1997 (9) TMI 96 - HC - Income Tax

Business Income, Incentive Bonus, Special Allowance, Standard Deduction, Wholly And Exclusively

Summary

Issues Involved:
1. Taxability of incentive bonus or commission received by the assessee.
2. Permissibility of deduction from the gross receipt of incentive bonus or commission.

Summary:

Issue 1: Taxability of Incentive Bonus or Commission
The primary issue was whether the income received by the assessee from the Life Insurance Corporation (LIC) as incentive bonus or commission should be taxed under the head "Income from business or profession or vocation." The court examined the statutory provisions of the LIC Act and the relevant regulations. It concluded that the incentive bonus/commission is a performance-linked payment made by the Corporation to its employees as a measure of incentive to ensure higher business. Therefore, it should be classified as "Income from salary" u/s 17 of the Income-tax Act, 1961, and not as "Income from business or profession." The court relied on the Supreme Court's decision in Gestetner Duplicators Pvt. Ltd. v. CIT [1979] 117 ITR 1, which held that remuneration determined at a fixed percentage of turnover achieved by an employee partakes the character of salary.

Issue 2: Permissibility of Deduction
The second issue was whether the Tribunal was right in allowing a deduction of 40% from the gross receipt of incentive bonus or commission as expenditure incurred by the assessee for earning that income. The court found that the Tribunal had erroneously relied on the Board's Circular No. E. 14/65-IT(A1), dated September 22, 1965, which pertained to insurance agents and not employees of the Corporation. The court emphasized that deductions permissible from salary income are only those specified u/s 16 of the Act. The court also rejected the applicability of section 10(14) of the Act, which exempts allowances specifically granted to meet expenses wholly, necessarily, and exclusively incurred in the performance of duties, as the incentive bonus/commission did not meet these criteria.

Conclusion:
Both questions referred to the court were answered in the negative and against the assessee. The incentive bonus/commission received by the Development Officer is to be taxed under the head "Income from salary," and no additional deductions beyond those specified u/s 16 are permissible.