1987 (4) TMI 95 - AT - Income Tax

Summary

Issues:
1. Whether the provisions of section 10(10) of the Income-tax Act, 1961, apply to gratuity received by an agent appointed by Life Insurance Corporation of India?
2. Whether the agent appointed by LIC under the regulations can be considered an "employee" for the purpose of claiming exemption under section 10(10)?
3. Whether the gratuity received by the agent can be considered as "salary" for the purpose of calculating exemption under section 10(10)?

Analysis:
1. The appeal pertains to the assessment year 1981-82, where the assessee, working as an agent for procuring insurance business on behalf of LIC, received gratuity of Rs. 30,000. The department contended that section 10(10) did not apply as the assessee was not an employee of LIC. The AAC, however, held that the agent appointed by LIC falls under the definition of "employee" for section 10(10) purposes. The department raised two grounds in appeal, challenging the exemption under section 10(10) and the AAC's reliance on LIC Regulations without giving the ITO an opportunity to be heard.

2. The Tribunal rejected the department's argument that the Regulations were new material, stating that they were not new and no error arose from considering them. On the merits, the department argued that the agent was not an employee of LIC, while the assessee contended that the agent's status as an employee should be determined by the Regulations. The Tribunal analyzed section 10(10)(iii) which provides for gratuity exemption based on salary calculation and concluded that the agent did not receive a fixed monthly salary from LIC, making it impossible to calculate the required salary figures for exemption.

3. The Tribunal highlighted that the agent's income was offered as income from other sources, not salary, and the expenses claimed were for earning commission, not standard deduction under section 16 for salary. Additionally, the Tribunal examined the Regulations, which clearly distinguished between employees and agents, indicating that the agent was not considered an employee for gratuity purposes under section 10(10). The Tribunal also differentiated the present case from relevant precedents where the nature of employment indicated a master-servant relationship, which was not present in this case. Ultimately, the Tribunal allowed the department's appeal, ruling that the agent was not an employee of LIC under section 10(10) and reinstated the ITO's decision to reject the claim for exclusion from total income.