2000 (10) TMI 43 - HC - Income Tax

Summary

Issues Involved:
1. Whether the incentive bonus received by the Development Officer of the Life Insurance Corporation of India is assessable under the head "Income from salaries".
2. Whether a deduction is admissible from the incentive bonus for expenses incurred by the Development Officer.

Summary:

Issue 1: Assessability of Incentive Bonus under "Income from Salaries"
The Tribunal referred the question to the High Court u/s 256(1) of the Income-tax Act, 1961, regarding the assessability of the incentive bonus received by a Development Officer of the Life Insurance Corporation of India under the head "Income from salaries." The Tribunal held that the incentive bonus is assessable as salary. The High Court agreed, stating that the incentive bonus forms part of the salary as per sections 16 and 17 of the Income-tax Act. The Court emphasized that the incentive bonus is paid by virtue of the Development Officer being an employee of the Life Insurance Corporation and is in the nature of commission, thus falling within the definition of salary u/s 17(1)(iv).

Issue 2: Deduction from Incentive Bonus for Expenses
The Development Officer claimed a deduction for expenses incurred in earning the incentive bonus, arguing that the incentive bonus was conditional and not a routine part of the salary. The Assessing Officer, Commissioner of Income-tax (Appeals), and the Tribunal rejected this claim. The High Court upheld these decisions, stating that once the incentive bonus is considered part of the salary, the only allowable deduction is the standard deduction u/s 16. The Court noted that there is no provision in the Income-tax Act for deducting expenses incurred to earn the incentive bonus from the salary income. The Court disagreed with the Gujarat High Court's view in CIT v. Kiranbhai H. Shelat [1999] 235 ITR 635, which allowed such deductions, and instead aligned with the judgments of the Punjab and Haryana High Court, Madras High Court, and Karnataka High Court, which did not allow such deductions.

Conclusion:
The High Court answered the referred question in the negative, in favor of the Department and against the assessee, concluding that the entire incentive bonus is assessable as salary without any deduction for expenses incurred in earning it. The references were disposed of with no order as to costs.