2001 (6) TMI 62 - HC - Income Tax

Summary

Issues: Deduction of incentive bonus under the head 'Salary' and not as professional income, justification of 40% deduction from incentive bonus.

Analysis:
The case involved a dispute regarding the deduction of an incentive bonus received by an assessee who was a Development Officer of the Life Insurance Corporation. The Assessing Officer rejected the claim for deduction, stating that the assessee received the bonus as an employee and had already been allowed a standard deduction under section 16 of the Income-tax Act. The Commissioner of Income-tax (Appeals) upheld this decision. However, the Tribunal, following the decision of the Bombay High Court in CIT v. A. A. Baniyan, allowed a 40% deduction from the incentive bonus. The Tribunal reasoned that when two interpretations are possible, the view favoring the assessee should be taken, as per the decision in CIT v. Vegetable Products Ltd.

During the proceedings, the Revenue's counsel argued that the Bombay High Court's decision in CIT v. A. A. Baniyan was not applicable in this case, as the bonus was received as professional income, which was not challenged. The counsel also cited the decision of the Andhra Pradesh High Court in K. A. Choudary v. CIT to support their argument. However, the authorities below had found that the assessee was an employee of the Life Insurance Corporation and not engaged in agency business. The bonus received was considered part of the salary under section 17(1) of the Income-tax Act.

The High Court agreed with the view that the bonus received by the employee for extra work was in lieu of salary and formed part of the salary income. Since the standard deduction under section 16 had already been allowed, no further deduction from the bonus amount was permissible. The Court cited the decision in K. A. Choudary v. CIT and emphasized that once the standard deduction was granted, no additional deduction was warranted from the bonus receipts. Consequently, the Court ruled in favor of the Revenue and against the assessee, disposing of the reference application accordingly.