The main legal point established in the judgment is that the Conveyance Allowance (CA) and Additional Conveyance Allowance (ACA) paid to the Development Officers of the Life Insurance Corporation of India (LICI) are not exempted from payment of income tax under Section 10(14) of the Income Tax Act, 1961 read with Rule 2BB of the Income Tax Rules, 1962.

JUDGMENT :

A.K. Ganguly, C.J. - This Writ Petition has been filed by National Federation of Insurance Field Workers of India (Cuttack Divisional Association) an all India Association of the Development Officers. The officers' are working in the Office of the Life Insurance Corporation of India (hereinafter called 'LICI') and they challenge through their association inter alia, the action of LICI in making deduction of tax at source from the amount of payment made to Development Officers of LICI on account of Conveyance Allowance (hereinafter referred to as 'CA') and Additional Conveyance Allowance (hereinafter referred to as 'ACA'). The prayer is to quash Annexures 4, 5 & 6 of the Writ Petition.

2. In this matter, when the Writ Petition was filed, a Division Bench of this Court, by an interim Order Dated 15.01.2004, directed that there shall be no deduction in respect of CA and ACA paid to the Development Officers (hereinafter referred to as 'DOs') of LICI and as a result of the said order, deduction has been stopped by the LICI. But a subsequent order No. 10 dated 30.1.2006 passed in Misc. Case No. 915 of 2006 the stay order was vacated.

3. The Writ Petition is pending in this Court for all these years. Now Misc. Case No. 14518/2006 has been filed by LICI on 05.12.2006 praying for leave to deduct the income tax at source on CA & ACA paid to DOs. In this regard, Learned Counsel for the LICI submitted that LICI has been prevented from making deduction in view of the aforesaid interim Order Dated 15.01.2004 whereas the Income Tax Department by treating the LICI as an assessee in default issued show cause notice u/s 226(2) of the Income Tax Act, 1961.

4. Virtually, on the said prayer of the LICI the matter was taken up for final hearing and was heard.

5. The case of the Petitioner as made out in the Writ Petition, appears to be that the DOs of LICI are its full time employees and they are Class-II officers of LICI. According to the Petitioner, these DOs Jo not have a desk job, and for the purpose of promoting the business of LICI they are required to travel extensively to discharge their responsibilities. Therefore, they are paid CA and ACA to meet the expenses incurred by them wholly, necessarily and exclusively in the performance of their official duties. The further case of the Petitioners' is that LICI at no point of time had made any income tax deduction at source u/s 192 of the Income Tax Act, 1961 (herein after called 'the said Act') on the amount of CA and ACA paid to DOs and the assessing officers of Income Tax Department of the concerned area use to accept the CA and ACA paid to the them as exempted u/s 10(14) of the said Act which is set out here under.

10(14)(i) any such special allowance or benefit, not being in the 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....;

6. In paragraph 9 of the Writ Petition it has been stated that by the Finance Act, 1995 which came into effect on 01.07.1995 the words 'as may be prescribed' stated in Section 10(14) of the said Act has been amended. Consequent upon such amendment, a Rule was also made by Income Tax (eighth Amendment) Rules, 1995 vide Notification No. S.O. 617 (E) dated 07.07.1995. Rule 2BB has been inserted in the Income Tax Rules, 1962 (hereinafter referred to as 'the said Rules'). The amended version of Section 10(14) of the said Act has been set out above and the Rule 2BB of the said Rules is set out herein below:

Rule 2BB. Prescribed allowances for the purposes of Clause (14) of Section 10(1) For the purposes of Sub-clause(i) of Clause (14) of Section 10, prescribed allowances, by whatever name called, shall be the following, namely:

x x x x

(c) any allowance granted to meet the expenditure incurred