1982 (8) TMI 104 - AT - Income Tax

Summary

Issues Involved:
1. Whether the incentive bonus received by the assessee, a regular employee of Life Insurance Corporation of India, is assessable under Section 15 of the IT Act, 1961.
2. The nature of employment and the categorization of incentive bonus for tax purposes.
3. The allowance of expenses incurred to earn the incentive bonus.

Detailed Analysis:

Issue 1: Assessability of Incentive Bonus under Section 15 of the IT Act, 1961
The primary issue was whether the incentive bonus received by the assessee, a regular employee of Life Insurance Corporation of India (LIC), is assessable under Section 15 of the Income Tax Act, 1961. The Tribunal concluded that the incentive bonus is not assessable under Section 15. The Tribunal noted that the definition of "salary" under Section 15 does not mention "bonus" and that Section 17, which defines "salary" for the purposes of Sections 15 and 16, also carefully avoids including the word "bonus." The Tribunal emphasized that the legislature has made separate provisions for the deduction of bonus under Section 36(1)(ii) of the Act, which applies to business income and not to salaries. Therefore, the incentive bonus received by the assessee does not fall under the purview of "salaries" as defined in Section 15.

Issue 2: Nature of Employment and Categorization of Incentive Bonus
The Tribunal examined the nature of the assessee's employment with LIC. The assessee was employed as a Development Officer, whose duties differed fundamentally from other regular employees. Development Officers are field workers who contact agents and prospective policyholders, and their remuneration is partly based on the results of their efforts. The Tribunal found that the incentive bonus was linked to the business secured in excess of certain stipulated premium income. The Tribunal concluded that the incentive bonus was earned by the assessee through field duties and was not a part of the regular salary. The incentive bonus was thus categorized as "income from profession" rather than "salary."

Issue 3: Allowance of Expenses Incurred to Earn the Incentive Bonus
The assessee claimed a deduction for expenses incurred to earn the incentive bonus, initially at 40%, which the Income Tax Officer (ITO) rejected, allowing only the standard deduction under Section 16(1). The Appellate Assistant Commissioner (AAC) partially accepted the claim, allowing expenses at 20% of the gross incentive bonus. The Tribunal, after considering the rival submissions and the facts on record, found that the assessee had indeed incurred expenses to secure business and earn the incentive bonus. The Tribunal noted that there were guidelines by the Central Board of Direct Taxes (CBDT) allowing 40% expenses for insurance agents, though the specific circular was not brought to their notice. The Tribunal concluded that the expenses at 40% were reasonable and directed that the entire 40% expenses be allowed, thereby overturning the AAC's decision to restrict the allowance to 20%.

Conclusion:
The Tribunal dismissed the reference applications, holding that no referable question of law arises out of the order of the Tribunal. The incentive bonus received by the assessee is not assessable under Section 15 of the IT Act, 1961, and should be treated as "income from profession." Additionally, the Tribunal allowed the deduction of 40% of the expenses incurred by the assessee in earning the incentive bonus.