclusion
The Tribunal allowed the appeals of the assessees on both issues. It directed the Assessing Officer to accept the claim of exemption for compensatory allowance under section 10(14)(i) and to delete the addition for free electricity provided, treating it as non-taxable under rule 3(d)(i).

---