On the issue of deduction of TDS on estimated basis u/s 192 and with regard to performance incentive, honorable Delhi High Court in a recent judgment (as reported in 2007 -TMI - 1655 - HIGH COURT, NEW DELHI) has held that,

Assessee is right in contending that by its very description the performance incentive cannot be a fixed mandatory payment made year after year.

Since it is dependent on the performance of the company in a given financial year, the payment of the incentive is not only uncertain but the amount is also likely to vary. Giving the requirement of Section 192 (1) that TDS should be deducted on the "estimated income of the Assessee" it cannot be said that the Respondent company was in default on account of the short deduction of the TDS from the salary of its employees to the extent the short deduction was relateable to the performance incentive. Therefore, it cannot be said that the Respondent company was in default due to short deduction of the corresponding TDS. On the facts of the instant case, Section 201 (1A) is not attracted. This is not a case of non-deduction of TDS but one of short deduction of TDS for bona fide reasons.

TDS on performance incentives may not be required where incentive is discretionary and contingent, so short deduction not default. Performance incentives contingent on company performance and varying in amount are not fixed emoluments and need not be included in an employee's estimated income for withholding; a short deduction arising solely from such contingent incentives is attributable to bona fide reasons and does not attract penal liability for default in deduction.