1984 (11) TMI 169 - AT - Income Tax

Summary

Issues Involved:
1. Nature of incentive bonus received by the assessee.
2. Deduction of expenses from incentive bonus.
3. Exemption claim for conveyance allowance under Section 10(14).
4. Regulation of depreciation claims.
5. Consequential changes in interest.

Issue-wise Detailed Analysis:

1. Nature of Incentive Bonus Received by the Assessee:
The primary issue was whether the incentive bonus received by the assessee, a Development Officer of LIC, formed part of his salary. The ITO and AAC held that the incentive bonus was part of the salary, referencing Gestetner Duplicators (P) Ltd. vs. CIT, which equated incentive bonuses to salary if they were based on a percentage of turnover. The assessee argued that the incentive bonus was separate from the employment contract and was determined by a distinct scheme based on performance metrics, thus qualifying as income from profession or other sources.

2. Deduction of Expenses from Incentive Bonus:
The assessee claimed deductions for expenses incurred in earning the incentive bonus, including sales promotion, office maintenance, and depreciation on motor car and furniture. The ITO denied these deductions, treating the incentive bonus as salary. However, the Tribunal referred to similar cases, such as ITO vs. Raj Kumar Sethi and K. Rami Reddy vs. ITO, where it was held that incentive bonuses were not part of salary but were recompense for efforts beyond the call of duty. Consequently, expenses incurred to earn the incentive bonus were deductible.

3. Exemption Claim for Conveyance Allowance under Section 10(14):
The assessee claimed exemption for conveyance allowance under Section 10(14), supported by a certificate from LIC stating that the allowance was to cover expenses wholly, necessarily, and exclusively incurred in performing duties. The Tribunal upheld this exemption, referencing previous Tribunal decisions and the certificate provided by LIC.

4. Regulation of Depreciation Claims:
The Tribunal noted that the ITO had not verified the accuracy of the depreciation claims. It directed the ITO to examine the correctness of the claims and allow deductions supported by evidence. If evidence was lacking, the ITO was instructed to follow guidelines from the Board's Circular for regulating the deduction.

5. Consequential Changes in Interest:
The Tribunal directed the ITO to make consequential changes in interest calculations in line with the above directions.

Conclusion:
The Tribunal concluded that the incentive bonus received by the assessee was not part of the salary but was income from profession, allowing for the deduction of related expenses. The conveyance allowance was exempt under Section 10(14) based on the certificate from LIC. The case was remitted back to the ITO to verify and regulate the deductions for expenses and depreciation, following the Board's Circular guidelines. The appeal was allowed in part.