1984 (10) TMI 72 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of conveyance allowance.
2. Deduction of expenses from bonus commission.
3. Applicability of section 16(v) for assessment years 1975-76, 1976-77, and 1977-78.

Summary:

Disallowance of Conveyance Allowance:
The assessee, a Development Officer in LIC, claimed that the entire conveyance allowance was spent on procuring insurance business. The ITO disallowed 20% of the conveyance allowance as personal expenses and added it as perquisites to the total income. On appeal, the AAC held that the conveyance allowance was given exclusively for the performance of duties and should be exempt u/s 10(14) of the Act. The Tribunal upheld the AAC's decision, treating the entire conveyance allowance as exempt.

Deduction of Expenses from Bonus Commission:
The assessee received a bonus commission for procuring more business and claimed 25% of it as expenses incurred. The ITO rejected this claim, stating that the conditions of section 16(v) were not met. The AAC, however, allowed the deduction, treating the bonus commission as income from other sources and not under 'Salaries'. The Tribunal remitted the matter back to the ITO to estimate the expenses based on the nature of work and the CBDT circular applicable to LIC agents.

Applicability of Section 16(v) for Assessment Years 1975-76, 1976-77, and 1977-78:
For these years, the Tribunal noted that section 16(v) was deleted, and thus no expenses could be allowed. The Judicial Member disagreed with the Vice President's view that salary should be determined in an 'economic and money sense'. The Judicial Member emphasized that deductions could only be claimed u/s 10(14) if the bonus commission included a special allowance for expenses incurred wholly, necessarily, and exclusively in the performance of duties. The President, acting as the third member, agreed with the Vice President, holding that expenses should be deducted from the incentive bonus/commission at the starting point before it is treated as salary.

Conclusion:
The Tribunal, by majority view, held that the expenditure incurred by the assessee for earning the incentive bonus/commission should be reduced from the incentive bonus/commission at the starting point, i.e., before it is treated as income chargeable under the head 'Salaries'. The appeals were partly allowed.