1990 (12) TMI 130 - AT - Income Tax

Summary

Issues:
1. Whether the order of the CIT under section 263 for the assessment year 1986-87 was erroneous and prejudicial to revenue.
2. Whether the assessee's claim for exemption under section 10(14) in respect of additional conveyance allowance and the deduction of 50% of the Incentive Bonus were correctly decided.
3. Whether the Incentive Bonus received by the assessee should be considered as part of his salary or as a business income.
4. Whether the assessee is entitled to any deduction under section 15 for the expenditure incurred in connection with earning the Incentive Bonus.

Detailed Analysis:
1. The appeal was filed by the assessee against the order of the CIT under section 263 for the assessment year 1986-87. The CIT held that the order of the ITO was erroneous and prejudicial to revenue as the assessee's claim for exemption under section 10(14) in respect of additional conveyance allowance was not considered in line with CBDT instructions. The CIT directed the ITO to reevaluate the admissibility of exemption under section 10(14) only, setting aside the assessment order.

2. The assessee contended that the Incentive Bonus should be partially excluded from assessment based on a Circular of the CBDT and previous Tribunal decisions supporting similar contentions. However, the ITAT held that the Incentive Bonus was received by the assessee in his capacity as a full-time employee of LIC and not as a businessman. The ITAT referred to decisions by the Andhra Pradesh High Court and the Payment of Wages Act, stating that the Incentive Bonus is part of the salary and not eligible for further deduction.

3. The ITAT emphasized that the Incentive Bonus was linked to the business secured by Development Officers and was paid by LIC for the work done in that capacity. Referring to the Andhra Pradesh High Court decision, the ITAT concluded that the Incentive Bonus received from LIC is part of the salary, and any claim for deduction based on expenses incurred is not admissible under section 16(i) but falls under section 15 itself.

4. Regarding the deduction under section 15 for the expenditure incurred in connection with earning the Incentive Bonus, the ITAT drew analogies from the concept of computation of business income. It mentioned the possibility of allowing deductions under section 15 itself, similar to business losses deductible under section 28. The ITAT highlighted that any further deduction for additional expenditure incurred by the assessee would need to be justified with evidence and allowed by the ITO after providing a reasonable opportunity.

In conclusion, the ITAT dismissed the appeal subject to the conditions mentioned regarding the admissibility of deductions under sections 10(14) and 15 for the additional conveyance allowance and expenditure related to the Incentive Bonus, respectively.