TMI Blog1992 (9) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... he standard deduction under section 16 of the Act should be allowed and there was also no provision for deduction of the expenditure incurred for earning the salary except the standard deduction. 3. The C.I.T. further held that the expenditure incurred by the assessee for earning the income by way of incentive bonus or commission does not fall under any of the provisions of section 16 and the provisions of section 10(14) cannot be imported into this computation. According to him, the incentive bonus or commission was according to the scheme operating for a kind of payment between the employer and employee and it cannot be considered de hors the overall relationship of employer and employee between LIC and the assessee as a Development Officer. In this view of the matter, he considered that the assessment orders were erroneous in so far as they were prejudicial to the interest of revenue and enhanced the assessed income by amounts of Rs. 20,830, Rs. 30,000 and Rs. 33,865 for the assessment years 1986-87, 1987-88 and 1988-89 respectively by directing to disallow the expenditure holding that the assessee has wrongly claimed the expenditure by way of deduction and the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the office hours. Procurement of more business for LIC is not restricted to the official hours only but this can be done even out of office hours. That is why the conception of incentive bonus or commission has come into existence. 6. We have held in several cases that this type of incentive bonus or commission does not assume any character of income other than the income from salary. We have treated such income as integral part of the salary. Despite section 16(i) regarding standard deduction, we have held in several cases that the Development Officer who is expected to procure more business for which he is paid an incentive bonus or commission is further expected to incur expenses for procuring such business. For this purpose, we have held that some percentage of the incentive bonus or commission is allowable as deduction. However, in these appeals, an interesting point has been argued and advanced from both sides and therefore, we have to deal with this point again to arrive to a proper conclusion whether certain percentage of incentive bonus or commission is allowable by way of deduction or not. 7. The learned Departmental Representative Shri A.K. Khaladkar has raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that it was a part of salary. According to the Orissa High Court, there is a contradiction in the Tribunal's order, firstly held that the incentive bonus is a part of salary and secondly to allow the deduction of expenditure over and above the standard deduction under section 16(i). According to the Andhra Pradesh High Court, the Development Officer received incentive bonus being an employee of the LIC and therefore, it was a part of the salary. Thus, there is no conflict between these two decisions of the Orissa High Court and the Andhra Pradesh High Court which are relied upon the department. 9. As against this preliminary objection raised by the learned departmental representative, Mrs Rajani Mehendale the learned representative for the assessee has relied on the decision of Bombay Bench 'B' (Third Member) in the case of Sixth ITO v. Narendra V. Patel [1985] 11 ITD 587, wherein it was held by the Third Member in that case as follows : " It is well established that for arriving at the profits and gains of business, account must necessarily be taken of all losses and expenses incurred, otherwise one cannot arrive at the true profits and gains. In other words, some deductions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e over the agents which is identical to the promotion of the business and which is in the commercial expediency of the business. The word 'incentive' is of significance. It cannot be considered at par with bonus paid to any other Government employee as a part of salary. The word 'incentive' pre-supposes the performance or output on the basis of which the quantum is fixed. The ITO had pointed out that the LIC paid incentive bonus to the Development Officer only on the basis of 'appraisal report' which contained the actual work turned out by the Development Officer. Therefore, the grant of incentive bonus was dependent on the actual performance and varied with the business secured. Therefore, the payment of incentive bonus was conditional in nature and was not fixed or automatic and it did 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. Viewed from this angle a reasonable and fair conclusion that could be drawn would be that certain amount of incentive bonus was required to be allowed as a deduction and only the net incentive bonus could be assessed as a part of salary. In this regard following the preced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I. brought by the Development Officer during his appraisal period is to be reduced by SFYP of the lapsed business of the said Development Officer as per Lapsation Statement supplied to you by EDP Deptt. to arrive at his Not Scheduled First Year Premium Income. The basic incentive bonus is arrived at on the basis of 6 per cent of the Net SFYPI in excess of 5 times of the annual Expenses incurred, added by 4 per cent of the net SFYPI in excess of 7 times of the annual expenses and further added by 2 per cent of NET SFYPI in excess of 9 times of the Annual Expenses incurred. The Basic Incentive Bonus is increased to the extent of 57 per cent of Basic Incentive Bonus (42 per cent for Agency Organisation plus 1 5 per cent for Number of Lives) but not exceeding Rs. 12,500. And Basic Incentive Bonus is reduced to the extent of 25 per cent of Basic Incentive Bonus (15 per cent maximum for Agency Organisation, 10 per cent maximum for Number of Lives, 10 per cent maximum for failure for recruitment whichever is applicable) or Rs. 5,000 whichever is lower. 11. In the above-mentioned clauses, the formulae of paying incentive bonus have been given. Again the definition of annual remuneratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the LIC. It would be better to mention here that if any doubt arises out of these rules, the matter requires to be referred to the Government of India for clarification. Of course, this matter as to how to treat the incentive bonus has not yet been referred for clarification to the Government of India by any of the parties regarding the dispute and its clarification. 13. From the abovequoted rules, it becomes quite clear that the incentive bonus is besides salary paid to the Development Officer by the LIC of India. 14. The contradiction that arises in this respect is that if the Development Officer is held to be earning incentive bonus by virtue of his being in the employment of the LIC then the receipt of incentive bonus is necessarily to be treated as a part of salary. If it is held that inspite of being in the employment of the LIC of India the Development Officer has to do field work, he has to guide and govern the agents under him and for this purpose the incentive bonus paid does not form part of salary then it should be treated as income from other source or from business. If it is so treated then he is entitled to get the deduction from the income from other sources fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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