1992 (6) TMI 43 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the determination of whether expenses incurred for earning incentive bonus by a Development Officer are allowable as deduction and the appropriate percentage of incentive bonus to be allowed as deduction.

Issue 1: Allowability of Expenses for Incentive Bonus:
The assessee, a Development Officer of LIC, claimed deduction of expenses for earning incentive bonus, which was initially allowed by the ITO but later directed to be withdrawn by the Commissioner u/s 263 of the IT Act. The Commissioner contended that the incentive bonus was part of salary and only standard deduction under s. 16(1) was allowable, not the expenses incurred. The Tribunal, after considering the definition of 'salary' in s. 17, concluded that the incentive bonus represents additional profits earned through extra work and should be assessable under the head "salaries." The Tribunal relied on previous decisions and held that expenses incurred for earning the incentive bonus were deductible at the starting point itself under s. 15. The Tribunal disagreed with the decision of the Andhra Pradesh High Court and upheld the consistent view that expenses for earning the incentive bonus were allowable as deduction.

Issue 2: Percentage of Incentive Bonus as Deduction:
The Tribunal addressed the appropriate percentage of incentive bonus to be allowed as deduction. While the Board had issued a circular allowing 40% deduction for insurance agents, the Tribunal had been allowing 40% deduction for Development Officers in Ahmedabad. The Tribunal noted that in some cases in Bombay, deduction was allowed at 25%. Considering the facilities provided by LIC and the nature of work, the Tribunal held that deduction exceeding 40% should not be allowed. The Tribunal modified the Commissioner's order and directed the ITO to allow 40% of the incentive bonus as deduction, excluding the net amount after such deduction in the salary income.

In conclusion, the appeals were partly allowed, affirming the allowability of expenses for earning incentive bonus and determining the deduction percentage at 40% for Development Officers.