TMI Blog2000 (10) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... received an incentive bonus of Rs. 79,216 from the Life Insurance Corporation. As a Development Officer, he was required to maintain an organization, to recruit and train agents. For that purpose, he incurred certain expenses. He claimed a percentage of the incentive bonus as deduction since he was required to meet the expenses to fun the said organization. He claimed that he was working beyond duty hours. He claimed the above deduction in view of the structure of employment as evidenced by the rules framed by the Life Insurance Corporation as applicable to the Development Officers. He urged before the Assessing Officer that, as a Development Officer, he was required to employ and control agents who are not the employees of the Life Insurance Corporation. The said agents were appointed on contract basis for which commission was paid for procuring business for the Life Insurance Corporation. That the Development Officer had to look after the agents. That they were required to be guided to procure more business. For doing this extra work, the Development Officer was paid incentive bonus over and above the salary paid to him to do his duties during the office hours. Accordingly, he c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision for deduction of the expenditure incurred for earning the bonus except by way of standard deduction, the expenditure incurred by the assessee for earning incentive bonus did not fall under section 16 and, therefore, section 10(14) also cannot be imported in computation. Accordingly, the appeal was dismissed. Being aggrieved, the assessee went in appeal before the Tribunal which came to the conclusion that incentive bonus can only be assessed as salary. However, relying upon its earlier decision, the Tribunal, on examination of the rules, came to the conclusion that the Development Officers of the Life Insurance Corporation incurred expenditure over the agents for the purposes of promoting the business of the Life Insurance Corporation. That the payment of incentive bonus was conditional. That it was not fixed. That it was not automatic. That it did not accrue to the Development Officer as a routine. That it did not accrue as a part of salary. Hence, the Tribunal allowed deduction of 25 per cent. on incentive bonus. It further directed, consequentially, that only the net incentive bonus could be assessed as part of salary. Being aggrieved, the Department has come by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Development Officers in the Life Insurance Corporation. That they were strictly not employees. That, their duties required them to maintain, at their own expense, their own organization, recruit and train Life Insurance Corporation agents. That, in order to run such organization, these Development Officers incurred various expenses. That, the amount of incentive bonus was part of the salary but the question that the court was required to decide in this case was whether the entire amount of incentive bonus received by the Development Officers was required to be taken into account as income from salary or whether the net amount, after allowing deduction from expenses incurred, should be taken into account. He contended that incentive bonus depended on personal efforts and volume of business procured by the Development Officers for Life Insurance Corporation. He invited our attention to the scheme framed. by the Life Insurance Corporation in respect of incentive bonus. He also invited our attention to various decisions of the Tribunal in which it has been held that the Development Officers were entitled to deduction at 40 per cent. of the incentive bonus by way of estimated exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bonus under the statutory orders. Accordingly, it was contended that all the above features show that the relationship between the Life Insurance Corporation and the Development Officer is not merely that of employer and employee. That it was more in the nature of a contract of agency. That if a Development Officer did not bring in business or if he did not conform to the expense limits and the cost ratio, he would not be entitled to incentive bonus although he continues to be in the employment of the Life Insurance Corporation. On the other hand, a dynamic Development Officer who drives his organization and his agents to bring in more policies and higher first premium, would be entitled to incentive bonus. In the circumstances, it was urged that the view of the Gujarat High Court was more pragmatic and, with respect, it was the correct view particularly in view of section 15 of the Income-tax Act. We find merit in the case of the Department. There is unanimity among the High Courts on the status of the Development Officers as full time employees of the Life Insurance Corporation. A perusal of the service rules shows that the main task of these officers is to develop the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a Development Officer was required to spend a part of the incentive bonus to maintain and regulate a separate organization of his own to recruit agents for the Life Insurance Corporation and, therefore, it was contended that an amount up to a specified percentage of the incentive bonus earned should be admissible for deduction as it represented necessary expenses that would have to be incurred by the Development Officer. It was contended that the deductions contemplated under section 16 of the Act were to be made while computing the income chargeable under the head "Salaries". However, these are statutory deductions which are quite distinct from expenses incurred for the purposes of working out the profits in lieu of or profits in addition to the salary under section 17(1)(iv). It was contended that the meaning of the word "income" in section 15 can only mean income which is net of expenses to earn that income. This was on the footing that under the Income-tax Act, tax is chargeable on real income. It was urged that there was no provision under the Act which prevents the court from taking the more pragmatic view, viz., that the word "income" in section 15 refers to income whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chari Union v. Union of India [2000] 243 ITR 143, the Supreme Court has laid down that the word "salary" in section 17(1) is an exhaustive definition. That, the inclusive definition of the word "salary" in section 17 provides that apart from actual salary received by the employee, it also includes wages, annuity, pension, gratuity, commission, perquisites or profits in lieu of salary or profits in addition to salary. As stated above, the amounts received as incentive bonus are in the nature of commission. They form part of salary. In the circumstances, equitable considerations do not come into the picture. It has been held in the above judgment of the Supreme Court that equity cannot be taken into account while interpreting legal provisions. Moreover, the scheme of the incentive bonus is applicable only to the employees of the life insurance corporation. We have examined the scheme. The payments under the scheme do not have any other legal character except that of salary to which sections 16 and 17 of the Act apply. We respectfully agree with the judgment of the Madras High Court reported in CIT v. P. Arangasamy [2000] 242 ITR 563, the judgment of the Punjab and Haryana High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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