1995 (12) TMI 94 - AT - Income Tax

Assessing Officer, Assessment Year, Incentive Bonus, Rectification Of Mistakes, Special Allowance, Standard Deduction

Summary

Issues Involved:
1. Entitlement to deduction from incentive bonus for LIC Development Officers under section 10(14) of the Income-tax Act.
2. Applicability of various Tribunal decisions and amendments to section 10(14) from 1-4-1989.
3. Binding nature of High Court decisions on the Tribunal.
4. Prima facie adjustments under section 143(1)(a) and rectifications under section 154 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction from Incentive Bonus:
The primary issue was whether LIC Development Officers could claim deductions from the incentive bonus received during their employment. The assessees argued that the incentive bonus should be considered a special allowance under section 10(14) of the Income-tax Act, referencing the Special Bench decision in P. Dayakar and other Tribunal decisions. They contended that only the net incentive bonus, after deducting expenses incurred in earning it, should be included in the total income. However, it was noted that there was no government notification allowing such a deduction for incentive bonuses under section 10(14).

2. Applicability of Tribunal Decisions and Amendments:
The Tribunal considered the impact of the amendment to section 10(14) effective from 1-4-1989, which required government notification for any deductions to be allowed. The learned Departmental Representative (DR) argued that the decisions in P. Dayakar and other Tribunal rulings were no longer valid post-amendment. The Tribunal agreed, noting that without a government notification, no deduction could be allowed under section 10(14) for incentive bonuses. The Tribunal also referenced the Andhra Pradesh High Court's decision in K.A. Choudary, which held that incentive bonus is part of salary and only standard deductions under section 16 are permissible.

3. Binding Nature of High Court Decisions:
The Tribunal emphasized the binding nature of the Andhra Pradesh High Court's decision in K.A. Choudary, which categorically held that incentive bonus is part of salary and no additional deductions are allowed beyond standard deductions under section 16. The Tribunal noted that High Court decisions take precedence over Tribunal rulings, and conflicting Tribunal decisions do not make an issue debatable. The Tribunal also cited the Orissa High Court's decision in Govind Chandra Pani, which supported the same view.

4. Prima Facie Adjustments and Rectifications:
The Tribunal upheld the Assessing Officer's actions in making prima facie adjustments under section 143(1)(a) and rectifications under section 154. It was noted that the claims for 40% deductions from incentive bonuses were prima facie inadmissible based on the prevailing law and High Court decisions. The Tribunal referenced the Calcutta High Court's decision in Modern Fibotex India Ltd. and the Bombay High Court's decision in Khatau Junkar Ltd., which supported the validity of prima facie adjustments and rectifications based on clear legal positions and subsequent judicial pronouncements.

Conclusion:
The Tribunal dismissed the appeals filed by the assessees and allowed the appeals of the Revenue. It was held that incentive bonuses received by LIC Development Officers are part of salary, and only standard deductions under section 16 are permissible. The Tribunal's decision was guided by the binding nature of the Andhra Pradesh High Court's rulings and the absence of any government notification under section 10(14) allowing deductions for incentive bonuses.