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TMI Blog1991 (12) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... bed the functions of the Development Officer. Treating the assessee as an employee of the LIC and the incentive bonus as part of the salary, the Assessing Officer allowed only standard deduction under section 16(i) and taxed the entire incentive bonus as income. Accordingly, deduction of 40% claimed from the incentive bonus was not allowed by the ITO. 3. On appeal, the Dy. CIT(Appeals) following the judgment of the Andhra Pradesh High Court in the case of K.A. Choudary v. CIT [1990] 183 ITR 29 and the Circular No. 138 dated 17-6-1974 containing explanatory note to the provision of Finance Act, 1974 especially the standard deduction admissible under section 16(i), confirmed the order of the ITO. 4. At the time of hearing, the learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of insuring human lives ". For this purpose, LIC advises the Development Officer to recruit agents to work in the field. The Development Officer is required to guide the agents working under him to promote the insurance business of LIC. A certain percentage of the premiums collected on behalf of the LIC is paid as commission to the agents while the Development Officers are allowed conveyance allowance and incentive bonus in addition to the salary. The amount of conveyance allowance and incentive bonus is determined by the LIC after a detailed analysis of work done taking into consideration the number of lives insured, possible running around by the Development Officer, premium actually collected, policy lapsed etc. The analysis of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utting forth extra effort to secure more business and if there is no extra business there could as well be no incentive bonus. The ITO has pointed out that the LIC pays incentive bonus to Development Officer only on the basis of " appraisal report " which contains the actual work turned out by the Development Officer. Therefore, the grant of incentive bonus is dependant on the actual performance and varies with the business secured. Therefore, the payment of incentive bonus is conditional in nature and is not fixed or automatic and it does not accrue to the Development Officer as a matter of routine as a part of salary by virtue of being an employee of the LIC. In this connection, the ITO has rightly observed in para 5 of his order that " t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tarting point itself before it is included as salary under section 17 of the Income-tax Act, 1961. There is no dispute about the fact that the incentive bonus is also a part of salary under section 17 of the Act but on practical consideration and finer appreciation of the merits of the case, only the net incentive bonus could form part of salary. In this view of the matter, therefore, following the precedent contained in the orders of the Tribunal, Pune Bench, only 25% of the incentive bonus would be admissible as deduction for promoting the business and the balance 75 % of the incentive bonus is assessable as part of salary. Accordingly the order of the Dy. CIT(Appeals) is modified and the ITO is directed to allow 25% of the incentive bonu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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