TMI Blog1998 (12) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. On appeal in some of the cases, the CIT(A) has accepted the contention of the assessees, while in other confirmed the order of the Assessing Officer. The revenue is in appeal where the CIT(A) accepted the assessee's contention, while the assessees are in appeal where the order of the Assessing Officer have been upheld. Thus, in all the above appeals, following two questions are involved: (a) Whether the conveyance allowance/additional conveyance allowance received by the Development Officers of LIC are exempt under section 10(14) of the Act ? (b) Whether the Development Officers of LIC are entitled to 40 per cent deduction of the incentive bonus received by them as an expenditure incurred for earning incentive bonus ? 3. At the time of hearing before us, the learned Departmental Representative argued at length. His arguments are summarised as below :-- (a) Regarding Conveyance Allowance/Additional Conveyance Allowance:-- That the assessees are salaried employees of LIC. They received the conveyance allowance/additional conveyance allowance from the employer. Deduction under section 10(14) of the Act, as amended with effect from 1-4-1989, is permissible o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one as salaried employee of the LIC and other as the Agent/Representative of LIC. The activity and the services rendered by the Development Officers are not comparable with any other employees. The Development Officers have no fixed duty hours and no office work is required to be performed by them. They have only field duty. The Development Officers are required to recruit new Agents and on their recommendations, the Agents are appointed by LIC. The Agents are trained by the Development Officers. The Agents work under the direct control and the guidance of Development Officers. The incentive bonus is paid for their professional work. Incentive Bonus is worked out on the basis of premium collected on the new Insurance Policies sold by them through Agents. For rendering the proper services, the Development Officers are required to incur lot of expenditure, which are not reimbursed by the LIC. Therefore, the deduction for such expenditure incurred by the Development Officers for earning of Incentive Bonus should be allowed. He stated that income-tax is chargeable on income and not on gross receipts. If the deduction for the expenditure incurred in earning of incentive bonus is not al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee relationship between Development Officers and the LIC for procurement of new business and there is no prescribed rules or method, how the Development Officers are to perform their activities. Therefore, the incentive bonus received by the Development Officers is not the part of the salary received by the Development Officers. He stated that the incentive bonus, even if considered as part of salary, it can be considered only as profit in lieu of salary under section 17(1)(iv) of the Income-tax Act, 1961. The word "profit" denotes net gain to the assessee i.e. receipt minus expenditure. Therefore, under section 17(1)(iv), the only net profit i.e. incentive bonus reduced by the expenditure incurred can be taxed and not the gross receipt in the form of incentive bonus. Regarding conveyance allowance and additional conveyance allowance, his arguments are similar to that of Shri H.S. Shrivastava. He also relied upon the decision of ITAT Nagpur Bench in the case of V. H. Jajoo v. ITO [IT Appeal No. 795 (Nag.) of 1994]. Arguments of Shri G.N. Purohit, Advocate: He stated that the incentive bonus is neither income from salary nor profit and gains of the business, but it is income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance or benefit. (b) the special allowance or benefit is not in the nature of perquisite within the meaning of section 17(2). (c) the amount is paid to meet the expenses wholly, necessarily and exclusively incurred in performance of duties of an office or employment of profit. (d) the amount is specified by Central Government by way of notification. (e) the expenses are actually incurred by the assessee. Let us examine whether the above conditions are satisfied in the case of the assessees before us. (i) Conveyance allowance/additional conveyance allowance is certainly in the nature of special allowance or benefit provided to the assessees. Thus, first condition is duly satisfied. (ii) The allowance or benefit are not in the nature of any of the perquisite provided in section 17(2) of the Income-tax Act, 1961. (iii) The Development Officers are full time employees of the LIC. They are categorised as Class II Officers. As per the instruction of LIC, a Development Officer has the following duties and obligations to perform :-- "(4) Duties and obligations,-- (A) His duties as a Development Officer shall be,-- (i) to develop and increase the production of fife insur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notification as under:-- "II. In exercise of the powers conferred by sub-clause (i) of clause (14) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specified any allowance granted to meet the expenditure incurred on conveyance in the performance of the duties of an office or employment of profit, for the purposes of the said sub-clause for the assessment year 1989-90 and subsequent assessment years--Notification No. GSR 606(E) dated 9th June, 1989." Thus, the fourth condition is also satisfied, because the conveyance allowance has been specified by the Government to be exempt under section 10(14) for assessment year 1989-90 and subsequent assessment years. The assessment year involved in all the above appeals before us are assessment years 1989-90 to 1992-93. Thus, the above notification would be squarely applicable in respect of all the years before us. That the fifth and the last condition is that the amount received as an allowance should have been actually incurred for the purpose as mentioned above in condition No. 3 i.e., the amount is spent in performance of duties of an office or employment of profit. Now, out of the conveyance a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the counsels appeared on behalf of the assessees that the Development Officers have dual capacity--one--as the employee of the LIC for which salary is paid to them; other--as Agent of the LIC. In their second capacity, they work for procuring more business for the LIC and they are paid incentive bonus on the basis of business procured by them. Thus, this incentive bonus is not part of the salary received by them from LIC. It is stated by Shri H.S. Shrivastava and Shri Arun Shrivastava, Advocates, that the incentive bonus is profit and gains of the business. Shri Ganesh Purohit, Advocate stated that the incentive bonus is neither income from salary nor profit and gains of business, but it is income from other sources. The learned Departmental Representative contended that it is income from salary and only standard deduction under section 16 is permissible. 10. We have carefully considered the arguments of both the sides. The Development Officers are full time employees of the LIC, their duties and obligations, as per instruction from LIC has been given in detail by us at page 9, para 3 of our order. They are required to develop and increase the business of Life Insurance. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule; and (vii) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund to the extent to which it is chargeable to tax under sub-rule (4) thereof." 11. From the perusal of the above definition of "Salary" and considering each of them items mentioned above, in our opinion, the incentive bonus can be properly classified as profit in addition to any salary. Therefore, we hold that the incentive bonus is to be assessed under the head "Salary" being profit in addition to the salary received by the assessee. We have already stated that unlike other employees, the Development Officers are required to incur various expenditures for earning incentive bonus. Such expenditures are not fully reimbursed by the LIC. Therefore, in our opinion, deduction for such expenditure should be allowed. In fact, the word "Profit" itself signifies the receipt minus expenditure. Under section 17(1)(iv), Profit" in addition to salary is to be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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