1995 (1) TMI 102 - AT - Income Tax

Summary

Issues Involved:

1. Reopening of assessments u/s 147(a) for A.Y. 1983-84 to 1986-87.
2. Deduction of expenses against incentive bonus under the head 'Salary'.
3. Applicability of the decision of the Andhra Pradesh High Court in K.A. Choudhary v. CIT.
4. Whether the Tribunal should follow its earlier decision or refer the matter to a larger Bench.

Summary:

1. Reopening of Assessments u/s 147(a):
The assessee, a Development Officer of LIC, had his assessments for A.Y. 1983-84 to 1986-87 reopened u/s 147(a) on the grounds that the deduction of expenses at 40% of the incentive bonus was wrongly allowed in the original assessments.

2. Deduction of Expenses Against Incentive Bonus:
In reassessments, the ITO disallowed the claim of expenses at 40% of the incentive bonus, considering it as part of "Salary" and allowable only u/s 16(1). The CIT(A) allowed the deduction, relying on various ITAT decisions. The Tribunal, following its earlier decision in Kiranbhai H. Sheelat v. ITO, held that incentive bonus, although assessable under 'Salaries' due to the wide definition in section 17, represents additional profits earned by extra work. Therefore, net incentive bonus after deducting expenses should be included in the computation of income under 'Salaries'. The Tribunal directed the ITO to allow a deduction at 40% of the incentive bonus for all years under consideration.

3. Applicability of the Decision of the Andhra Pradesh High Court in K.A. Choudhary v. CIT:
The learned DR argued for the application of the Andhra Pradesh High Court's decision in K.A. Choudhary, which held that incentive bonus is part of salary and no separate deduction for expenses is allowable beyond those prescribed u/s 16. The Judicial Member agreed, emphasizing that the Tribunal must respect the law laid down by any High Court in the absence of a contrary decision from another High Court.

4. Whether the Tribunal Should Follow Its Earlier Decision or Refer the Matter to a Larger Bench:
The Third Member concurred with the Judicial Member, holding that the Tribunal must follow the Andhra Pradesh High Court's decision in K.A. Choudhary. It was not necessary to refer the matter to a larger Bench since there was no conflicting decision from another High Court. Consequently, the revenue's appeals were allowed, upholding the ITO's disallowance of the expenses claimed against the incentive bonus.

Conclusion:
The Tribunal, in accordance with the majority view, allowed the revenue's appeals, affirming that incentive bonus is part of salary and only standard deductions u/s 16(1) are permissible.