TMI Blog1984 (10) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... nts. 25 per cent of the amounts received as bonus commission was claimed by the assessee as incurred for procuring more business. According to the ITO, section 16(v) of the Income-tax Act, 1961 ('the Act') provides for deduction of such expenses only when, by the conditions of his service, the assessee was required to spend out of his remuneration wholly, necessarily and exclusively, in the performance of his duties. As the assessee did not fulfil the conditions of section 16(v), the ITO rejected his claim for deduction of any expenses against section 16(v). 2. On appeal, the AAC held that the conveyance allowance given to the assessee was based on the work done by him. The LIC, the employer of the assessee, had certified that the conveyance allowance was given to the assessee exclusively for the performance of his duties. According to the AAC, therefore, there was no reason to disallow one-fifth of the conveyance allowance. The entire amount of conveyance allowance paid to the assessee should be treated as exempt under section 10(14) of the Act for all the years under appeal. Regarding the bonus commission, the AAC held that the assessee was not a mere employee working on fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst contention. 9. For the assessment years 1975-76, 1976-77 and 1977-78, it was pointed out that since there was no provision like 16(v) in the statute book, no expenses can be allowed. The learned counsel for the department stressed in this connection the fact that out of the salary income, no deduction otherwise than those specified can be granted. The commission received being treated as salary, no expenses can, therefore, be deducted. There is a fallacy in this argument. While certainly in computing the income under the head 'Salaries', deductions specified in the Act alone can be granted. Such deductions, however, have to be given from the figure of 'Salary', one starts with. There are two issues relevant ; one is the income taxable falling under the head 'Salaries', the other is quantum of salary itself. The salary an employee receives, is to be understood and reckoned in an economic and money sense. If an employer were to give an employee Rs. 1,000, with an attendant obligation to spend for the employer Rs. 900, the salary due accrued, etc., in that case would be only Rs. 100 and not Rs. 1,000. While, therefore, it is correct to hold that only items allowed to be deducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom business and has observed that just as in the case of business, what we have to determine is the real business income, so also, in the case of an employee, what we have to determine is the real salary income by taking into account the expenses incurred in the performance of the duties. He, therefore, has given directions to the ITO to determine the real salary of the assessee in the above sense for the assessment years under consideration. 5. As far as the assessment years prior to 1975-76 are concerned, clause (v) of section 16 was in force. Under that provision, any amount actually expended by the assessee, which, by conditions of service, he is required to spend out of his remuneration, wholly, necessarily and exclusively, in the performance of his duties, was to be deducted in computing the income chargeable under the head 'Salaries'. Consequently, if the assessee was required to incur any expenditure, which by conditions of service he was required to spend out of his remuneration, wholly, necessarily and exclusively, in the performance of his duties, that expenditure could be deducted under that clause for computation of income under the head 'Salaries'. There was no oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted to meet expenses, wholly, necessarily and exclusively, incurred in the performance of the duties of an employment, such allowance, if actually spent, is exempt from tax under section 10(14). If no special allowance is granted, but the assessee has to meet such expenses out of his remuneration, he cannot claim such expenditure as a deduction from the assessment year 1975-76 onwards, apart from the standard deduction under clause (i) of section 16. As far as prior assessment years are concerned, such expenditure was deductible under clause (v) of section 16, which now stands deleted. 9. It may be noted here that, as far as the assessment years 1973-74 and 1974-75 are concerned, my learned brother has, in para 8 of his order, held that the assessee would be entitled to get the deduction regarding the amount spent by him under clause (v) of section 16, and the direction has been given to investigate and calculate the amount actually spent by the assessee. As far as those two years are concerned, reliance has not been placed on the concept of economic salary. It would follow, logically, that when clause (v) of section 16 stood deleted, the amount on that score could not be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the salary and other perks. It depends upon the extent of business brought by the Development Officers. The Development Officers, thus, do their best to get more and more business for the LIC. There is no dispute that for getting the extra business, the Development Officers have to incur some expenditure. 3. Up to and including the assessment year 1974-75, the assessee was getting deduction in respect of the expenditure incurred by him in this regard under section 16(v). Clauses (iii) to (v) of section 16 have been deleted from the section with effect from 1-4-1975. Both the learned members agree that deduction of such an expenditure cannot be allowed under section 16 in view of the deletion of the aforesaid clauses. The learned Vice-President (Accountant Member) has held that in the absence of clause (v) also, the deduction can be allowed under section 15 of the Act itself. According to him, salary for this purpose has to be understood and reckoned in an economic and money sense and, therefore, the expenditure is solely incurred for getting the extra business for LIC, with regard to which the incentive bonus/commission is received, should be taken into account from the figure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the salary and perks) the Development Officers get, may not be regarded as salary in the commercial sense. It is treated as income chargeable to income-tax under the head 'Salaries' because of inclusive definition of salary in section 17. The section, however, makes it clear that the meaning of salary has been extended for the purposes of sections 15 and 16 only. 5. The purport and scope of the word 'salary', as stated above, are extended to make it income chargeable under the head 'Salaries'. One has thus to ask himself, whether the gross incentive bonus/commission has to be taken into account at the starting point or only the net incentive bonus/commission, i.e., after reducing the amount of incentive bonus/commission by the expenditure for earning it. In my view, this is a reasonably possible view and should be accepted. 6. The learned Judicial Member has observed that from the fact of deletion of clause (v) from section 16, it should logically follow that after 1-4-1975, only standard deductions can be allowed from the income under the head 'Salaries'. In this context, reference may usefully be made to the memorandum explaining the provisions in the Finance Bill, 1974, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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