1995 (9) TMI 92 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of 50% expenses from incentive bonus.
2. Addition of Rs. 11,700 on account of low-household expenses.

Issue 1: Deduction of 50% Expenses from Incentive Bonus

The primary contention revolves around whether the incentive bonus received by the assessee, a Development Officer at LIC, should be treated as part of salary and whether 50% of the incentive bonus could be deducted as expenses. The Assessing Officer and CIT(A) concluded that the incentive bonus is part of salary under section 17(1)(iv) of the Income-tax Act, 1961, and only standard deductions under section 16(1) are permissible. This view was supported by the Andhra Pradesh High Court in K. A. Choudary v. CIT [1990] 183 ITR 29, which treated incentive bonus as part of salary with no additional deductions beyond those specified in section 16.

The assessee argued that ITAT Benches in Ahmedabad, Bombay, and Chandigarh had previously allowed such deductions, treating the incentive bonus as business income and permitting deductions for expenses incurred in earning the incentive bonus. Special Bench decisions, such as in P. Dayakar v. ITO, allowed 40% of the incentive bonus as deductible expenses. However, the Tribunal noted that the Special Bench's decision was not considered in the case of P. M. Suthar, where the Third Member sided with the view that incentive bonus is part of salary, and only standard deductions under section 16 are allowable.

The Tribunal concluded that the incentive bonus is indeed part of salary, as supported by the Andhra Pradesh and Orissa High Courts in K. A. Choudary and CIT v. Govind Chandra Pani [1995] 213 ITR 783. The Tribunal emphasized judicial discipline, stating that decisions of higher courts must be followed, and thus, the incentive bonus should be taxed as part of salary with no additional deductions beyond those specified in section 16.

Issue 2: Addition of Rs. 11,700 on Account of Low-Household Expenses

The second issue concerns the addition of Rs. 11,700 made by the Assessing Officer due to low-household expenses shown by the assessee. The assessee declared household expenses of Rs. 13,299, which the Assessing Officer deemed inadequate, estimating the expenses at Rs. 25,000. The CIT(A) confirmed this addition, noting that the assessee failed to provide evidence that part of the household expenses were contributed by his sons.

The Tribunal agreed with the findings of both the Assessing Officer and CIT(A), affirming the addition of Rs. 11,700 due to insufficient household expense declarations by the assessee.

Conclusion

The Tribunal dismissed the appeal, upholding the decisions of the lower authorities on both issues. The incentive bonus was confirmed as part of salary with no additional deductions beyond those specified in section 16, and the addition of Rs. 11,700 for low-household expenses was also upheld.