9911796707
TMI Blog1998 (10) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... Development Officer. He filed a return of his income for the assessment year 1980-81 declaring income at Rs. 15,880. Salary as per the salary certificate was shown by the assessee at Rs. 26,729. He claimed deduction of Rs. 3,007 from the incentive bonus amounting to Rs. 7,517. The assessee filed his return of income for the assessment year 1981-82 declaring income at Rs. 29,140. In this year also, the assessee claimed deduction of Rs. 9,020 on account of expenses at 40 per cent. of the incentive bonus amounting to Rs. 22,549 received by him. The Assessing Officer declined to grant deduction from the amount of incentive bonus in both the years. The assessee went up in appeal before the Appellate Assistant Commissioner for both the years, but failed. His appeals before the Tribunal also met the same fate. The case put forward by the assessee before the Assessing Officer was that incentive bonus was given to him by the Life Insurance Corporation of India not as part of salary but by way of professional income earned by him for more insurance business done during the year. It was given for performing business activity in the insurance field beyond duty hours. He also incurred expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch income. Similarly, different rates of incentive bonus have been laid down in the Scheme for still higher premium earned for the Life Insurance Corporation of India in a year. Thus, incentive bonus depended on the personal efforts and the volume of business procured by the Development Officer for his employer, the Life Insurance Corporation of India. Shri Mittal, learned counsel for the assessee, has placed before us a copy of the scheme, relating to the payment of incentive bonus, framed by the Life Insurance Corporation of India in the year 1978. This scheme is called "The Scheme of Incentive Bonus of Development Officers of Life Insurance Corporation of India, 1978". The aforesaid incentive scheme also lays down the formulae for determining incentive bonus. Shri Mittal has pointed out that the expression "annual remuneration" has been defined in the Scheme and the amount of incentive bonus has not been included in "annual remuneration". Shri Mittal has, therefore, contended that if the "annual remuneration" as defined in the incentive scheme did not include incentive bonus, it would be improper to treat the incentive bonus as part of salary. He has argued that the incentive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o relationship of employer and employee between the company and its director. It was, therefore, held that the remuneration received by the director from the company could not be held to be salary from which he could claim deduction under section 16(i) of the Act. In the second case, salary was received by a partner. The partner claimed deduction in respect of such salary. It was held that a firm is not a legal person and has no legal existence apart from its partners. Though under the income-tax law, it is a unit of assessment by virtue of the special provisions, it cannot be considered that the firm is the employer of its partners. It was, therefore, held that the partner was not entitled to special deduction in respect of such salary. Both the aforesaid decisions are, therefore, found to be distinguishable and do not help the assessee at all. Shri A. K. Mittal, learned counsel for the assessee, has also placed reliance on two decisions of the Bombay High Court, i.e., (i) CIT v. M. C. Shah [1991] 189 ITR 180 and (ii) CIT v. A. A. Baniyan [1992] 197 ITR 717. In the first case, the question referred to the High Court under section 256(2) of the Act was in respect of the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet the necessary expenses incurred by him. Shri A. K. Mittal, learned counsel for the assessee, has also argued that the Development Officers earned incentive bonus in a different capacity, functioning as professionals. When they went to the insurance field to procure more business, they were working as professionals and in a capacity other than that of employees. Reliance is placed by Shri Mittal on a decision of the Allahabad High Court in K. P. Bhargava v. CIT [1954] 26 ITR 489. That was a case where the assessee was appointed as a treasurer and also as a guarantee commission agent of a bank. As a treasurer, the assessee was to be in charge of the cash department. He was responsible for any loss caused to the bank by his conduct or the conduct of the cash department employees who were employed by him and who were under his control. As a guarantee commission agent, the assessee had to recommend to the bank persons who wanted to borrow money and if the bank agreed to lend money to any person recommended, the assessee got a commission. If any approved borrower failed to return to the bank the money advanced, the bank was entitled to recover the debt from the assessee and from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction of his personal debts incurred in speculative transactions. The assessee claimed deduction on account of the loss sustained by him as a result of misappropriation by the agent on the ground that it was incidental to the carrying on of the business. Their Lordships of the Supreme Court accepted the assessee's plea and allowed the deduction. Depending upon the ratio of the aforesaid decision, Shri Mittal has argued that all legitimate deductions, including losses, are allowable from the gross income if those were incidental to the business. Since the Development Officers were engaged in procuring more business for the Life Insurance Corporation of India, the necessary expenses incurred by them while performing that duty should be allowed as deduction before bringing the income to tax. Shri Mittal has also relied upon another decision of the Supreme Court in Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521. It has been observed therein that : "Income-tax is a tax on the real income, i.e., in the case of a business, the profits arrived at on commercial principles subject to the provisions of the Income-tax Act". Shri Mittal has contended that whatever gross receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the insurance agents cannot be available to the Development Officers. It is also clarified that the Board has declined such benefits to Development Officers as conveyed in Instruction No. 1774. Shri R. P. Sawhney, learned senior counsel for the Department, has further argued that if a distinct and specific head of income has been given in section 15 of the Act, the income received by the employee would only be assessable under that specific head. An employee cannot be allowed to divide his income under two different heads according to his convenience. If the remuneration paid to the employee is assessable under the head "Salaries", no part of such income is assessable under the head "Profits and gains of business or profession". Shri Sawhney has placed reliance on a decision of the Delhi High Court in CIT v. Dr. Rameshwar Lal Pahwa [1980] 123 ITR 681. It was held therein that the amount deducted in computing the income from house property cannot be included in the hands of the assessee as income from other sources. It was observed that by the computation of income under the head "Property income" on the basis of the standard rent, the assessment of that source of income is exhaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Life Insurance Corporation of India. They are employed for promoting and developing life insurance business. Their primary concern and functions are to secure more business for the Life Insurance Corporation of India. It cannot, therefore, be said that while working in the field they are doing work in a different capacity. They go to the field through the insurance agents. Their status does not, therefore, change while working in the field for the purposes of getting more business for the Life Insurance Corporation of India. In this situation, it cannot be said that the Development Officers are working in a different capacity while procuring more business. They might have professional expertise in the insurance business, but that would not change their status while they work in the field. They remain Development Officers in the employment of the Life Insurance Corporation of India while working in the field also. Whatever income is received by the Development Officers from the Life Insurance Corporation of India is by way of salary and is to be assessed under the same head. There is nothing on record to show that under the scheme of incentive bonus framed by the Life Insurance C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the maintenance of a conveyance and other expenditure actually incurred by the assessee wholly, necessarily and exclusively in the performance of his duties. After amendment effective from April 1, 1975, standard deduction at a fixed rate/amount has been allowed under clause (i) of section 16. Further deductions in respect of entertainment and on account of tax on employment are also allowed under clauses (ii) and (iii) of section 16. "Salary" has been defined in clause (1) of section 17 of the Act as under : "17. For the purposes of sections 15 and 16 and of this section,--- (1) 'salary' includes--- (i) wages ; (ii) any annuity or pension; (iii) any gratuity; (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages ; (v) any advance of salary; (va) any payment received by an employee in respect of any period of leave not availed of by him; (vi) the annual accretion to the balance at the credit of an employee participating in a recognised 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 balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that the Life Insurance Corporation of India gave incentive bonus in lieu of distribution of its profits, it would not be appropriate to hold that the incentive bonus in the hands of the Development Officers was "distributed profits" in addition to salary. The word "profits" would essentially mean profits of the employer. If the remuneration is paid by the employer by sharing the profits, that would be treated to be profits in addition to salary in the hands of the employee. The incentive bonus cannot be treated to be payment of part of the profits of the Life Insurance Corporation of India to the Development Officers. It is by way of commission for higher output and better results. "Commission", according to Webster's New International Dictionary, is the percentage or allowance made to a factor or agent for transacting business for another. It would, thus, appear, in the light of the aforesaid definition, that an employee may be entitled to receive, as part of his remuneration, a commission to be calculated on the basis of a fixed percentage of the turnover of the employer or to be calculated on any other basis. In sub-clause (iv) of clause (1) of section 17, any fee, commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit; 10. Incomes not included in total income---... (14) any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for that purpose." A conjoint reading of the aforesaid two provisions would make it clear that any special allowance or benefit granted to an employee has been made assessable as his income. At the same time, exemption has been allowed in respect of such special allowance or benefit to the extent to which the employee has actually incurred expenses wholly, necessarily and exclusively for the performance of his duties. In the case of a Development Officer, the incentive bonus does not appear to be a special allowance payable to him for meeting expenses wholly, necessarily and exclusively incurred by him in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pediency may be taken into consideration while allowing deductions to arrive at the net profit. If it was a case of profits and gains of business or profession, the concept of net profit would emerge. However, in the case of income by way of salary, deduction shall be allowed only as specified in section 16 of the Act. After the amendment effective from April 1, 1975, standard deduction at a fixed rate/amount is allowed under clause (i) of section 16. Two other deductions, one in respect of entertainment allowance and the other on account of payment of tax on employment are also allowed under clauses (ii) and (iii) of section 16. Though in clause (i) of section 16, no specific item has been mentioned for which standard deduction is allowed, it would be necessary to look to the provisions which existed prior to the amendment and which became effective from the assessment year 1975-76. Specific deductions in respect of the purchase of the books, conveyance and in connection with the performance of duties have been done away with and instead a fixed deduction has been made allowable under clause (i) of section 16. In this light, a second deduction cannot be said to be permissible wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining three items of deductions, namely, (i) expenditure on the purchase of books, (ii) expenditure on conveyance, and (iii) expenditure incurred by the employee wholly, necessarily and exclusively in the performance of his duties, do not any more exist and instead standard deduction at a fixed percentage/amount is allowed under clause (i) of section 16. When an employee is allowed deduction under clause (i) of section 16, he cannot claim a second deduction on the ground of having incurred certain expenditure in the performance of his duties. The assessee has not been able to show that he was not paid any travelling allowance while going to the field in connection with the insurance business. He cannot claim a second reimbursement from the amount of incentive bonus. He, being an employee of the Life Insurance Corporation of India, is entitled to the allowances and benefits in respect of his duties as admissible to other employees. On a consideration of the entire controversy, it is held that incentive bonus is assessable under the head "Salaries" and not under the head "Profits and gains of business or profession". It is further held that deduction under section 16(i) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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