2009 (7) TMI 322 - HC - Income Tax

Whether Tribunal was legally correct in confirming the action of Deputy Commissioner (Appeals) to allow the assessee s claim for deduction to the extent of 40 per cent. of the amount received as incentive bonus particularly when it is the part of salary? - respondent-assessee is a development officer with Life Insurance Corporation of India. In all the three assessment years he had received incentive bonus from Life Insurance Corporation against which he had claimed certain expenditure. The Assessing Officer was of the view that incentive bonus was part and parcel of the assessee s income under the head Salary and as such he was entitled to only standard deduction under section 16(i) - held that deduction permissible under section 16(i) of the Act alone is available to a salaried employee like a Development Officer in Life Insurance Corporation of India and it cannot claim any other deduction.

Summary

Issues:
1. Interpretation of the deduction claim for incentive bonus as part of salary.
2. Applicability of section 16(i) of the Income-tax Act to a salaried employee.
3. Consideration of expenditure against incentive bonus under section 10(14) of the Act.

Issue 1 - Interpretation of deduction claim for incentive bonus:
The case involved a development officer receiving incentive bonus from the Life Insurance Corporation and claiming expenditure against it. The Assessing Officer considered the incentive bonus as part of the income under the head "Salary," limiting the deduction to standard deduction under section 16(i) of the Act. The Deputy Commissioner of Income-tax (Appeals) directed a deduction of 40% of the incentive bonus based on various tribunal decisions and a reference to the Bombay High Court decision. The Tribunal concluded that the incentive bonus was assessable under "Income from salary," but the expenditure incurred was to be excluded under section 10(14) of the Act. Due to the absence of maintained accounts by the assessee, the 40% deduction allowed by the first appellate authority was deemed reasonable.

Issue 2 - Applicability of section 16(i) to a salaried employee:
The High Court referred to a previous decision in CIT v. M. S. Bagga, where it was held that a salaried employee, such as a Development Officer in the Life Insurance Corporation of India, is only entitled to the deduction under section 16(i) of the Act and cannot claim any additional deduction. Consequently, the High Court answered the question in favor of the Revenue and against the assessee, aligning with the precedent set in the mentioned case.

Issue 3 - Consideration of expenditure against incentive bonus:
The Tribunal's decision to allow the deduction of 40% of the incentive bonus was based on the exclusion of expenditure incurred by the assessee out of the bonus under section 10(14) of the Act. Despite the absence of maintained account books by the assessee, the Tribunal deemed the deduction reasonable, leading to the dismissal of the Department's appeal in the consolidated order.

In conclusion, the High Court's judgment upheld the applicability of section 16(i) to limit deductions for a salaried employee, rejected additional deductions beyond standard deduction, and supported the exclusion of expenditure against the incentive bonus under section 10(14) of the Income-tax Act.