TMI Blog1997 (7) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. On appeal, the Deputy Commissioner of Income-tax (Appeals) allowed 40 per cent. of the incentive bonus as deduction and also deleted the addition made by the Assessing Officer with regard to the additional conveyance allowance, following the decision of the Tribunal in ITA Nos. 1691 and 1692/Mad of 1988 in the case of T. S. Sivaram. In the Revenue's appeal, the Tribunal upheld the finding of the first appellate authority. The point for consideration is, whether the entire amount of additional conveyance allowance and 40 per cent. of the incentive bonus received by the assessee as an employee of the LIC, are admissible deductions. Mr. S. V. Subramaniam, learned senior standing counsel, submitted as under : The circular dated November 28, 1986, issued by the Central Board of Direct Taxes will not be applicable after the amendment brought about to section 10(14) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), by the Taxation Laws (Amendment) Act (Act 4 of 1988), which came into effect from April 1, 1989. After the coming into force of the amendment, as per section 10(14)(i) of the Act, any special allowance or benefit, not being in the nature of a perqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centive bonus received by the assessee and that, therefore, the Tribunal was not correct in granting deduction with regard to additional conveyance allowance as well as 40 per cent. of the incentive bonus. On the other hand, Mr. T. C. A. Ramanujam, learned counsel appearing for the assessee, submitted as under : Section 17(1) of the Act defines the expression, "salary" for the purpose of sections 15, 16 and 17 of the Act, by way of an inclusive definition. Section 17(2) defines "perquisites" and section 17(3) defines "profits in lieu of salary". All the three definitions are inclusive and not exhaustive. Section 17 has nothing to do either with deductions or with exemptions. It is merely a provision defining the term "salary" and the quantum of salary has to be determined on a proper interpretation of the agreement between the employer and the employee in that regard. There was controversy with regard to bonus, especially in the context of the definition of "salary" in rule 2(h) of Part A of Schedule IV to the Act. Section 17(3)(i) defines the term "profits in lieu of salary". The use of the term "profits" is significant ; whether it is section 15, 16, 17, 18, 22, 28 or 57, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The question, whether the incentive bonus received by the Development Officers of the LIC, whether treated as part of the salary or perquisite, is taxable under the head "Salary" and the permissible deductions under the said head are as specified under section 16 of the Act, came up for consideration in B. Chinnaiah's case [1995] 214 ITR 368, before the Andhra Pradesh High Court. Following the earlier decision in K. A. Choudary v. CIT [1990] 183 ITR 29, the Andhra Pradesh High Court held that the incentive bonus received by the Development Officers of the LIC constitutes salary and to enable the assessee to take advantage of section 10(14) of the Act, there must be a notification by the Central Government specifying the extent to which the expenses are allowable. In the present case, there is no such notification. Hence, the deduction under section 10(14) cannot be claimed in respect of incentive bonus. An argument was advanced to the effect that Development Officers incurred a lot of expenditure in holding seminars, in extensive travelling and in providing refreshments to the LIC agents and others and therefore 40 per cent. of the incentive bonus should, in any event, be allowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items. The assessee claimed deduction of the abovesaid two items by considering the same as "profits in lieu of salary" as defined in section 17 for the purpose of deduction under sections 15, 16, etc. Even "profits in lieu of salary" would come under the purview of "salary" and any deduction claimed under the head of income would have to satisfy section 16. Under section 16, only standard deduction is allowable and no other deduction claimed under any head in the name of expenditure incurred can be allowed. The contention of learned counsel for the assessee was that the incentive bonus and the additional conveyance allowance would come neither under the head "Salary" nor can it be said that only standard deduction alone is permissible, treating the abovesaid two items as salary. According to learned counsel the net income after deducting the expenditure and the loss should be arrived at and the net income alone is taxable and the LIC itself had granted incentive bonus as well as additional conveyance allowance, treating the same under the head "Salary". Even in the return filed, the assessee claimed exemption under section 10(14) of the Act. It was ultimately held in the aboves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter written by CBDT to one N. M. Goverdhan, Chairman, LIC, Mumbai, wherein it is stated as follows : "Your request for notifying 'incentive bonus' under sub-clause (i) of clause (14) of section 10 of the Income-tax Act cannot be acceded to. It may, however, be added that the portion of the allowance certified as having been actually incurred in the performance of duties shall be exempt under the above provision". Reliance was also placed upon another letter dated April 10, 1997, issued by the Central Board of Direct Taxes to the Chief Commissioner of Income-tax, wherein it is stated : "It has come to the notice of the Board that in some charges, reliance is being placed by the Development Officers of the LIC before the appellate authorities on an incorrect appreciation of an earlier letter of the Board and thereby a part of the incentive bonus is being claimed as exempt under section 10(14)(i) of the Income-tax Act. However, the correct position regarding the claim of the exemption is discussed in the enclosed letter. This may please be brought to the notice of all concerned in your region". In F. No. 149/25 of 1996-TPL issued by the Central Board of Direct Taxes, dated Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure, for those expenses he cannot claim exemption under section 10(14)(i) of the Act. Though in the earlier letters and circulars issued by the Central Board of Direct Taxes, some concessions were given, those circulars really pertain to the period prior to the amendment brought about to section 10(14) of the Act. The circular issued by the Central Board of Direct Taxes after the amendment to section 10(14) of the Act clearly states that if the expenditure is reimbursed by the LIC that would qualify for deduction under section 10(14) of the Act. But, if the expenditure was incurred by the Development Officer himself, he cannot claim deduction under section 10(14)(i) of the Act. Learned counsel for the assessee relied upon a Division Bench decision of the Andhra Pradesh High Court dated August 13, 1986, in I.T. Cases Nos. 160 and 196 of 1985 (CIT v. Muralidhar Rao). In the said cases, while dealing with petitions under section 256(2) of the Act, the following questions were sought to be referred : "(a) The Tribunal is not justified in upholding the appellate authority's decision in allowing 40 per cent. of the incentive bonus as allowable expenditure while assessing in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
