2002 (7) TMI 99 - HC - Income Tax

Summary

Issues:
1. Whether deduction is allowable from the incentive bonus received by Development Officers of the Life Insurance Corporation of India as it is considered part of salary?

Analysis:
The case involved an application filed under section 256(1) of the Income-tax Act, 1961, where the Tribunal referred the question of whether deduction is permissible for the incentive bonus received by Development Officers of the Life Insurance Corporation of India, considering it as part of their salary. The assessee, a salaried employee of the LIC, received an incentive bonus in addition to the regular salary. The Income-tax Officer disallowed the deduction claimed by the assessee, which was later confirmed by the Deputy Commissioner of Income-tax (Appeals) and the Tribunal.

The Revenue argued that since the Development Officer is a full-time salaried employee, any income received, including the incentive bonus, should be considered part of the salary. Therefore, the Revenue contended that no deduction should be allowed apart from the standard deduction available for employees. The Revenue relied on a decision of the Bombay High Court to support their position, emphasizing that the incentive bonus is includible in the computation of income under the head 'Salary' as per the provisions of the Income-tax Act.

The High Court agreed with the Revenue's stance, endorsing the view that once the incentive bonus is categorized as part of the salary, no further deduction can be claimed on that amount. The Court concurred with the interpretation that the entire incentive bonus should be taxed as income under the head 'Salary'. Consequently, the High Court ruled in favor of the Revenue and against the assessee, concluding that the assessee is not entitled to a 40 per cent deduction from the incentive bonus. The question posed by the Tribunal was answered in the affirmative, aligning with the Revenue's position.

In summary, the judgment clarified that when an incentive bonus is considered part of an employee's salary, no additional deductions can be claimed on that amount beyond the standard deduction available for salaried individuals. The decision emphasized the inclusive definition of 'salary' under the Income-tax Act and upheld that the entire incentive bonus should be taxed as income under the head 'Salary'.