1998 (4) TMI 109 - HC - Income Tax

Summary

Issues Involved:
1. Deduction of incentive bonus as expenses.
2. Classification of incentive bonus as part of salary.
3. Justification of Commissioner's direction to withdraw deductions.
4. Permissibility of deductions under section 16(i) of the Income-tax Act.

Summary:

1. Deduction of Incentive Bonus as Expenses:
In ITR No. 54 of 1993, the Tribunal directed the Income-tax Officer to allow 40% of the incentive bonus as a deduction and include the net amount after such deduction in the salary income. The Tribunal held that the expenses incurred for earning the incentive bonus by Development Officers were allowable as a deduction, and the net incentive bonus alone was includible in the computation of income under the head "Salary."

2. Classification of Incentive Bonus as Part of Salary:
In ITR Nos. 121 of 1996, 15 of 1997, and 19 of 1997, the Tribunal initially held that no deduction is available to the assessee as expenses out of the incentive bonus commission received by him as a Development Officer of the Life Insurance Corporation of India. However, the High Court concluded that the assessee was entitled to claim such deduction only to the extent of reimbursement of expenses actually incurred up to the maximum limit of 30% of the incentive bonus earned by the assessee.

3. Justification of Commissioner's Direction to Withdraw Deductions:
In ITR No. 272 of 1993, the Tribunal held that the Commissioner of Income-tax was not justified in directing the Assessing Officer to withdraw the deduction allowed by him at 40% of the gross receipts. The High Court upheld this view, allowing the deduction only to the extent of reimbursement of expenses actually incurred up to the maximum limit of 30% of the incentive bonus earned by the assessee.

4. Permissibility of Deductions under Section 16(i) of the Income-tax Act:
In ITR No. 132 of 1996 and ITR No. 49 of 1997, the Tribunal held that the entire incentive bonus earned by the assessee as a Development Officer was part of the salary within the ambit of section 17(1)(iv) of the Act and that the only deduction admissible is under section 16(i) of the Income-tax Act. The High Court, however, held that the assessee was entitled to claim such deduction but only to the extent of reimbursement of expenses actually incurred up to the maximum limit of 30% of the incentive bonus earned by the assessee.

Conclusion:
The High Court concluded that while the incentive bonus is part of the salary, deductions for expenses incurred in earning the incentive bonus are permissible up to a maximum of 30% of the incentive bonus earned. The decisions of the Tribunal were modified accordingly, and the references were answered in favor of the assessee, allowing deductions to the extent of actual expenses incurred.