Mar 302021
Total rental income

Standard Deduction @ 30%

Interest on borrowed capital

Rs 9,00,000/-

Rs 2,70,000/-

Rs 21,62,120/-

Loss under the head House Property Rs 15,32,120/-


Details of rent income and issue involved: The above rent was, on the basis of a field inquiry by the Assessing Officer (AO), found to be from the assessee’s major son, Roman Pathan, and major daughter, Neha Pathan, residing thereat along with the assessee’s other family members. Nobody would, charge rent (for residence) from his own son and daughter, particularly considering that both are unmarried and living together with their family at its’ self-owned abode. The arrangement was therefore regarded merely as a tax-reducing device adopted by the assessee, liable to be ignored. Is this sufficient ground to ignore the rental income and treat the house property as a self-occupied property, and restrict the claim of interest u/s. 24(b) to Rs. 1,50,000?


Facts to be considered:

The arrangement is highly unusual, particularly considering that the rent is in respect of a self-owned property (i.e., for which no rent is being paid), which constituted the family’s residence, with, further, the assessee’s son and daughter being unmarried. That, however, is not conclusive of the matter.

Being a private arrangement, not involving any third party, not informing the cooperative housing society may also not be of much consequence.

However, due to its unusual nature, it raises a doubt about the genuineness of the arrangement and needs a further investigation of the matter with respect to:

  • What is the total area, as well as its composition/profile?
  • Quantum of rent received per se the proportionate area leased out?
  • How many family members, besides the assessee (the owner) and the two tenants, are residing thereat?
  • Has the area let been specified, allowing private space (a separate bedroom each) to son and daughter,
  • Who would, in any case, be also provided access to or user of the common area – specified or not so in the agreement/s, kitchen, balcony, living area, bathrooms, etc.
  • How has the rent been received, e., in cash or through bank and, further, been sourced, i.e., whether from the assessee (or any other family member) or from the capital/income of the tenants.
  • If the arrangement was a subsisting/continuing one or confined to a year or two, strongly suggestive of, in that case, a solely tax-motivated exercise?


In the instant case, the assessee’s major son and daughter are financially independent (or substantially so), with independent incomes, sharing the interest burden of their common residence with their father. And, as such, instead of transfer of funds to him per se, have regarded, by mutual agreements, the same as rent, as that would, apart from meeting the interest burden to that extent, also allow tax saving to the assessee-father.


How to claim an interest in such case u/s 24 of income tax act treating the same as against both a self-occupied and a let out property:

The house property, is, in view of the rent agreements, both a self-occupied and a let-out property. The interest claimed (Rs. 21.62 lakhs) is qua the entire property, which therefore cannot be allowed in full against the rental income, which is qua a part of the house property. The assessee’s interest claim therefore cannot be allowed in full and shall have to be suitable proportioned.

For adjusting the above interest amount, in the instant case, in view of the joint residence, be that no area (portion) is specified in the rental agreements. The number of family members living jointly; their living requirements – which may not be uniform; the fair rental value of the property, etc., are some of the parameters which could be considered for the purpose.



Thus, a genuine arrangement cannot be disregarded as the same results or operates to minimize the assessee’s tax liability.

Mar 242021

The assessee is in the business of film distribution in the name of M/s Sukrit Pictures. The assessee has paid an amount of Rs.2 crores as Minimum Guarantee Royalty (MGR) and has not deducted TDS. The Assessing Officer held that the payment would fall within the definition of “Royalty” and failure to deduct TDS as per Section 194J of the Income Tax Act, 1961 would attract provisions of Section 40(a)(ia) of the Act.

Whether the amount paid as MGR would attract Section 194J?

The provisions of section 194J of the Act with relation to “Royalty” are as per the Explanation 2 to Clause (vi) of sub-section (1) of section 9 reads as under:

Explanation 2.—For the purposes of this clause, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for—

(i) the transfer of all or any rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trademark or similar property;
(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trademark or similar property;
(iii) the use of any patent, invention, model, design, secret formula or process or trademark or similar property;
(iv) the imparting of any information concerning technical, industrial, commercial, or scientific knowledge, experience, or skill;
(iva) the use or right to use any industrial, commercial, or scientific equipment but not including the amounts referred to in section 44BB;]
(v) the transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work including films or videotapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or
(vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to [(iv), (iva) and] (v).”

What is GMR? – A film distributor pays an amount as Minimum Guarantee Royalty (MGR) for the purchase of theatrical distribution rights. It is worthwhile to note that in such a case, copyright is always with the producer, and the distributor is only given the right to the exhibition of cinematographic films.

Analysis of facts:

Clause (v) of Explanation 2 to section 9(1) consists of two different transactions as given below:

Inclusive Part Non – Inclusive part
Transfer of all or any rights (including the granting of a license) in respect of any:

1.      copyright,

2.      literary,

3.      artistic or

4.      scientific work including

5.      films or videotapes for use in connection with television or

6.      tapes for use in connection with radio broadcasting.

Consideration for the sale distribution or exhibition of cinematographic films


It is wrong to hold that what the assessee purchased is copyrights and hence liable to TDS. In fact, the copyrights are always with the producer. The distributor is only given the right exhibition of cinematographic films. Hence, such transactions do not attract the provisions of TDS.

Moreover, the minimum guarantee amount which is paid by the distributor for acquiring the exhibition rights of a movie is a fixed expenditure for the distributor that is paid to producers irrespective of the fact whether the film generates a profit or incurs losses. Hence, the payments made by the assessee do not fall under the term “Royalty” and do not attract the provisions of TDS.

Hence, TDS is not liable to deduct on MGR.

Mar 232021

The Government of Madhya Pradesh has issued the Draft (Madhya) Social Security Code Rules, 2006 in the suppression of the following Rules:

• Madhya Pradesh Employees Insurance Court Rules, 1963.

• Madhya Pradesh Employees State Insurance (Medical Benefits Services System) Rules, 1959.

• Madhya Pradesh Supplies to the Hospitals established under the scheme of employees, estate insurance rules, 1981.

• Madhya Pradesh workmen’s compensation rules, 1962.

• Madhya Pradesh workmen’s compensation (Occupational diseases) rules, 1963.

• Madhya Pradesh maternity benefit rules, 1965.

• Payment of Gratuity (Madhya Pradesh) Rules, 1973

• Madhya Pradesh Building and other construction workers (regulation of employment and conditions of service) rule, 2002.

The following are the objectives:

• The Draft Rules provide for the registration of establishments required to pay provident funds, employees’ insurance benefits to workers, payment of various benefits such as insurance, gratuity, and maternity benefits.

• The Draft Rules also provide for Aadhaar-based registration of construction workers, unorganized workers, and gig and platform workers. Migrant construction workers will be entitled to benefits in the state where they are working.

•• The Draft Rules provide that there shall be a crèche facility in every establishment with 50 or more women employees. Further, it provides detailed procedures for the application and payment of gratuity.

All persons likely to be affected thereby and the notice is hereby given that the said draft rules will be taken into consideration after the expiry of a period of 45 days. Objections and suggestions if any may be addressed to the labor commissioner of Madhya Pradesh at and

Notification:- Madhya Pradesh Social Security Code Rules 2020



Mar 222021

An addition of Rs. 11 lakhs made by the Assessing Officer as deemed dividend under section 2(22)(e ) of the Act. However, the assessee has challenged the sustenance of the addition of Rs. 4,55,250 as deemed dividend under section 2(22)( e) in respect of loans received from the following companies :

(a) Taneja Builders Pvt. Ltd. (TBPL)

(Holding more than 50% share capital & Director)

Rs. 75,750
(b) Panchsheel Properties Pvt. Ltd. (PPPL)

(Director of the company)

Rs. 19,500
(c) Tera Construction Pvt. Ltd. (TCPL)

(Holding more than 52.8% share capital)

Rs. 3,60,000
Rs. 4,55,250

Deemed dividend under income tax act:

Explanation 2 to section 2(22) accumulated profits shall always include all profits of the company to date of payment of dividend and cannot merely be taken as accumulated profits on the last date of previous accounting year as business profits earned by company accrues from day to day and not only at end of the year when accounts are finalized

Therefore, once the amount is advanced to extent of which the company possesses accumulated profits, on the date of advance itself it becomes income in form of deemed dividend under section 2(22)(e).

The provision of section 2(22)( e) and Explanation 2 thereto are extracted herein:—

“Section 2(22)(e): Any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [made after 31-5-1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares not being shares entitled to a fixed rate of a dividend of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten percent of the voting power or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the ‘said concern’)] or any payment by any such company on behalf or for the individual benefit, of any such shareholder, to the extent to which the company, in either case, possesses accumulated profits;

** ** **

Explanation 2.—The expression ‘accumulated profits’ in sub-clauses (a), (b), (d ), and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, [but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place].”  


Analysis and conclusion:

The assessee was having a substantial shareholding in three companies, namely, ‘TBL’, ‘PPPL’, and ‘TCPL’. He had taken advances from these three companies.

Whether amount taken from the company shall be treated as advances taken for the business of company or loan and/or an advance of an employee?

The assessee was also a director in these three companies and to achieve the objectives of the company, he had to supervise the transaction of sale and purchase of properties and had to make handy payments in substantial sums for acquiring, maintaining, refunding, and selling the properties. He was, therefore, required to keep a sufficient amount in his saving bank account to meet the urgent needs.

If the amount remained unutilized for one or two months, it was deposited back in the companies account through cheque.

On perusal of accounts of the assessee in the books of said company, it nowhere revealed that the amount was advanced for the purpose of the business of the company. The assessee was not able to substantiate such a claim.

An assertion that the amount advanced by the company was for the purpose of the business of the assessee, could not be accepted in the absence of any corroborative material.

Thus, the amount was rightly treated as loans and advances within the meaning of section 2(22)(e ).


Also, said companies were possessing accumulated profits on the date of payments of loans/advances so what is the amount assessable as a deemed dividend?

The issue was as to what was the amount assessable as such.

  • The amount assessable could not exceed the accumulated profits possessed by these companies. As per Explanation 2, the expression ‘accumulated profits’ in sub-clause (e) of section 2(22) shall include all profits of the company up to the date of distribution or payment referred to in this clause.
  • The expression ‘accumulated profits’ shall mean profits in the commercial sense and not assessable or taxable profits liable to be taxed as income.
  • It is wrong to merely take the accumulated profits as appearing under the head ‘Reserves and surplus’ as per the accounts of those companies only or their taxable profits.
  • There is no provision that only the cash balance available to the company on the date of payment is to be treated as deemed dividend. Thus, the contention of the assessee that the amounts were invested in real estate and, hence, to be reduced from the accumulated profits, was also wrong.
  • Further, the contention raised by the assessee was that accumulated profits mean the balance on the last date of the previous accounting year and could not include current profits in which advance was made, was also wrong.
  • The contention that closing balance in the loans and advances were to be treated as a deemed dividend and the re-payments received from the loans and advances will reduce the quantum to a deemed dividend. There is no such provision under section 2(22)(e ), which suggests that only the outstanding balance at the end of the year is to be treated as deemed dividend.
  • Once the amount is advanced to the extent of which the company possesses accumulated profits, on the date of advance itself it becomes income in the form of deemed dividend under section 2(22)(e).


Hence, said the payment was treated as deemed dividend as per section 2(22)( e), read with Explanation 2 to said section. It was also not in dispute that the assessee was holding substantial shares in the said companies. Thus, the amount of loans and advances to such shareholder to the extent the company was possessing accumulated profits could be assessed as income by way of deemed dividend as per section 2(22)(e ).

Mar 192021

For the computation of capital gain under Section 48 of the Income-tax Act, 1961

Expenses claim to have spent on construction and/or renovation of property Rs 1,70,000/-

In support of its claim, the assessee filed a bill of the said amount issued by one ‘S’

However, it was found to be bogus and the signature stated therein was not of ‘S’

Now the question arises:

Whether genuineness of any claim is not proven merely on the production of some paper but only when same is substantiated?

Whether since there was nothing on record to suggest that sum in question was paid by the assessee so as to claim the cost of improvement of property sold is sufficient ground to disallow the said expenses?

Detail facts

The assessee sold his share of house property. While computing capital gains, the assessee claimed to have spent a sum of Rs. 1,70,000 on account of construction/renovation of property sold. In support of its claim, the assessee filed a bill of the said amount issued by one ‘S’. The Assessing Officer while verifying the bill in respect of alleged renovation found that same was bogus. The Assessing Officer, accordingly, disallowed the said amount. The Commissioner (Appeals), however, allowed the claim of the assessee.

Analysis of facts

Liability to prove that expanses claimed to be genuine:

  • The onus was upon the assessee to prove that particular deduction was admissible.
  • It also depends on him to lead evidence in that regard.

Issue No 1 -> The amount was stated to be spent on some civil nature and in the parking area. However, details of such renovation work were not filed.

Issue No 2 -> The bill issued by ‘S’ was found to be bogus. The signature stated therein was not of ‘S’.

Issue No 3 -> The amount stated in the bill was also not paid to date.

Thus, there was nothing on record to suggest that the sum of Rs. 1,70,000 was paid by the assessee so as to claim the cost of improvement of property sold.

It is wrong to say that once the voucher for expenditure was produced, the expenses should have allowed the same. The allowability of the expenditure do not depend upon the mere production of voucher but such voucher should also be authentic and genuine and not merely a piece of paper.

The genuineness of any claim is not proven merely on the production of some paper but only when the same is to be substantiated. The creditworthiness of the claim having not been established rather the ungenuineness nature of the claim having been proved by the Assessing Officer, he was justified in disallowing Rs. 1,70,000 as cost of improvement of the property.

One more revealing fact was that when the expenditure was incurred for the whole of the property, the assessee had claimed the entire expenses as its own expenses, whereas the assessee was only having one-fourth share of the same. This also proved in the approach of the assessee in claiming bogus expenses and, consequently, reduced his tax liability.


Merely because the signature in an invoice is not matching does not amount to the expenditure to be bogus. Whether expenses claim are genuine or is a matter of fact and entire transaction cycle (need of expenses, quotation, billing, receiving, payment and benefits from the expenses), justification of claim and approach of the assessee in making such claim shall be looked after before disallowing the expenses.

Mar 172021

The assessee claimed deduction under section 24 on account of interest on the loan which was taken for acquiring/constructing house property – However, details for the same, for example:

✔Amount of loan taken,

✔Date of loan,

✔Rate of interest,

✔Confirmation from creditors, etc., were not filed in support of the claim

Assessing Officer disallowed deduction holding that assessee had not produced material to suggest that amount which was borrowed was utilized for the acquisition of house property

Analysis of section 24

Deductions from income from house property.

24. Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:—

(a) a sum equal to thirty percent of the annual value;

(b) where the property has been acquired, constructed, repaired, renewed, or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction 58[or, as the case may be, the aggregate of the amount of deduction] shall not exceed thirty thousand rupees :

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed, the amount of deduction 58[or, as the case may be, the aggregate of the amounts of deduction] under this clause shall not exceed two lakh rupees.

Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as a deduction under any other provision of this Act, shall be deducted under this clause in equal installments for the said previous year and for each of the four immediately succeeding previous years:

Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital:

59[Provided also that the aggregate of the amounts of deduction under the first and second provisos shall not exceed two lakh rupees.]


Analysis of fact

The deduction of Rs. 94,500 is claimed on account of interest on loans. The assessee submitted details of interest payable to the persons who happened to be relatives of the assessee. However, the details regarding the amount of loan taken, date of the loan, rate of interest, confirmation from creditors, etc. was not filed. The assessee was therefore asked to furnish the necessary evidence in this regard. The show-cause notice was also issued as to why the amount be not disallowed in the absence of any proof for the same and nexus regarding utilization of borrowed funds for the acquisition of the property. The assessee filed the income computation statement of Smt. Kamlesh Kumari and Mrs. Neeraja Ghura to whom interest have been paid.

The Assessing Officer held that deduction under section 24(1)(vi) can be allowed provided, the interest is payable on the amount borrowed and which is utilized for acquiring/constructing/repairing the property, the income from which is assessable under section 23 of the Act. Since the assessee has not produced material to suggest that the amount which was borrowed, was utilized for acquisition/constructing of property, the deduction under section 24(1)(vi) is not allowable.



✔The assessee failed to file any document, which would suggest that the amount borrowed in earlier years was utilized for purchase/acquisition of property, income from which was offered under section 23.

✔He also failed to file any document that such an amount was allowed as a deduction in earlier years.

✔No nexus was established between the borrower of loans and the utilization of the same for the purpose of acquiring/constructing the house property.

Thus, deduction under section 24(1)(vi) was not allowable.

Mar 152021

Computation of Annual value – The assessment year 2001-02 –

Total House property tax Rs 3,50,000/-
Tax paid by the assessee Rs 3,00,000/-
Tax paid by the purchaser Rs 50,000/-

Whether Deduction of house tax paid Rs 50,000/- is allowable to assessee?


Analysis of facts:

The assessee who owned certain property sold the same to one ‘S’. While computing the income under the head ‘Income from house property, the assessee claimed deduction of Rs. 3.5 lakhs on account of property tax. Out of Rs. 3.5 lakhs, Rs. 3 lakhs was paid by the assessee and Rs. 50,000 was paid by ‘S’ who purchased that property. The Assessing Officer disallowed Rs. 50,000 on the ground that same was not paid by the owner of the house.

Under the head ‘Income from house property,’ the assessee claimed payment of Rs. 3,50,000 as a deduction on account of property tax against rent from the property being ½ portion of 35-B, Pusa Road, New Delhi. The assessee declared a rental income of Rs. 4,84,500. The amount of Rs. 3 lakhs was found paid by the assessee and hence allowed as such. However, another sum of Rs. 50,000 was paid by Smt. Sunita Oberoi/Shri Sunil Oberoi have purchased this property. These amounts were not paid by the assessee but by the aforesaid two purchasers. It was contended by the assessee that since the property was agreed to be sold by the assessee and till the date of sale the liability of property tax rests with the assessee, the amount was claimed as expenses against property income. The Assessing Officer held that such contention is not borne out from records. The amount is not paid by the assessee and hence not allowable under section 23 of the Act. Ld. Commissioner of Income-tax (Appeals) held that property tax is payable to the seller till the date of sale and since the claim relates to the period which is agreed up to the date of sale is allowable as such.


Law relating to deduction of property tax under income tax act:

While computing annual value under section 23, the tax levied by local authorities in respect of the property is to be deducted. However, the same is deductible, provided the same is paid by the owner thereof. The relevant portion of the law is reproduced below:

Section 23(1) …..

Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.

Thus, principles arise relating to deduction of property taxes in computing “Income under the head house property” is summarized below:

  1. Deduction of such taxes is allowed from “Gross Annual value” to calculate “Net Annual Value”.
  2. Taxes relating to the local authority or municipal taxes shall be inclusive services taxes and/or GST etc also
  3. These taxes must be borne by the assessee
  4. Taxes must be paid by the assessee during the previous year irrespective of the previous year in which liability to pay such taxes arises.

Conversely, municipal taxes levied by the local authority but not paid by the assessee during the previous year, are not deductible.

Further, if the property is situated in a foreign country, municipal taxes levied by the foreign local authority are deductible if such taxes are paid by the owner.

However, the amount paid by the owner assessee to a municipality for regularization of unauthorized construction is not deductible.

Moreover, in case house property tax is paid by some other person other than assessee and evidence on record suggests that the assessee has reimbursed the said amount to the person paying the same. In such case also, municipal taxes shall be deductible to the assessee in the previous year in which the assessee reimbursed the said taxes irrespective of the fact that such taxes paid by other people to authorities later on.

In nutshell, an amount of municipal tax is deductible on a payment basis and not on a due or accrual basis. Hence, it should be ensured that municipal taxes are actually paid during the previous year if the assessee wants to claim a deduction of the same in the assessment year.

Since the owner of the property had not paid the property tax. There was no material on record to suggest that the assessee had subsequently paid the amount to the buyer of the property. Accordingly, the Assessing Officer was justified in disallowing the sum in question. The Commissioner was, therefore, in error in deleting the disallowance. The disallowance was restored.

Mar 122021

Good News from ESIC

As You are aware that during the on-going COVID-19 pandemic, ESI Corporation has taken a number of measures so that IPsibeneficiaries face no difficulty in availing vinous benefits under ESI Scheme

Since the start of nationwide lockdown in March 2020 last year, a number of ESI covered it were shut down resulting in non-payment of contribution towards ES! Scherrie. Such ESI beneficiaries may face difficulty in availing medical benefit/ reimbursement of medical claims due to non-contribution

Considering the potential hardship which may be faced by such beneficiaries it has been decided by the Competent Authority to grant one-time relaxation in entitlement criteria for ESIC Scheme Contribution while assessing eligibility for Medical benefits including Super specialty Treatment 

For benefit, it will assume that contribution has also been received during the contributory benefit  1stApr 2020 to 30th Sep 2020 there is no break in the contribution of  fund towards ESIC Scheme during this period


 Download: ESIC Covid Relaxation for the Period Apr-2020 to Sep-2020.pdf


Mar 112021
Particulars of Income Amount

(As per income tax return)


(As per salary certificate and/or 26AS)

Assessee declared salary income Rs. 1,80,000/- Rs 2,40,000/-

(Explained as Reimbursement of conveyance expenses)

Rs 60,000/-  
Total Rs 2,40,000/- Rs 2,40,000/-



The assessee declared salary from a company of a sum of Rs. 1,80,000. In the salary certificate issued by the company, a sum of Rs. 2,40,000 was stated to be paid to the assessee as remuneration. When the assessee was asked to explain the discrepancy, he submitted that the balance sum was towards reimbursement of conveyance expenses. The Assessing Officer concluded that when the expenses of running and maintenance of cars were borne by the company, as admitted by the assessee, there was no question of reimbursement of conveyance expenses. Accordingly, said amount was brought to tax. The Commissioner (Appeals) set aside addition and allowed a deduction of conveyance expenses under section 37(1).

Analysis of facts:

It may sometimes happen that salary income declared in form 16 (salary certificate) and actual income computed and declared as per income tax return may vary as salary income in form 16 is based on an estimation of income and investment for the last months of the financial year and actual investment may differ. Also, maybe, at the time of computing salary income in form 16 some actual investments by the assessee are disallowed by the employer as he has no evidence and no sanctity of evidence at that time but by the time of computing income in ITR assessee may recover all the evidence.

Under the head salary incomes following expenses are allowed as a miscellaneous expense under section 10(14):

(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 ;

(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 ;

Examples for such allowances and benefits are listed below:

  1. Traveling allowances
  2. Transfer allowances
  3. Conveyance allowances
  4. Daily allowances – for absence from the normal place of business
  5. Helper allowance
  6. Research allowances
  7. Uniform allowances

All the above allowances are normally covered by one term in salary slip/payslip by Special Allowance. It is not open to the department to call for the details of expenses actually incurred by the assessee unless the allowances are disproportionately high compared to the salary received by the assessee or unreasonable with reference to the nature of the duties performed by the assessee.

How to handle such a situation:

  1. If the amount was paid in the form of conveyance allowance etc., the same would firstly form part of taxable income and only that amount which can be exempted under section 10(14 )(i), can be allowed as deduction.
  2. For claiming such deduction under section 10(14), the onus lies upon the assessee to prove that such expenses were incurred only in the course of employment.
  3. Also, the patterns of withdrawal from the bank account should show that the conveyance expenses were incurred by the assessee.
  4. If the amount not allowed under section 16 or above section 10(14) the amount would not be allowed under section 37(1), as a deduction under section 37(1) can be granted only when the income is chargeable under section 28 means business income.
  5. Such allowance should not unreasonable and/or disproportionate. Normally 10% happens to normal variance.
  6. In computing incomes under the head ‘Salaries’, only those deductions as narrated under section 16 can be allowed.
  7. There should not be two salary certificates and there is so second salary certificate should arise from a mistake of fact which should be very clear and visible. In the instant case, discussed above, the salary certificate originally filed, showed that the sum of Rs. 60,000 was paid in the form of salary only and not by way of reimbursement of conveyance expenses. As was rightly contended by the revenue the subsequent certificate was a self-explanatory document and was not borne out from the record that the amount of Rs. 60,000 was paid in the form of reimbursement of conveyance expenses.