TMI Blog1995 (9) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... e of assessment proceedings, the ITO concerned (hereinafter referred to as Assessing Officer) observed that assessee had received Rs. 1,56,155 as incentive bonus commission from LIC in the year under consideration and the assessee has claimed deduction of Rs. 78,078 (50% of Rs. 1,56,155) treating the incentive bonus commission as business income. The claim of the assessee was processed by the Assessing Officer who was of the opinion that the amount of Rs. 1,56,155 received by the assessee as incentive bonus is part of salary by virtue of section 17(1)(iv) of the Income-tax Act, 1961 (hereinafter referred to as the Act) and further held that the assessee was not entitled to any deduction much less 50% thereof as claimed as no deduction other than standard deductions provided under section 16(1) of the Act were permissible. The claim of the assessee for deduction of 50% expenses from incentive bonus was, therefore, rejected against which the assessee preferred appeal. It was contended before the CIT(A) that the Assessing Officer has wrongly placed reliance upon the departmental instructions and the same are not binding upon the appellate authorities. Reliance was placed on 3 decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any expenditure was to be allowed for earning of the same except those provided in section 16 of the Act. On reference made to Third Member, the view of Judicial Member was found acceptable and appeal was decided in favour of Revenue accordingly. 5. The contention of the ld. Advocate, Shri Mukesh M. Patel was that this happened due to the fact that decision of the Special Bench constituted by the Hon'ble President, ITAT to resolve this issue was not brought to the notice of the Members who were seized with this controversy. He filed the copy of decision of ITAT Spl. Bench comprising of the then President, Vice President, South Zone and one of the Judicial Members by which (A. Ys. 1981-82 and 1982-83) in the case of P. Dayakar v. ITO [IT Appeal Nos. 1318 and 1319 (Hyd.) of 1986] were decided vide order dated 23-3-1989 and that Special Bench concluded that the amount by the LIC as incentive bonus to Development Officers is to be treated as part of salary, but the Development Officer was held entitled to 40% of incentive bonus as claimed by way of expenses. He also brought to our notice the decision of ITAT Madras 'A' Bench in the case of K. Chandrasekaran v. Fifth ITO [IT Appeal No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of salary but the word " salary " has not to be understood in the ordinary sense of the term in view of the fact that incentive bonus in the case of Development Officers also does not represent salary in the sense of the term but was included under the salary because of the wide definition given in section 17 of the Act. As incentive bonus represents additional profits earned by the assessee by extra work then those profits should not be treated in the ordinary sense but net of those profits shall be includible under the head " salary " for computation. To support this theory of real income the learned counsel placed reliance on the decision of ITAT Bombay Bench 'B' (3rd Member) in the case of Narendra V. Patel in which it was laid down that as in the manner to work out the profits and gains of business, the account has to be taken of all losses and expenses incurred, the same analogy can be applied in the case of computation of income under the head " salaries " also. It was further observed that the incentive bonus/commission which is offered over and above the salary and perks may not be treated as salary in the commercial sense. It is treated as income chargeable under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir Lordships further laid down that only deductions which could be claimed were those which are allowed by section 16 only. In another case of CIT v. B. Chinnaiah [1995] 214 ITR 368, the Hon'ble Andhra Pradesh High Court has again treated incentive bonus paid to Development Officers of LIC as part of salary and concluded that only those deductions are allowable which are provided under section 16. It was further laid down that deductions under section 10(14) were not permissible as the same have not been notified by Central Government. The decision of the same High Court in the case of K. A. Choudary has also been followed by their Lordships. The ld. D. R. contended that in view of the decisions of different High Courts the issue has to be decided in view of those decisions which are in favour of revenue. 10. Regarding the decisions of different Benches of ITAT and that of Special Benches in the case of P. Dayakar the ld. D. R. pointed out that in view of the decision of Hon'ble High Court on the point in issue, the decision of ITAT Benches and even that of Special Bench have to be ignored as view of the Hon'ble High Court supersedes the decision of ITAT Benches including that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by applying the theory of real income and those decisions still hold good on the point in issue before us. 11. We have heard the rival submissions at length. The issue involved before us has got two parts and the first point to be considered is whether incentive bonus earned by Development Officer is part of salary under the Income-tax Act or not. The second point involved is whether the amount of incentive bonus is fully taxable or whether any deduction on account of alleged expenses incurred by Development Officer could be allowed under any provisions of the Act or by invoking the theory of real income. 12. So far as the first point is concerned the matter stands decided that incentive bonus paid by LIC to Development Officer is part of salary of the assessee and for that decision of Hon'ble Andhra Pradesh High Court in the case of K. A. Choudary is an authority which has been followed by the Spl. Bench in the case of P. Dayakar. Not only this, in latest decision of Orissa High Court in the case of Govind Chandra Pani their Lordships after discussing the law point concluded that incentive bonus received by Development Officer from employer, the LIC partakes character of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orkers of India, Ajmer Division covering rules and regulations and perks concerning Development Officers of LIC. Page-2 of this booklet provides the benefits to be received by Apprentice Development Officers in the following words : " Once an Apprentice Development Officer is put on probation, he become eligible to earn the most important financial reward in the post of Development Officer, because the premium income brought in and number of lives assured by agents in his organization and the composition of the organization itself, make him earn not only confirmation but Incentive Bonus and Additional Conveyance Allowance. " [Emphasis supplied] A perusal of the above shall show that incentive bonus is shown as financial reward to be given to Apprentice Development Officer and not any special allowance to meet any expenses wholly, necessarily and exclusively for purpose of performance of duties of an office. This booklet further gives out the formula of incentive bonus and further formula for modifying the quantum of basic incentive bonus. It shows that incentive bonus is to be determined as per formula given at p. 3 of this booklet and it will be subject to increase or decrease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompetent High Court which is binding on the Tribunal, the Tribunal has to proceed on the footing that the law declared by High Court though of another State, is the final law of the land. The ratio of this decision was that the Tribunal situated at any State was to follow the decision of any High Court unless the decision of that High Court in which the Tribunal is situated comes with a different view and it was based on the rule of judicial discipline and further on the ground that Income-tax Act is an All India Statute and it was desirable to follow uniformity in I. T. matters. Not only this, even our Hon'ble High Court in the case of CIT v. Sarabhai Sons Ltd. [1983] 143 ITR 473 (Guj.) and in another case of CIT v. Sarabhai Sons (P.) Ltd. [1993] 204 ITR 728 (Guj.) laid down the same view that one High Court should follow the other High Court with a view to maintain uniformity in Income-tax matter. No doubt Hon'ble Bombay High Court in the case of CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 have deviated from the view of Hon'ble Gujarat High Court in the case referred to above but that view will not be of any help to the assessee as point before us is very specific. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be that we shall have to follow the view as laid down by their Lordships and the issue stands decided against the assessee and in favour of revenue on the basis of those case laws decided by their Lordships. 16. In the grounds of appeal the assessee has taken plea about the view taken by CIT(A) against the assessee on the basis of CBDT circular. It is relevant to point out that the assessee himself has placed reliance on the Circular No. 1546 dated 6-1-1984 before Assessing Officer to justify the claim of the deduction on account of expenses allegedly incurred by him. The Assessing Officer mentioned about CBDT, New Delhi instruction No. 1774 dated 14-10-1984 which is of clarificatory nature as is evident from copy furnished before us by learned counsel for assessee. It is made clear that earlier instruction No. 1546 which was an extension of CBDT earlier instructions F. 14/91/65-IT(AI) dated 22-6-1965 was in respect of LIC Agent and not in favour of Development Officer. 17. Accordingly, the Assessing Officer refused to extend the benefit of instruction No. 1546 dated 6-1-1984 and rightly so as that was not meant for assessee. It is also not going to help the assessee. 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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