ITAT confirms Assessment against District Judges as there is No Provision in IT Rules Exempting Medical, Conveyance and Sumptuary Allowances [Read Order]

The Cochin bench of Income Tax Appellate Tribunal ( ITAT ) confirmed the assessment order passed by the Commissioner of Income Tax by holding that there is no provision in Income Tax rules exempting medical, conveyance and sumptuary allowances.

Assessees in the present case are Officers in the State Judicial Services and are functioning as District Judges in the State of Kerala and filed their return of income for the relevant assessment year and claimed the exemption for the amount of sumptuary, conveyance and medical allowances. While completing the assessment under Section 143(3) of the Income Tax Act 1961 the Assessing Officer (AO) allowed the claim made by the Assessees.

Subsequently, the Commissioner of Income Tax has issued notice under section 263 of the Act for revising the aforesaid completed assessment by holding that the allowances claimed as exemption on the basis of the recommendation of Shetty Commission Report as approved by the Hon’ble Supreme Court were not exempted under the Income Tax Act. Assessee raised objections against the order of the CIT, but he rejected the objections and directed the AO to deny exemption claimed for sumptuary, conveyance and medical allowances etc.

Thereafter both the Assessees carried the matter before the Tribunal on appeal and submitted that the Shetty Commission Report which is the basis for payment of sumptuary, medical and conveyance allowances has been approved by the Hon’ble Apex Court. Further stated that sumptuary allowances had been specifically stated by the Hon’ble Supreme Court is a payment made in the course of the performance of duty and cannot be considered as a perk for being included as an income in the hands of the recipient. Therefore the sumptuary allowance received by the assessees cannot be considered as income.

The Tribunal bench comprising of Judicial Member George George K and Accountant Member Chandra Poojari observed that “sumptuary” means as a private expenditure in the interest of the State. The sumptuary allowances paid to the District Judges were made part of the salary and the allowance following the Shetty Commission Recommendation on the pay and allowance which was approved by the Hon’ble Apex Court.

While concluding the issue the bench also held that Since the Hon’ble High Court had held that acceptance of the Shetty Commission Report by the Hon’ble Apex Court is not a declaration of law and since there is no provision under the Income-tax Act or the Rules, whereby Medical, Conveyance and Sumptuary allowances are exempt from taxation, the bench hold that CIT is justified in invoking his revisionary jurisdiction under section 263 of the Income Tax Act and it is ordered accordingly.