Non exemption of Incentive bonus to DOs of LIC. - Income Tax - 1774/CBDT

INSTRUCTION NO. 1774/CBDT Dated: September 29, 1987 Reference is invited to the endorsement of the Board's letter of even number dated 28.11.86 addressed to the Managing Director of the Life Insurance Corporation stating, inter alia, that the request of Life Insurance Corporation for exemption of incentive bonus paid to the Development Officers was not acceptable. 2. It has been brought to the notice of the Board that the Development Officers of Life Insurance Corporation of India are still claiming expenses separately against the receipt of incentive bonus/commission from the Life Insurance Corporation at a fixed percentage. In support of their claim they rely on the Board's Instruction No.1546 (F.No.168/9/83-IT (AI) dated 6.1.84 which is an extension of the Board's earlier Instruction F.No.14/9/65-IT(AI) dated 22.9.65. 3. The Board wish to clarify that the aforesaid instructions refer to the commission earned by insurance agents and provides for a deduction of a fixed percentage on account of expenses for earning the commission where no detailed accounts regarding expenses are maintained. But the cases of Development officers are quite different in as much as they are not doing any agency business but are paid employees of the Life Insurance Corporation. Their duties involve appointment of agents, training them and helping them in the sale of insurance policies but they themselves cannot act as agents. There is a clear employer-employee relationship between the Life Insurance Corporation and the Development Officer. The payment received by the Development Officers as incentive bonus or bonus commission (or by any other name) is for the work done for the employer. It is in lieu of or in addition to salary and forms part of salary by virtue of Section 17(1)(iv) of the Income-tax Act, 1961. 4. In view of the foregoing, no deduction other than the standard deduction under section 16(i) of the Income-tax Act is admissible against the aforesaid incentive bonus or bonus commission received by the Development Officers. 5. This may please be brought to the notice of all the officers working in your charge. Suitable remedial action, wherever possible, may also be taken in respect of completed assessments. 6. Hindi version will follow shortly.