TaxTMI 
TaxTMI 
2011 (9) TMI 397
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....0(14) of the Income Tax Act. Assessing Officer noted that the assessees had also claimed DTAA relief on the tax paid in USA on the entire amount of Living Allowance granted by TCS Ltd., to the assessees for rendering services in USA. The assessees in their explanations pointed out that the Living Allowance was exempt under the provisions of section 10(14)(i) of the Act. The assessees submissions have been reproduced at page 2 of the assessment order, which are as under :- "Section 10 in computing the total income of a previous year of any person, any income falling with any of the following clauses shall not included- 14(i) any such special allowance or benefit, not being in a nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred for the purpose of the duties of an office or employment of profit, as may be prescribed, to the extent to which such expenses are actually incurred for that purpose, Rule 2BB(1) of the Income Tax Rules, inter alia, prescribes the following allowance for the purpose of section 10(14)(i) of the Act "any allowance whether, granted on tour or for the p....
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....l place of duty as specified in Rule 2BB(1)(b). The allowances referred to in Rule 2BB(1)(b) are, in fact, in the nature of daily allowance, transfer travelling allowance and daily allowance on tour etc. and definitely not living allowance as claimed by the assessee. The assessee has further claimed that living allowance is given to the employees to meet expenditure for food, lodging, and other essential routine expenditures for daily life in USA and as such the same is in the nature of reimbursement. The said contention of the assessee is also not tenable as evidence in support of reimbursement of actual expenses could not be produced by the assessee." Assessing Officer, therefore, treated the living allowance granted to the assessees as perquisite within the meaning of provisions of section 17(2) of the Income Tax Act and denied the exemption claimed by assessees under section 10(14) of the Act. He further pointed out that assessees were entitled to relief under section 90 of the Income Tax Act on the income tax paid by them on the living allowance in USA with whom India has a Double Taxation Avoidance Agreement (DTAA). He, therefore, allowed the tax relief in respect of the t....
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.... African Assistance Plan. In this Circular, the Board has clarified that the living allowance paid to the foreign nationals coming for training in the course of study under the aforesaid programme at the enhanced rate, may be treated as exempted under section 10(14)/10(16) upto the assessment year 1988-89. The assessees relied on the following decisions :- (a) Hindustan Powerplus Ltd., In re [2004] 271 ITR 433(AAR - New Delhi); (b) CIT v. Goslino Mario [2000] 241 ITR 312 (SC); (c) CIT v. Morgenstern Werner [2003] 259 ITR 486 (SC); (d) CIT v. Shigeru Baba [2000] 242 ITR 592 (Mad.); (e) Madhavrao J. Schindia v. CIT [2000] 243 ITR 683 (Bom.), (f) CIT v. Hans Beer [2010] 2 RTLONLINE 256 (Delhi). (g) Madanlal Mohanlal Narang v. Asstt. CIT [2007] 104 ITD 190 (Mum.). Although the decisions cited above relate to eligibility of exemption under section 10(14)(i) to non-residents while performing their duties in India, the principle laid down in the above referred cases and the ruling of the AAR are equally applicable to an assessee, who is resident in India and works abroad in connection with his assignment given by his employer. (x) Appellants company relied on....
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....ion' in this context, does not mean transfer of employee from one place of duty to another place of duty. Rather the persons should be considered to be on tour in connection with official assignment. (xv) In support of contention that period of stay does not decide whether it is tour or transfer, the appellants relied on the decision of the Hon'ble Kolkata High Court in the case of CIT v. Kulasinghee A. Harith [1992] 107 CTR 328, wherein deputation for a period of 231 days was treated as tour. Similar view has been taken by the Hon'ble Kolkata High Court in the case of CIT v. D.S. Blackwood [1989] 178 ITR 470. 5. Thus, it was submitted that quantum of living allowance and manner of paying such allowance does not decide the allowability or otherwise of the exemption under section 10(14)(i) read with Rule 2BB(1)(b). 6. Before ld. CIT(Appeals), the assessees had also assailed the finding of Assessing Officer in respect of charging of interest under section 234B relying on the decision of ITAT, Special Bench, Mumbai in the case of Sumit Bhattacharya v. Asstt. CIT [2008] 19 SOT 663. 7. As regards the taxability of living allowance in the hands of the appellants, ld. CIT(Appe....
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.... Hindustan Power Plus Ltd. (supra) were with reference to non-resident and were for the period prior to 1.4.1989 after which the provisions of section 10(14) have been changed substantially and now for assessment year 2006-07 allowances as provided in Rule 2BB only are exempt. The living allowance received by the assessee does not fall under Rule 2BB(1) and Rule 2BB(2). Ld. CIT(Appeals) held that the living allowance was covered under section 2(24)(iiib) and accordingly held that exemption was available under section 10(14)(ii) of the Act. However, since it was not covered under Rule 2BB(ii), no exemption was admissible. 10. As regards the decision of the Hon'ble Bombay High Court in the case of Information Architect (supra), ld. CIT(Appeals) pointed out that the same is with reference to an employer and not an employee. Further, the said decision has been given in respect of section 40(a)(iii) and not in respect of section 2(24) and section 10(14). As regards reliance placed by the assessee on CBDT Circular on FBT, ld. CIT(Appeals) pointed out that the same related to part time allowance given to employees during tour, which is normally exempt under section 10(14). This Circula....
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....he nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, as may be prescribed, to the extent to which such expenses are actually incurred for that purpose. Rule 2BB(1)(b) : Any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty". 12. With reference to the above provisions, Shri Bajoria, ld. senior counsel submitted that the main issue to be decided is whether the employees could be treated on tour or not in view of the terms of deputation. He submitted that in the present case, the company had paid lump sum amount to its employees to meet the ordinary daily charges on account of absence from his normal place of duty in India. Ld. Sr. Counsel further referred to the deputation agreement and pointed out that deputation is project specific. He further submitted that no doubt duration as such can be a criteria for deciding whether the employees were sent on tou....
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.... USA standard. In sum and substance, the submissions of the ld. senior counsel are as under :- (i) The employees were not sent by way of transfer and salary pay structure remained same on deputation. (ii) All benefits were enjoyed by the employees as if they were TCS employees in India. (iii) No change was affected in service condition on deputation; (iv) Living allowance paid by way of reimbursement only; (v) Living allowance was paid for meeting personal expenses; (vi) The amount was paid for performing duties connected with the Office; (vii) The amount was given to meet additional cost of living on account of being away from normal place of duty. 12.1 Ld. senior counsel further referred to page 56 of the paper book in the case of Tarun Bandyopadhyay, wherein Instruction No. 1801/CBDT dated 07.11.1988 are contained where it was clarified that living allowance paid to foreign nationals coming to India for training in various courses of study under the Technical Cooperation Schemes of Colombo Plan and the Special Common-wealth African Assistance Plan (SCAAP) was exempted under section 10(14)/10(6) of the Income Tax Act, 1961 upto the assessment year 1988-89.....
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.... at the rate of IEP 50 per day per employee. The Tribunal has correctly held that these amounts constitute only reimbursement for the expenses incurred by the employees at a particular amount per day and would not form part of the salary in the hands of the recipients. Hence, the question of applying sub-clause (iii) of sub-section (a) of section 40 would not arise. The view of the Tribunal is correct and would not raise any substantial question of law". 12.2 Ld. senior counsel further referred to the Hon'ble Kolkata High Court in the case of Kulasinghee A. Harith (supra), wherein, inter alia held as under :- "The rent-free accommodation provided to the assessee by his employer was exempt under section 10(14) of the Income Tax Act on the self-same reason given by the Madras High Court in view of the decision of the Hon'ble Madras High Court in the case of Addl. CIT v. Brakes India Ltd. [1979] 118 ITR 820. Ld. senior counsel referred to the decision of Authority for Advance Rulings in the case of Hindustan Power Plus Ltd. (supra). In this case one of the issue was regarding exemption under section 10(14) in respect of living expenses of Rs. 35,000/- per month. Facts were th....
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....t absorbed in USA Office also. 12.4 Ld. senior counsel for the assessees further fairly submitted that in case it is held that living allowance was exempt under section 10(14)(i), then the assessees cannot avail tax credit in respect of tax paid in USA on living allowance because DTAA is applicable only where a particular receipt is taxable in both the countries. 13. Learned Departmental Representative for the Revenue relied on the order of ld. CIT(Appeals). He submitted that since the living allowance was given as personal expenses, therefore, it was covered under section 10(14)(ii) and not under section 10(14)(i) of the Act. He further submitted that assessees could claim exemption to the extent provided under Rule 2BB(2), but living allowance is not covered under the said Rule. Ld. DR further submitted that the assessees got higher benefit on account of posting at USA and they must have saved something. Therefore, unless the details of amount actually spent by them were available, in any view of the matter, exemption could not be granted under section 10(14)(i). 14. We have considered the rival submissions. The facts are not disputed. The assessees have been paid living....
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.... may be prescribed, to the extent to which such expenses are actually incurred for that purpose. 10(14)(ii) : Any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, as may be prescribed and to the extent as may be prescribed: Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence. With reference to the above mandate, ld. senior counsel submitted that though special allowance or benefit has been treated as income under section 2(24)(iiia) but simultaneously exemption has been allowed under section 10(14)(i) in respect of such special allowance or benefit. Shri Bajoria further explained that the income is covered under section 2(24)(iiib), then deduction is allowable under section 10(14)(ii), which ....
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....rted by the Department. Considering these aspects, it is to be held that the living allowance was in the nature of special allowance or benefit specifically granted to meet expenses wholly, necessarily and exclusively in the performance of duties of an Office or employment of profit. Therefore, the living allowance was covered under the provisions of section 2(24)(iiia) and not section 2(24)(iiib). In this regard, we may further observe that the nature of personal expenses contemplated under section 2(24)(iiib) are to be examined with reference to nature of allowances referred to in Rule 2BB(2). Where an employee is posted at such a place where he has to incur certain additional expenses on account of hazards of employment, such special compensatory allowance is eligible for exemption under section 10(14)(ii). Admittedly, the compensation paid in the present case does not come within the ambit of clause 2(24)(iiib). 17. Now coming to the next issue regarding assessees claim for deduction under section 10(14). As we have already held that living allowance was covered under section 2(24)(iiia), therefore, assessees claim for exemption under section 10(14) is to be considered un....
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....mes within the ambit of the term 'transfer' and not 'tour'. The basic criteria for deciding, whether a person is on tour or transfer is to examine his place of employment in consequence to the order. If place of employment shifts, it is transfer else tour only. Further, when a person is on tour, he is provided allowance only in order to meet his daily expenses on tour. But his salary structure remains the same. The allowance is not an addition to salary but only for the purposes of additional expenses involved in the performance of duties at the touring place. One more aspect which is relevant in this regard is duration for which the person has been sent to the other place of employment. Duration of posting depends upon the specified nature of work to be performed at the place where the person is being sent. Though it is quite relevant consideration but cannot be a conclusive factor in deciding whether person has been sent on tour or transfer. The next aspect is regarding the consent of the party before sending him on tour, whether necessary or not? Ld. CIT(Appeals) while considering this issue has, inter alia, observed that the consent of the party is of no relevance when a person....
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....ted is as under :- A. In order to qualify the Employee for overseas assignment, or deputation ('Deputation"), the Employer has provided the Employee with extensive specialized training and experience in Information Technology and its application, including trade secrets and the Employer's proprietary information, for which the Employer incurs considerable costs and expenses. B. The Employer has selected the Employee for Deputation to the United States and, by reading and signing this Deputation Agreement, and the annexed Deputation Terms Agreement the Employee agrees to go on Deputation where the Employee will be assigned to use his/her training and experience on one or more projects of the Employer for its clients in the United States. C. The Employee shall acquire commercially useful experience, knowledge and skills white on Deputation in the United States, and such experience, knowledge and skills are of substantial value to the Employer for dissemination by the Employee to the Employer's employees in India upon the Employee's return to India after the conclusion of the Deputation. D. The Employer is willing to send the Employee on Deputation only if the Employ....
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....nd to transfer the Employee to an Employer project for a different employer client in the United States. Upon any such change location or assignment, the provisions of this Agreement will continue to apply and remain in full force and effect, and Employer shall confirm to Employee in writing the details concerning the new location or assignment. COMPENSATION AND BENEFITS In connection with the Deputation, the Employee will receive compensation and benefits in India and in the United States, for services rendered by the Employee during the Deputation in the United States. The gross amount of the total compensation in India and the United States is set forth in the applicable DTA, and this total gross amount of compensation shall be includable as earnings in the United States and reported on U.S. Internal Revenue Service form W-2. More specifically, the compensation and benefits on the Deputation will be as follows: Initial Payments- Before the Employee embarks on his/her Deputation, the Employer will make the following payments to the Employee: (a) The Employer will compensate to the Employee an amount in rupees that is designed to enable the Employee to purchase any usu....
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.... under U.S. law with respect to the Employee's employment in the United States. Your Deputation shall begin on or about 17th October, 2004, you shall initially be assigned to perform IT consulting services on behalf of TCS for GE Healthcare at Milwankee. 3. Your Deputation in the United States is scheduled for a period of 12 months. However, various factors could require you to render services to TCS for its clients in the United States for a shorter or longer duration, and could result in a change of location or transfer to a TCS project for a different client in the United States. If there are any changes with respect to the period of your deputation or the location of your assignment, we will give you as much advance notice as is practicable under the circumstances. It is understood that you have no right to serve any particular fixed period of deputation or to serve at any particular location or client project. However, if the period of your deputation is extended beyond the scheduled 12 month period, the extension shall be reflected in a mutual written agreement. 4. The following specific provisions shall govern your deputation :- (A) Overseas Travel and Reim....
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.... sending them abroad. Since the assessees were to be sent abroad, they had to obtain Visa also for that purpose. In that regard, all the specific requirements had to be fulfilled by the employer. But that should not detract us from examining the true import of the term 'tour'. Ld. CIT(Appeals) has also pointed out that as per the deputation agreement, the assessees were entitled to take their families but that also cannot be a basis for deciding whether the assessees were to be treated on tour in terms of Rule 2BB(1)(b) or not because that Rule does not prohibit taking the family on tour. We are, therefore, of the considered opinion that keeping in view the entirety of the facts and circumstances of the case, assessees were to be treated on tour and, therefore, eligible for claiming deduction under section 10(14)(i) read with Rule 2BB(1)(b). Further, we find that the issue relating to living allowance has been considered by various decisions relied upon by the ld senior counsel for the assessees with reference to non-residents. Ld. CIT(Appeals) has distinguished all such case laws on the ground that they relate to non-residents and not with reference to the employees being sent abr....