TaxTMI 
TaxTMI 
1996 (7) TMI 194
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....C as business income in his return. In the Salary Certificate issued by the LIC incentive bonus has been included as a part of salary. The case was processed under section 143(1)(A) treating the claim as income from other sources. Assessee filed an application under section 154 and the same was rejected. The learned CIT (Appeals) in further appeal against the order passed under section 154 allowed the claim of the assessee vide his order dated 27-1-1993 for 1990-91 and 1991-92. 3. The case was selected for scrutiny under section 143(2) and a notice was issued to the assessee. In response to the above notice, assessee filed a written statement on 18-2-1993 and contended that ITAT, Nagpur Bench, having dismissed departmental appeal for assessment year 1983-84 against the order of the learned CIT(Appeals) allowing the claim of the assessee, there is no case for the department. Assessee further relied upon the decision of the ITAT, Pune Bench as well as the decision of the Bombay High Court in the case of CIT v. A.A. Baniyan [1991] 197 ITR 717. Assessee further contended that in view of the decision of the Bombay High Court in the case of CIT v. Smt. Godavaridevi Saraf [1978] 113....
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.... both the CIT(Appeals) and the Tribunal had accepted similar claim of the assessee and allowed 40% of the incentive bonus as expenses. Assessee further pointed out before the first Appellate Authority that while deciding the issue in favour of the assessee holding that 40% of the incentive bonus is allowable as expenses as claimed by the assessee for the year under consideration also both authorities had decided the issue in favour of the assessee in view of the decision of the jurisdictional High Court in the case of A.A. Baniyan. The learned counsel further contended before the first Appellate Authority that for the very assessment year assessee's appeal under section 154 had been allowed on the very same issue and, therefore, the relief cannot be denied to the assessee against the very same assessee. The learned first Appellate Authority decided the issue against the assessee vide para 3 of its order. For the reasons stated in para 3 of his order, para 3 of order is reproduced herein below: - "3. I have considered the facts of the case and the above submissions of the learned counsel. The appeal against the Assessing Officer's order under section 154 for this year decided ear....
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....The order of the Special Bench of ITAT in Dayakar's case cannot be regarded as good law in view of the Osrissa High Court's decision mentioned above. I am, therefore of the view, the ITO's action in not allowing deduction for expenses from incentive bonus in this case is in accordance with law and the same is confirmed." It is against this order of the CIT(A), assessee is in appeal before the Tribunal. 5. The learned counsel for the assessee Mr. Dewani invited our attention to the Scheme of Incentive Bonus to Development Officers dated 7-2-1978. He submitted that it is not true to say that all the Development Officers are entitled to get incentive bonus by virtue of their mere appointment in the post. The first criteria or the eligibility to get the incentive bonus is that the officer's cost ratio (ratio of his annual remuneration in an appraisal year of the eligible premium in that year) did not exceed 20% in an appraisal year shall only become eligible for grant of incentive bonus in respect of that appraisal year in accordance with the scheme. The formula for determining basic incentive bonus is given in clause 5 of the Scheme. It is as under: - 5. Formula for determ....
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....f the Corporation; (ii) To guide, supervise and direct the activities of the agents placed under Officer's supervision by the Corporation; (iii) To intrduce 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 policy holder conducive to better policy servicing. (vi) To carry out the investigation of claims, revival of lapsed policies and liaison work in connection with salary savings scheme business. (vii) To perform such other duties as may be entrusted or assigned to officer from time to time. The learned counsel invited our attention to norms for Development Officers dated 1st December, 1969, under clause 19. "III. Special Need for Norms and Incentives in the case of Development Officers: 19. While it is true that the Development Officers are regular employees of the Corporation, it must be clearly recognised that, owing to the nature of their duties and conditions of work, even after the grant of automatic increments, there are bound to be essential variations in the operat....
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....and it has nothing to do with his employment's terms and conditions. It is precisely because of this reason that Clause 19 of the scheme of norms and incentives for the Development Officers dated December 1,1969, Clause 19 categorises the Development Officers and their duties to an altogether different category. It states that the duties of the Development Officers have no parallel either in Government or in the public sector. The Development Officers are not actually categorised as salesmen in the sense of insurance agents, but they are in fact. The promoting sale of insurance policies is the most important part of their duties and also the real justification of their employment. They have neither an office nor regular hours of work. Distinguishing the nature of the work rendered by the Development Officer that entitles him to receive the incentive bonus from that of any ordinary employment, the learned counsel submitted that the expenses incurred by a regular employee while discharging his official duties are reimbursed by the employer whereas in the case of a Development Officer he is not reimbursed. 6. The learned counsel for the assessee brought our attention to paper book ....
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....ents (iii) conveyance facilities to his agents, and (iv) office expenses such as rent, secretarial assistance, printing and stationery, postage trunk calls and telephone charges etc. The quantum of Incentive Bonus is decided taking into account factors such as the number of policies procured by a Development Officer, his agency organisation, the nature of territory operated by him i.e., whether rural or urban etc. These very same factors also influence the size of his expenditure. We do not at present allow reimbursement or special allowance as such towards these items, it being understood that a Development Officer is required to spend a part of the Incentive Bonus on this account. It is, therefore, proposed to certify, under section 10(74), an amount upto 30% of the Incentive Bonus earned as necessary expenses that would have to be incurred and the internal system devised by us lays down guidelines to the operating offices regarding the percentage to be certified in each case having regard to factors referred to earlier. We would be grateful if you could kindly examine the points clarified in this letter and issue suitable guidelines to your offices to accept the certificat....
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....profits and gains. In other words, some deductions have to be allowed under section 28 itself because the starting point of section 28 is the profits and gains which have to be understood in a commercial sense. The same analogy can be applied in the case of computation of income under the head 'Salaries' also. Moreover, the incentive bonus/commission, which is over and above the salary and perks, may not be regarded as salary in the commercial sense. It is treated as income chargeable to 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. It is not possible to draw an inference from the deletion of section 16(v) that the Legislature had intended to take into account the cases of incentive bonus/commission without reducing it by the expenditure incurred for earning it, because, as stated in the memorandum explaining the provision of the Finance Bill, 1974, this amendment was brought only to simplify the assessment procedure of salaried tax-payers. Accordingly, the expenditure incurred by the assessee for earning the i....
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.... if not allowed goes against the very principle of income-tax. The very same view has been taken by the Tribunal, Nagpur Bench, in the case of ITO v. M.O. Makeshwari, [IT Appeal Nos. 82 and 83 (Nag.) of 1977-78] for assessment years 1973-74 and 1975-76 dated 16-2-1978 and the Tribunal Bangalore Bench in the case of K.P. Joseph Bangalore, ITA No. 789/Bang./84 dated 10-7-1985. If a particular item falls under two heads, the assessee has the right to choose the head which subjects him to lesser tax - CIT v. Bosotto Bros. Ltd. [1940] 8 ITR 41 (Mad.). 7. The learned counsel further submitted that the scheme of incentive bonus to Development Officers was not considered by several High Courts which have taken a contrary view to the effect that the incentive bonus received by a Development Officer is salary. The Hon'ble Andhra Pradesh High Court in the case of K.A. Choudary has also not considered the scheme while deciding the issue in favour of the revenue holding that incentive bonus received from the employer is a part of salary. In this case the assessee who was an employee of LIC of India received a sum of Rs. 9536 as incentive bonus and claimed deduction of expenses in earning the....
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....14) of the Income-tax Act, 1961, was referred to the Hon'ble Andhra Pradesh High Court and the question was answered in favour of the assessee in LIC No. 160 & 196/85 dated 13-8-1986. Under the above circumstances, the learned counsel submitted that in view of the decision of the jurisdictional High Court in the case of CD. Thadani, ITO v. Universal Ferro & Allied Chemicals Ltd. [1988] 172 ITR 30/[1987] 35 Taxman 500, the Tribunal has to take the view in favour of the assessee. In this case in Universal Ferro & Allied Chemicals Ltd. the Hon'ble Bombay High Court held that a decision rendered in a writ petition cannot be taken into consideration if there was an alternative efficacious remedy available to the assessee. Since the decision of the Hon'ble Andhra Pradesh High Court in the case of K.A. Choudary was rendered in a writ petition, the judgment cannot be referred in any case against the decision of the Bombay High Court in the case of M.C. Shah and Hon'ble Gauhati High Court decision in the case of Ram Krishna Banik which was rendered on a question specifically referred on the point to the Hon'ble High Court. Further relying upon the decision of the Hon'ble Supreme Court in th....
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....ing to the decision of the Hon'ble Orissa High Court in the case of CIT v. Govind Chandra Pani [1995] 213 ITR 783/83 Taxman 364, the learned counsel submitted that the Hon'ble High Court had no occasion to consider the scheme under which the LIC Development Officer received the incentive bonus. The counsel further submitted that the Hon'ble High Court also did not have an opportunity to consider the concept of real income in this case. The learned counsel also submitted that no argument was advanced before their Lordships as to the applicability of section 2(24) where the income is defined. 10. The learned counsel Mr. T.S. Ramakrishnan contended that even if it is held that the Development Officer of LIC is an employee of the company, there is no bar in his acting in dual capacity as an employee and also an agent. For this proposition he relied upon the decision of the Hon'ble Supreme Court in the case of Ram Pros had v. CIT [1972] 86 ITR 122. In this case the issue before their Lordships was whether an amount received by the Managing Director by way of commission could be assessed under section 7 of the 1922 Act as salary in his hands or as a business income under section 10, i....
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....rned Senior Departmental Representative Shri R.K. Sinha contended that the appointment order and condition of service of Development Officer of LIC, clause 3 of the terms and conditions, stipulate that it shall be a whole-time employment. Clause 3(i) further stipulates that the assessee shall devote his whole-time and undivided attention for the development and intensification of Life Insurance Business and other duties assigned to him from time to time. Coming to the duties and obligations of the LIC Development Officer, it is stated: - (i) Development Officer shall develop and increase the production of Life Insurance business in a planned way as far as may be practicable within the area that may be allotted to the officer or in which the officer is allowed to work from time to time, through the agents placed under supervision by the Corporation and in consonance with corporate objectives of the Corporation; (ii) To guide, supervise and direct the activities of the agents placed under officers supervision by the Corporation. (iii) To introduce suitable persons to the Corporation for appointment as new agents. It further states that after the agent recruited at the ins....
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....eal their Lordships held reversing the decision of the High Court: - (i) that the entire remuneration determined partly by reference to time and partly by reference to the volume of work done partook of the character of salary and, therefore, the commission paid by the assessee to his salesmen clearly fell within the expression 'salary' as defined in rule. 2(h) of Part A of Schedule IV to the Act and the proportionate contributions appertaining to the commission paid by the assessee to his salesmen were deductible under section 36(1)(iv). In this case their Lordships further held: "Conceptually there is no difference between salary and wages, both being a recompense for work done or services rendered, though ordinarily the former expression is used in connection with services of non-manual type while the latter is used in connection with manual service. The expression "wages" does not imply that the compensation is to be determined solely upon the basis of time spent in service; it may be determined by the work done; it could be estimated in either way. If conceptually salary and wages mean one and the same thing then salary could take the form of payment by reference to t....
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....ion of Hon'ble Orissa High Court in the case of CIT v. Sarat Ch. Sahu [1992] 195 ITR 364/65 Taxman 555. The learned D.R. also relied upon the decision of the Hon'ble Orissa High Court in the case of Govind Chandra Pani and contended that salary is inclusive of bonus received by the Development Officers of the LIC. The learned D.R. relying upon the Hon'ble Andhra Pradesh High Court decision in the case of CIT v. B. Chinnaiah [1995] 214 ITR 368 contended that the benefit of section 16 of the Income Tax Act, 1961 cannot be made applicable to the incentive bonus received by the Development Officers of LIC. Relying upon the decision of the Hon'ble Bombay High Court in the case of CIT v. Goodlass Nerolac Paints Ltd. [1991] 188 ITR 1, the Senior D.R. contended that this Bench is bound to follow earlier decision of the Tribunal, Nagpur Bench, in the case of Rajkumar B. Dudhwani v. ITO [IT Appeal No. 309 (Nag.) of 1994 dated 12-12-1995]. In this case Tribunal held that there was no justification in allowing 40% deduction to the Development Officer. 14. From the above argument, the following issues arise in our decision in this case: 1. Was the decision of the Bombay High Court in A.A.....
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....t A of Schedule IV to the Income Tax Act, 1961. This view was upheld by the Tribunal and the High Court. Their Lordships of the Supreme Court reversed the decision and held that - "Conceptually there is no difference between salary and wages, both being a recompense for work done or services rendered, though ordinarily the former expression is used in connection with services of non-manual type while the latter is used in connection with manual service." However, their Lordships in this case, at page 14, held that - "It is, therefore, clear that the ratio of the decision and the observations made by this court in a different context in that case would be inapplicable to the facts of the present case." Their Lordships further observed that the recognition was given to the provident fund as far back as 1937 by the CIT and such recognition was granted after true nature of the commission payable by the assessee to its salesmen under the contract of the employment had been brought to the notice of the Commissioner and that the said recognition was continued and remained in operation during the relevant assessment year in question. It was under these circumstances, their Lord....
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....ur of the revenue in the case of Rajkumar B. Dudhwani. It is necessary to state the facts and circumstances of the case. One of the arguments advanced by the Departmental Representative was that the department allows a deduction of 4096 plus other admissible allowances to the sub-agents. A further allowance of 4096 as a deduction again will almost lead to a total deduction of about 8096. We are afraid this argument is without basis. What is allowed to sub-agents is 4096 of the 4096 that is given to the Development Officers. Therefore, this argument of the Departmental Representative has no basis. In one of the cases before us Tribunal has taken a view against the assessee. However, at that time neither the Departmental Representative nor the assessee did bring to our notice the decision of the Hyderabad Special Bench of the Tribunal in the case of P. Dayakar [IT Appeal Nos. 1318 and 1319 (Hyd.) of 1986 dated 23-3-1989]. One of the arguments advanced by the learned counsel Mr. Dewani on behalf of the assessee was that the Development Officers are working in dual capacity-as an employee and also as an agent. Incen tive bonus receipt flows from the services rendered by the LIC Develop....
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.... Officers does not take part of salary but flows from the service rendered by him in a different capacity- agent. We have noted hereinabove that the Development Officers are required to maintain independent offices, they have no specific time in office and have to incur expenditure on entertainment of agents etc. The above expenditure which is incurred if not taken into consideration treating whatever the Development Officer receives is salary which is taxing a subject on a notional income which he not only not receives but in fact he will never receive. This part of service rendered by the Development Officer takes the character of service rendered by an agent. In the case of Ram Prasad their Lordships of the Supreme Court held that- "A managing director may have a dual capacity. He may both be a director as well as an employee. In the capacity of a managing director he may be regarded as having not only the capacity as persona of a director but also has the persona of an employee, or an agent depending upon the nature of his work and the terms of his employment. Where he is so employed, the relationship between him as the managing director and the company may be similar to a p....
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....imb of argument of the revenue is that since the additional conveyance allowance is linked to the quantum of premium received, it has no nexus with actual amount expended. It is also one of the arguments that the standard deduction is permitted, under section 16(1) of the Income-tax Act, it presupposes to cover the conveyance allowance expenditure and, therefore, no additional conveyance allowance is permissible. 18. The conveyance allowance in addition to the standard deduction in terms of provisions of section 16 has not been disputed by the department. Hence the dispute is only With regard to the additional conveyance allowance. In the case of P. Dayakar B-Ward, Warangal, Tribunal held vide para 6 of its order that the provisions of section 16(1) of the Income-tax Act, 1961 being in response to the provisions of section 7(2) of the 1922 Act, instead of various deductions that were permissible under 1922 Act, a standard deduction came to be prescribed and the quantum thereof has been varied from time to time. Tribunal further held that whatever may be the objection of allowing of an amount as standard deduction under section 16(1), it cannot be said that it fully covers all th....
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....ion of the accommodation but also for providing access to the accommodation. Maintenance of lift, provision of light in the passages are expenses incurred by the landlord on that portion of the property which is not let-out to a tenant. Therefore, if any deduction is not allowed to the landlord for the expenses incurred on providing such facilities to the tenants that the landlord will be burdened with an impossible burden. In such a case the annual letting value can be computed only after deducting such expenses incurred by the landlord. The other expenses are deducted only after computing the annual letting value in such a manner. It was submitted that when the Development Officers receive certain sum from the Life Insurance Corporation of India the expenditure that is required for earning that bonus or sum is built in the same. Shri Ramkrishnan invited our attention to the concept of real income. He submitted that the Development Officers are expected to incur certain expenses which are not reimbursed by the Life Insurance Corporation of India. They are expected to incur that expenditure from the commission or bonus or sum that is received by them. The expenditure is inherent in....
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..... Expenses like that of lift maintenance, providing safe passage to the accommodation rented had to be deducted out of the gross rental. The whole idea behind such deduction is to arrive at real income and not a notional income. If any notional income has to be assessed then that has to be assessed specifically under the provisions of the Income-tax Act, under the head "Profits and gains of business or profession", section 28 prescribes for charging tax under the head 'Profits & gains of business or profession' from the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year. Clauses 2 to 5 provide for certain specific items which are to be treated as assessable under the head "Income from business or profession". The income from profits and gains of business or profession had to be computed in accordance with the provisions contained in sections 30 to 43D. If we make a study of the different sections from 30 to 43D, we find that the expenses incurred by an assessee on account of purchases made for making sales is not provided in any one of the sections. The reason is obvious that the same is considered as an outgoin....