Computation of total income & tax

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

15 November 2014 DEAR MEMEBERS

PLEASE ADVICE ME HOW TO COMPUTE TOTAL INCOME & TAX OF MLA IF THEY RECEIVED SALARY & ALLOWANCES FROM VIDHAN SABHA

THANKS

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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15 November 2014 Only conveyance and clerical allowance can be exempted from tax, after due verification.

The common perception that all allowances received by MPs and MLAs are tax-free is dispelled by the decision of the Visakhapatnam Bench of the Income Tax Appellate Tribunal in the case of M. Venkata Subbaiah v. ITO (2010) 7 Taxman.Com 96.

Section 10(17) of the Income Tax Act, 1961 (Act) provides exemption to Members of Parliament and State legislators in respect of their daily allowances in entirety. In the case of MPs, the amount received as constituency allowance and in the cases of MLAs, such allowance is exempt from tax from the A.Y. 2007-08 in entirety.

The issue that arose for the consideration of the Tribunal was whether allowances such as conveyance , telephone , clerical , medical and contingency are also tax exempt. The Tribunal has decided that such allowances are exempt subject to limitation mentioned in Section 10(14).

The nature of receipts received by the Central and State legislators was examined by the Rajasthan High Court in the case of CIT v. Shive Charan Mathur (2008) 306 ITR 126 and it was decided that MPs and MLAs cannot be considered as employees as they are not employed by any body but are elected by the public from their respective constituencies and discharge constituency functions.

Hence, salary and allowances received by them cannot be taxed under the head ‘salary', but are taxable under the head ‘income from other sources'.

The Tribunal has followed this view in the case before them.

However, it has held that in the case of legislators, they would be entitled to exemption u/s 10(14) of the Act subject to condition mentioned in this provision. All special allowances, other than those specifically exempt, would be taxed as income.

The reasoning for this view is that the purpose for which allowance is granted is alone not determinative of claim of exemption u/s 10(14), which stipulates grant of exemption, to the extent prescribed specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment to the extent to which such expenses are actually incurred for that purpose.

Surplus taxable

Therefore, any surplus remaining in the hands of the grantee after meeting the expenses loses the character of an allowance entitled to exemption.

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