TMI Blog1997 (9) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... 16(1) of the Income-tax Act, 1961 (in short, "the Act"). Against the said assessment order, the assessee went in appeal before the Appellate Assistant Commissioner of Income-tax and succeeded in getting deduction of 40 per cent. as claimed. Aggrieved by the said order, the Income-tax Officer went in appeal to the Tribunal, but it was in vain, since the Tribunal held that the assessee had received incentive commission in respect of the business canvassed by him and, therefore, even if the said commission is held to be a part of his salary, only the net amount arrived at by allowing permissible deduction can be added to the income. Under the aforesaid facts and circumstances, the Tribunal, pursuant to a reference application filed by the Revenue under section 256(1) of the Act, has referred the following two questions of law seeking the opinion of this court : " (i) Whether, on the facts and in the circumstances of the case, the income received by the assessee from the Life Insurance Corporation as incentive bonus or commission should be taxed under the head 'Income from business or profession or vocation' ? (ii) Whether, on the facts and in the circumstances of the case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Schedule envisages incentive to the Development Officers by way of giving bonus on fulfilling of appraisal conditions. It runs thus : " 8. Incentive.--(1) Incentive bonus under any scheme approved by the Corporation may be allowed to a Development Officer for a preceding year in respect of appraisal dates falling due on or after January 1, 1978, if his annual remuneration in the relevant appraisal year does not exceed 20 per cent. of the eligible premium of that year. " In accordance with the above said provision, the Corporation framed a scheme called "Scheme of Incentive Bonus to Development Officers of the Life Insurance Corporation of India, 1978" (hereinafter "the Scheme"). Clauses (4) and (5) of the Scheme are relevant for the present purposes, which read thus : " 4. Eligibility : A Development Officer whose cost ratio (i.e., ratio of his annual remuneration in an appraisal year to the eligible premium in that year) did not exceed 20 per cent. in an appraisal year shall only become eligible for grant of incentive bonus in respect of that appraisal year in accordance with the scheme. 5. Formula for determining basic incentive bonus : Basic incentive bonus shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Development Officers working under the Corporation, now we proceed to examine the questions referred to us by the Tribunal in the context of the respective statutory provisions contained in the Act. The first question is as to whether the incentive bonus or commission paid by the Corporation to its Development Officer can be held as falling under the head "Income from business or profession or vocation". The Tribunal in its appellate order, while accepting the plea of the assessee that the incentive commission, even if it forms part of his salary, only to the extent of 60 per cent. thereof can be brought to tax under the said head. For coming to the said conclusion, the Tribunal has relied upon the Board's Circular No. E. 14/65-IT(A1), dated September 22, 1965. We do not wish to comment upon the wisdom of the learned Members of the Tribunal, who on the one hand have treated the receipts by way of incentive commission as falling under the head "Income from salary" but, on the other hand, at the same stretch have conceded to deduction at the rate of 40 per cent. as if it was income from "business" or "profession". We only wish that the Members of the Tribunal who are sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to him, therefore, the additional income so derived by the Development Officer during the course of and pursuant to the terms and conditions of his employment can be brought to tax only under the head of income "Salary" and not under the head "Profits and gains of business or profession" and further the only deductions permissible under the provisions of the Act are to be those as specified in section 16 of the Act. The above view of ours is squarely substantiated by the decisions in the cases of CIT v. B. Chinnaiah [1995] 214 ITR 368 (AP), CIT v. Govind Chandrapani [1995] 213 ITR 783 (Orissa), K. A. Choudary v. CIT [1990] 183 ITR 29 (AP), Krishna Murthy (M.) v. CIT [1985] 152 ITR 163 (AP), CIT v. Hind Lamps Ltd. [1980] 122 ITR 451 (All), CIT v. Sri Anil Singh [1995] 215 ITR 224 (Orissa) and in the case of CIT v. Shiv Raj Bhatia [1997] 227 ITR 7 (Raj). Shri Chandrakumar, learned senior counsel appearing for the assessee, has brought to our notice two judgments of the Bombay High Court in the cases of CIT v. M. C. Shah [1991] 189 ITR 180 and CIT v. A. A. Baniyan [1992] 197 ITR 717. In both these cases, the High Court has taken the view that since the income by way of incenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee wholly, necessarily and exclusively in the performance of the duties of his employment of profit. This, according to them, is a finding of fact. Clause (14) of section 10, as it read prior to its substitution by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, and is relevant for the present purposes, was to the following effect: "10. (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. Explanation.--...... " The above quoted provision had its precurser in clause (vi) of section 4(3) of the 1922 Act which was as under: "(vi) any special allowance, benefit or perquisite specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit." Dealing with the said provision, the Supreme Court in the case of CIT v. Tejaji Farasram Kharawalla Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive commission was earned by the assessee by spending towards the same in the course of earning the same. But section 10(14) certainly is not attracted to the instant case because the incentive commission or incentive bonus is not any special allowance or benefit specifically granted to meet the expenses as envisaged by the said provision. The incentive commission is paid here depending upon the business earned and not depending upon the expenses incurred and, therefore, it cannot be said that it was paid for the purpose of meeting the expenses specifically. " We further find that the Tribunal had allowed the deduction of 40 per cent. out of the incentive bonus/commission, as claimed by the assessee, by relying on the Board's Circular No. E. 14/65-IT(Al), dated September 22, 1965. But admittedly that circular was issued for assessing the income of the insurance agents of the Corporation on an estimated basis in case regular books of account are not found to have been maintained. Admittedly, agents are not the employees/staff of the Corporation and their income, by way of commission, derived out of premiums paid by the insured, are taxable under the head "Profits and gains of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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