1996 (5) TMI 4 - HC - Income Tax

Summary

Issues:
1. Interpretation of tax treatment for incentive bonus received by a Development Officer from the Life Insurance Corporation of India.
2. Applicability of Board's Circular No. 14/9/65-IT(A-1) to Development Officers.
3. Allowability of deduction on incentive bonus under the Income-tax Act, 1961.

Analysis:

The High Court of Rajasthan addressed the issue of tax treatment of an incentive bonus received by a Development Officer from the Life Insurance Corporation of India for the assessment year 1985-86. The Income-tax Appellate Tribunal referred the question of law regarding the deduction of the incentive bonus to the High Court. The assessee claimed a deduction of 40% of the bonus as expenses incurred to procure it. However, the assessing authority and the Appellate Assistant Commissioner disallowed the deduction, treating the bonus as part of the salary. The Tribunal, relying on a previous judgment, reversed the decision and allowed the deduction at 50%, citing a Board's circular.

The court compared the case with a similar one and concluded that the incentive bonus forms part of the salary and is taxable as such, entitling the assessee only to the standard deduction under section 16 of the Income-tax Act, 1961. The court clarified that the Board's Circular No. 14/9/65-IT(A-1) is not applicable to Development Officers, as it pertains to LIC agents. The court emphasized that the bonus is remuneration for services rendered and not a personal gift. Consequently, the court ruled in favor of the Revenue, stating that the Tribunal was not justified in allowing a 50% deduction on the incentive bonus for the Development Officer.

In conclusion, the court held that the incentive bonus received by the Development Officer should be treated as part of the salary, taxable under the head "Salary," and only eligible for the standard deduction. The Board's circular applicable to LIC agents does not extend to Development Officers. The judgment favored the Revenue, denying the 50% deduction on the incentive bonus.