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Issues involved: Interpretation of the term "salary" under section 17 of the Income-tax Act, 1961 in relation to incentive bonus received by an employee of the Life Insurance Corporation.
Summary: The High Court of Orissa was presented with questions regarding the assessment of incentive bonus received by an employee under the Income-tax Act, 1961. The primary issue was whether the incentive bonus should be considered as part of the employee's salary and thus chargeable under section 16 of the Act. The Assessing Officer initially treated the bonus as income from other sources, but the Assistant Commissioner of Income-tax disagreed, allowing the deduction claimed by the employee. The Revenue appealed to the Tribunal, which upheld the decision of the appellate authority. The questions referred to the High Court revolved around the classification of the incentive bonus as salary under section 17 of the Act. The Court analyzed the provisions of sections 16 and 17 of the Act, particularly focusing on the inclusive definition of "salary" under section 17(1)(iv), which includes various forms of remuneration. The Court emphasized that the term "includes" in the definition clause is meant to broaden the scope of the defined term. Referring to legal precedents, the Court highlighted that if remuneration is determined as a percentage of turnover achieved, it qualifies as salary. In this case, the incentive bonus was calculated based on the total premium income secured by the employee, indicating a salary-like character. The Court rejected the argument that the absence of the term "bonus" in section 17 excludes it from being considered as part of salary. It cited previous judgments and the nature of the incentive bonus scheme to conclude that the bonus earned by the employee indeed falls within the definition of salary under section 17. Therefore, the Court held that the incentive bonus received by the employee should be treated as salary and taxed accordingly under section 16 of the Act. In response to the Tribunal's allowance of a 40% deduction on expenses claimed by the employee, the Court clarified that once the incentive bonus is categorized as salary, only deductions under section 16 are permissible. Consequently, both questions were answered in favor of the Revenue and against the assessee. Judge K. L. Issrani concurred with the judgment.
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