1996 (7) TMI 53 - HC - Income Tax

Summary

Issues:
1. Whether deduction on account of expenses at the rate of 40% should be allowed from the amount of incentive bonus received by the assessee as a Development Officer of the Life Insurance Corporation of India?

Analysis:
The judgment pertains to a case where the assessee, a Development Officer employed by the Life Insurance Corporation of India, received an incentive bonus during the relevant assessment year. The assessee claimed a deduction of 40% on account of expenditure from the bonus amount. However, the Assessing Officer rejected the claim and included the entire bonus amount in the total income for tax purposes. The Deputy Commissioner allowed the deduction on appeal, which was upheld by the Tribunal.

The Tribunal declined to refer the question of deductibility of expenses to the High Court citing a policy decision by the Central Board of Direct Taxes, which set monetary limits for filing appeals or references. The Board's instructions emphasized selective filing of appeals based on revenue effects, with exceptions for cumulative revenue effects over multiple years. The Revenue argued that the total tax effect over six years for the assessee exceeded the limit, justifying a reference to the High Court.

The main contention revolved around whether the incentive bonus should be considered part of the salary or as profit in lieu of salary under the Income-tax Act. The assessee argued that the bonus was earned after incurring expenses, justifying the deduction, while the Revenue contended that it fell within the scope of salary components as per the Act.

The High Court directed the Income-tax Appellate Tribunal to refer the question of law to the court for opinion, emphasizing that the total tax effect over six years for the assessee exceeded the prescribed limit, thereby allowing the reference despite the lower tax effect in the specific year under consideration. The question referred for opinion was whether the deduction on account of expenses at the rate of 40% should be allowed from the incentive bonus received by the assessee as a Development Officer of the Life Insurance Corporation of India.