TMI Blog1996 (5) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... g as the Development Officer with the Life Insurance Corporation of India. During the previous year relevant to the assessment year 1986-87, the assessee received a sum of Rs. 68,206 as incentive bonus from the Life Insurance Corporation and he claimed 40 per cent. deduction (Rs. 27,282) on this incentive bonus. The Income-tax Officer, Sirohi, by his order dated March 24, 1987, relying upon the judgment of the Jaipur Bench of the Tribunal in ITA No. 490/JP of 1994 (ITO v. K. M. Baheti) disallowed this claimed deduction. While disallowing the deduction, the Assessing Officer held that the incentive bonus received by the assessee is a part of the salary in the hands of the assessee and no deduction is permissible since the standard deduction under section 16(i) of the Act has already been allowed. The Income-tax Officer further held that the assessee is an employee of the Life Insurance Corporation of India and any receipt by the assessee from the Life Insurance Corporation of either nature will be included and taxed under the head "Income from salary" under section 15 of the Act. The assessee, dissatisfied with the order dated March 24, 1987, passed by the Income-tax Officer disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, has submitted that the annual remuneration paid by the Corporation to the Development Officer, as per the rules of service does not include incentive bonus paid to him. As per rule 7, the annual remuneration includes the basic pay, personal pay, dearness allowance and other allowances but does not include the incentive bonus. It has further been submitted by learned counsel for the assessee that the incentive bonus is a production oriented income and becomes payable to the Development Officer on achieving the higher target. When his actual performance is beyond the normal levels of performance expected of him, he has to incur expenditure in respect of (i) entertainment to the agents and the clients, (ii) conveyance facilities to his agents, (iii) prizes declared in competition amongst his agents, (iv) office expenses such as rent, secretarial assistance, printing and stationery, postage, trunk calls and telephone charges, etc. It has further been submitted by learned counsel for the assessee that every Development Officer will not get the incentive bonus and it is payable only to those persons who are eligible under clause (iv) of the conditions and, therefore, the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licy decision of the Central Board of Direct Taxes, no question of law is to be raised at the instance of the Revenue; and (iii) the Tribunal has not given any finding: whether the income was from business or from profession. Learned counsel for the assessee, therefore, prayed that the reference may be returned unanswered. In support of his contention, learned counsel for the assessee has placed reliance over : CIT v. A. A. Baniyan [1992] 197 ITR 717 (Bom), CIT v. M. C. Shah [1991] 189 ITR 180 (Bom), CIT v. ITAT [1992] 196 ITR 683 (Orissa) and CIT v. Sarat Ch. Sahu [1992] 195 ITR 364 (Orissa). We have considered the submissions made by learned counsel for the parties. Before dealing with the real controversy we would first like to take up the preliminary objections raised by learned counsel for the assessee. The first preliminary objection raised by learned counsel for the assessee is that no question of law arises in the present case and the findings arrived at by the learned Members of the Tribunal are purely findings of fact and the Revenue neither contested nor raised any issue as to under which head the incentive bonus could be charged and, therefore, the reference should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Appellate Tribunal, Jaipur Bench, Jaipur, the decision of the High Court is necessary to resolve this problematic and debatable question of law. The question regarding the applicability of the Board's circular to the Development Officer of the Life Insurance Corporation and whether the circular has been rightly applied or it has been misunderstood or misconstrued also is a question of law which requires to be adjudicated and decided by the High Court. In CIT v. A. A. Baniyan [1992] 197 ITR 717 (Bom), the assessee, who was working as the Development Officer in the Life Insurance Corporation of India, during the relevant assessment year, received incentive bonus apart from the salary. The Tribunal held the incentive bonus as the professional income of the assessee for these years and allowed 40 per cent. deduction on the incentive bonus. The finding that the income of the assessee is professional income was not under challenge and the only question referred to the High Court for adjudication was the allowing of 40 per cent. deduction. Therefore, the Division Bench of the Bombay High Court returned the question of law unanswered as the deduction so allowed is based on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Appellate Tribunal, Jaipur Bench, Jaipur, itself and the question also relates to the applicability of the Board's circular to the Development Officer of the Life Insurance Corporation and, therefore, the reference cannot be returned unanswered on this ground alone that the tax effect is less than Rs. 30,000. In order to maintain certainty and uniformity in administering the law and to maintain judicial discipline, it is necessary that the conflict of opinion between the two Benches of the Tribunal should be set at rest and a clear guideline has to be provided to the taxing authority to make the assessment in accordance with law and not to put them in a fix which of the judgments of the Tribunal laying down a contradictory law on the point is to be followed. In this view of the matter, the reference cannot be returned unanswered. The decision on the question referred for the opinion of the High Court is necessary in order to finally decide the law on the point so far as this court is concerned. The preliminary objection raised by learned counsel for the assessee is, therefore, devoid of any substance. The next preliminary objection raised by learned counsel for the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the factors such as the number of the policies procured by the Development Officer, his agents or organisation, etc., and in the process of earning incentive bonus some expenditure has to be incurred by him. As per the instructions of the Life Insurance Corporation, 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 life insurance business in a planned way as far as may be practicable in the area that may be allotted to him or in which he is allowed to work from time to time through the agents placed under his supervision by the Corporation and in consonance with the corporate objectives of the Corporation. (ii) to guide, supervise and direct the activities of the agents, placed under his supervision by the Corporation. (iii) to introduce suitable persons to the Corporation for appointment as new agents. (iv) to act generally in such a way as to activise existing agents and motivate new agents, so as to develop a stable agency force. (v) to render all such services to policyholders as conducive to better policy servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to in clause (10), clause (10A), clause (10B), clause (11), clause (12) or clause (13A) of section 10 due to or received by an assessee from an employer or a former employer or from a provident or other fund (not being an approved superannuation fund) to the extent to which it does not consist of contribution by the assessee or interest on such contributions. Thus, according to these provisions, if the incentive bonus falls within the meaning of "salary" or "perquisites" or "profits in lieu of salary" within the meaning of these expressions under section 17, it would be chargeable to tax under the head "Salary". In CIT v. B. Chinnaiah [1995] 214 ITR 368 (AP), the question : whether the incentive bonus received by the Development Officer of the Life Insurance Corporation can be treated as part of the salary or perks and is taxable under the head 'Salary' came up for consideration before the Division Bench of the Andhra Pradesh High Court and the High Court, after considering the law on the point, held that "the incentive bonus, whether treated as part of the salary or perks, is taxable under the head 'Salary' and the permissible deduction under the said head are as specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'salary' as defined in rule 2(h) of Part A of the Fourth Schedule to the Act ". In CIT v. Hind Lamps Ltd. [1980] 122 ITR 451, the Division Bench of the Allahabad High Court held that "profit bonus comes within the ambit of section 17(3)(ii), for it is an amount paid by the employer to its employees". In CIT v. Shri Anil Singh [1995] 215 ITR 224, the Division Bench of the Orissa High Court held that "for the purpose of section 17 of the Income-tax Act, 1961, there is no difference between the commission which is wholly dependent upon the work done and the fixed salary on the periodical footing." Now, the question which requires consideration is whether the incentive bonus received by the assessee from the Life Insurance Corporation, is part of the salary or it is an income from business and is entitled for deduction. "Salary" is the remuneration paid by the employer to its employee for the work done or services rendered by him. The assessee is being remunerated partly by payment of fixed salary and partly on the basis of the dividend, i.e., the business procured by him. The incentive bonus is linked with the percentage of business secured in excess of certain stipulated premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them. The Life Insurance Corporation's agents, working for the Corporation on commission basis, are not employees of the Corporation while the Development Officers working in the Life Insurance Corporation are employees of the Corporation and it is on account of this relationship that the Development Officer is rewarded in the form of incentive bonus for the extra labour he puts in procuring the business. The circular issued by the Board allowing certain deductions to the extent of 40 per cent. to insurance agents, therefore, cannot apply to the case of the Development Officer. The applicability of this circular to Development Officers came up for consideration before the Central Board of Direct Taxes itself. The Board issued Instruction No. 1774 clarifying its stand regarding the applicability of the circular to the Development Officers, Clause (3) of the Instruction No. 1774 reads as under : "(3) The Board wishes to clarify that the aforesaid instructions refer to the commission earned by insurance agents and provides for a deduction of a fixed percentage on account of expenses for earning the commission where no detailed accounts regarding expenses are maintained. But the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation, even if to some extent their duties are the same. The circular is meant only for insurance agents and is not applicable to Development Officers. The judgment of the apex court, therefore, does not apply to the facts and the circumstances of the present case. The other judgments of the Supreme Court, i.e., Navnit Lal C. Javeri v. K. K. Sen [1965] 56 ITR 198 and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913, on which reliance has been placed by learned counsel for the assessee, are also not applicable to the present case and the controversy raised in the present case is different from what was decided by the Supreme Court in the aforesaid cases. In this view of the matter, the Tribunal was, therefore, not justified in applying this circular in the case of the Development Officer (assessee) and allowing 50 per cent. deduction to the assessee on the basis of the Circular F. No. 14/9/65-IT (A.I), dated September 22, 1965. We, therefore, answer the question in the negative, i.e., in favour of the Revenue and against the assessee, and it is held that the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, was not justified in directing to allow 50 per cent. deduction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
