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TMI Blog2001 (11) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... the incentive bonus is to be excluded from the definition of 'emoluments under section 17'? (ii) 30 per cent of the incentive bonus should be excluded from the computation at the inception itself? (3) Whether, on the facts and in the circumstances of the case (and the incentive bonus being salary), the assessee is entitled to any deduction in excess/different from standard deduction allowable/permissible under section 16(i) of the Income-tax Act, 1961?" The assessees are admittedly regular employees of the LIC of India and are assessed under the head "Salary" in respect of the income earned by them from their employer in the form of salary and perquisites. Having regard to the nature of relationship between the. LIC of India and the assessees, as one of employer and employee,. there is no serious dispute as to the head of income under which 'incentive bonus" also is assessable. The definition of "salary" under section 15 of the Income-tax Act is so wide and is only an inclusive one taking in all receipts from the employer in the form of wages, commission, bonus, profits in lieu of or in addition to salary, etc. It is obvious that the Legislature did not attach much importanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, appeared. As the issue arises in the case of the assessees all over India, we have the advantage of several decisions of various High Courts. We will first refer to a Full Bench decision of the Karnataka High Court in CIT v. M. D. Patil [1998] 279 ITR 71. The Full Bench took the view that incentive bonus earned by the Development Officers of the LIC of India is nothing but salary and no deduction over and above the standard deduction provided under section 16 of the Income-tax Act is permissible under the Income-tax Act. Accordingly, the claim of expenditure or the net income theory put forward by the Development Officers was turned down by the Karnataka High Court. Similar is the view taken by various High Courts including the Andhra Pradesh High Court in K.A. Choudary v. CIT [1990] 183 ITR 29; the Madras High Court in CIT v. E.A. Rajendran [1999] 235 ITR 514 and CIT v. P. Arangasamy [2000] 242 ITR 563; that of the Orissa High Court in the decision in CIT v. Anil Singh [1995] 215 ITR 224; that of the Bombay High Court in CIT v. Gopal Krishna Suri [2001] 248 ITR 819; and that of the Calcutta High Court in CIT v. Ramlal Agarwala [2001] 250 ITR 828. However, the assessees have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inked to expenditure, if any, incurred by the Development Officers. Further, under the Scheme, in cases where the remuneration otherwise receivable by the Development Officers is in excess of 20 per cent. of the net premium, then the Development Officer is not entitled to any incentive bonus. There is no explanation from the assessees as to how the expenditure incurred by them even in such cases can be allowed when no incentive bonus is received, even though business is canvassed, which according to them, involves expenditure. Though the assessees have Vehemently contended that they incur sizable expenditure to earn the incentive bonus and the employer, namely, the LIC of India, has certified such expenditures having been incurred by them and has even estimated such expenditure at 30 per cent., we have not seen a single case where any assessee has come forward before the Department claiming any item of expenditure or furnished details of any such expenditure if at all incurred by him. Therefore, apart from the tall claim made by them, and the help rendered to them by the LIC of India, by writing a letter, there is nothing on record to show that the expenditure, if any, has been inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction provided under section 16(i) of the Act. The assessees have invited our attention to the letter written by the LIC of India to the Central Board of Direct Taxes, We find the details in the decision of the Gujarat High Court referred to above, and also in the impugned order of the Tribunal. The LIC of India has addressed a letter to the Central Board of Direct Taxes in the following lines. "As regards incentive bonus, we have taken note of your clarification in the matter. We are at present designing a new Incentive Bonus Scheme for our Development Officers where it might be possible to provide for a separate allowance or for a distinct/separate element of payment in the nature of reimbursement of expenses which, we know, are necessarily to be incurred in the process of earning that incentive bonus. As this would take some more time, we would request you to allow some relief, in the meanwhile, to our Development Officers on this account. As you know, incentive bonus is a production-oriented income, inasmuch as, higher bonus becomes payable to a Development Officer on achieving higher production. When his actual performance is beyond the normal levels of performance e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, no deduction is contemplated from the incentive bonus, which finds a place in the salary certificates. The finding of the Gujarat High Court at page 655 that 'however, the facts proved clearly indicate that a part thereof was granted to the employee with a view to meet the expenses that might have to be incurred by him as Development Officer for the discharge of his duty' is, far from being inconsistent with the contents of the letter of the Board, also against law and facts.' Therefore, it is obvious that the LIC of India could not convince the Central Board of Direct Taxes that any part of incentive bonus is a reimbursement of expenses. We are told that the LIC of India has now changed their pattern of payment of incentive bonus which is now split into two parts, 70 per cent. representing income and 30 per cent. towards reimbursement of the expenditure. Since the cases before us do not pertain to any assessment after the introduction of the separate payment by the LIC of India, we are not going into the eligibility of the claim for deduction of 30 per cent. now separately given by the LIC of India. We are unable to accept the finding of the Tribunal that 30 per cent. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreeing with the view of the Gujarat High Court, we are of the view that incentive bonus is only a part of the salary of the assessees and the assessees are not entitled to any deduction over and above the standard deduction. We are unable to accept the logic adopted by the Gujarat High Court in dissecting the word 'profit" occurring in the definition of "salary" and allowing the estimated expenditure portion based on the opinion given by the LIC of India without any statutory provision authorising it, in their decision referred to above. The proposition canvassed by the assessees that incentive bonus is "profit" and the profit in the hands of the employees has to be computed after deducting expenditure is against the principle laid down in the decision of the Supreme Court in Karamchari's case [2000] 243 ITR 143. Accordingly, in the appeals, we answer the three substantial questions of law set out in paragraph 1 above in the negative, in favour of the Revenue and against the assessee, set aside the order of the Income-tax Appellate Tribunal and that of the Commissioner of Income tax (Appeals) and restore the assessments on this issue. The reference cases are disposed of by answ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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