TaxTMI 
TaxTMI 
2003 (5) TMI 49
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....-tax Officer, Jabalpur. For the assessment year 1989-90, the assessee claimed deduction on account of conveyance allowance for a sum of Rs. 9,600, additional conveyance allowance for an amount of Rs. 36,940 and 40 per cent. of the incentive bonus quantified at Rs. 50,175. The Assessing Officer disallowed the deductions claimed under the heading "Conveyance, Additional Conveyance" after referring to the provision contained in section 10(14) of the Act. As far as incentive bonus is concerned it was disallowed upon referring to certain guidelines issued by the Central Board of Direct Taxes, New Delhi, wherein it has been indicated that the Development Officer is not entitled to get deductions on incentive bonus. Feeling aggrieved by the aforesaid order passed by the Assessing Officer the respondent-assessee preferred an appeal before the Commissioner of Income-tax (Appeals), Jabalpur. Before the appellate authority it was contended that the Assessing Officer had decided the matter without affording an opportunity of being heard to the assessee and further disallowance of the deductions claimed by the assessee was not justified in law. The first appellate authority addressed itself to....
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.... the Tribunal also issued certain directions. This court at the time of admission had framed the following substantial questions of law for adjudication: "(a) Whether the conveyance allowance/additional conveyance allowance received by the Development Officer of the Life Insurance Corporation are exempt under section 10(14) of the Act? (b) Whether the Development Officer of the Life Insurance Corporation are entitled to 40 per cent. deduction of the incentive bonus received by them as an expenditure incurred for earning incentive bonus?" We have heard Mr. Rohit Arya, learned counsel for the Revenue, in all the appeals, and Mr. H.S. Shrivastava, Mr. Sumit Nema, learned counsel for the respondent-assessee. It is contended by Mr. Arya that the Tribunal has fallen into error by expressing the view that the conveyance allowance and the additional conveyance allowance received by the Development Officer of the Life Insurance Corporation are exempted under section 10(14) of the Act on the basis that the said amount is incurred in performance of the duties of an office or employment though conceptually the same is not permissible if the provisions enshrined under sections 10(14) and 1....
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....nal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, as may be prescribed and to the extent as may be prescribed: Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence." On a bare perusal of the aforesaid provision it is clear as day that any special allowance or benefit which is not a perquisite but specifically granted to meet the expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment, deductions would be permissible subject to specification of the amount by the Central Government by way of notification. The emphasis is on the actual expenses incurred by the assessee. It is not disputed before us that the Development Officers are full time employees of the Life Insurance Corporation and they are categorised....
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....f section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies any allowance granted to meet the expenditure incurred on conveyance in the performance of the duties of an office or employment of profit, for the purposes of the said sub-clause for the assessment year 1989-90 and subsequent assessment years. (Notification No. G.S.R. 606, dated June 9, 1989)" We have reproduced the notification only to highlight that the conditions precedent as enshrined under section 10(14) of the Act are specified. The Tribunal has granted benefit to the assessees as the assessment years pertain to the year which is subsequent to the date of issue of notification. Reading the aforesaid provisions in entirety and appreciating the factual scenario in the proper perspective and keeping in view the instructions of the Life Insurance Corporation and the Gazette Notification issued by the Government of India we conclude and hold that the conveyance allowance/ additional conveyance allowance received by the Development Officer of the Life Insurance Corporation are exempted under section 10(14) of the Act and hence, the order passed by the Tribunal is impeccable on this sco....
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....e case of Kiranbhai H. Shelat [1999] 235 ITR 635 (Guj) it has been held as under: "Even in cases falling after April 1, 1989, when section 10(14) came to be amended and the exemption was confined only to notified allowances (later amended with effect from April 1, 1989, as prescribed allowances), wherein the income covered by section 2(24) in the nature of 30 per cent. of the incentive bonus earned is not exempted by the provisions of section 10(14), such allowances as are income within the meaning of section 2(24), cannot be straightaway treated as salary and on the basis of what we have said hereinabove, it will have to be ascertained whether the expenditure intended to be met was actually incurred and if so incurred whether any part of such special allowance still remained with the employee so as to be described as profit in addition to his normal salary and wages. This exercise will have to be confined only to 30 per cent of the incentive bonus earned which alone was intended by the Life Insurance Corporation of India as a special allowance granted to the Development Officer to meet the expenses for the discharge of their duties of office and would, therefore, be a special all....
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....late authority to allow the incentive bonus as deduction, but only to the extent of reimbursement of expenses actually incurred upto the maximum limit of 30 per cent of the incentive bonus earned by the assessee and that it was right in including the net amount after such deduction in the salary income." In this regard we may refer with profit to the decision rendered in the case of CIT v. Gopal Krishna Suri [2001] 248 ITR 819, wherein a Division Bench of the Bombay High Court expressed the view as under: "There is unanimity among the High Courts on the status of the Development Officers as full time employees of the Life Insurance Corporation. A perusal of the service rules shows that the main task of these officers is to develop the business of life insurance. Such development is measured by the amount of premium secured in the first year on the new policies by reason of efforts put in by the Development Officers. The efficiency of the Development Officers is judged with reference to the amount of first year's premium that he obtains and if the amount of premium is at least five times the yearly expenses incurred by the Life Insurance Corporation on the Development Officers, th....
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....force prior to the amendment effective from April 1, 1975, permitted deductions under five different heads/clauses. Out of those five heads, two items, namely, (i) expenditure incurred in entertaining people connected with the employer's business, and (ii) amount of tax on profession, etc., still exist with modifications in clauses (ii) and (iii) of section 16. The remaining three items of deductions, namely, (i) expenditure on the purchase of books, (ii) expenditure on conveyance, and (iii) expenditure incurred by the employee wholly, necessarily and exclusively in the performance of his duties, do not any more exist and instead standard deduction at a fixed percentage/amount is allowed under clause (i) of section 16. When an employee is allowed deduction under clause (i) of section 16, he cannot claim a second deduction on the ground of having incurred certain expenditure in the performance of his duties. The assessee has not been able to show that he was not paid any travelling allowance while going to the field in connection with the insurance business. He cannot claim a second reimbursement from the amount of the incentive bonus. He, being an employee of the Life Insurance Co....
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....are to be those as specified in section 16 of the Act." In this context it is worth referring to the decision rendered in the case of CIT v. Ramlal Agarwala [2001] 250 ITR 828 (Cal), wherein the Division Bench referred to the judgment of the Andhra Pradesh High Court rendered in the case of K.A. Choudary v. CIT [1990] 183 ITR 29 and held thus: "In the case of K.A. Choudary v. CIT [1990] 183 ITR 29, the Andhra Pradesh High Court has relied on the decision of the Supreme Court in Gestetner Duplicators (P.) Ltd. v. CIT [1979] 117 ITR 1 and also on the decision in the case of M. Krishna Murthy v. CIT [1985] 152 ITR 163 (AP), wherein the view has been taken on incentive bonus while considering the applicability of section 40A of the Income-tax Act. That incentive bonus forms part of the salary. Once the standard deduction under section 16 of the Income-tax Act is allowed, no further deduction is warranted from the bonus receipts. We are in agreement with the Andhra Pradesh High Court When the employee received bonus from the employment while in employment for the extra work, this is nothing but forms part of the salary and once the standard deduction is allowed to the assessee as emp....
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....ddition to salary, as claimed by the assessees and is nothing but salary coming within the meaning of the term contained in section 15 of the Income-tax Act We do not find any provision in the Income-tax Act, except section 10(14), for allowing deduction towards expenditure of this nature claimed by the asses sees. There is no material to hold that incentive bonus or any part of it is in the nature of reimbursement of expenditure by the employer to the assessee to qualify for deduction under section 10(14). In any case, even such an expenditure under section 10(14) can be allowed only if it is granted specifically to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties to the extent such expenses are actually incurred for that purpose. Therefore, section 10(14) does not also apply to the cases at hand for the relevant assessment years. Therefore, following the decisions of the High Courts referred to above particularly that of the Full Bench decision of the Karnataka High Court in CIT v. M.D. Patil [1998] 229 ITR 71, and disagreeing with the view of the Gujarat High Court, we are of the view that incentive bonus is only a part of the salary o....
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....ceived from the employer in addition to salary is assessable as salary or not in the case of CIT v. Bijay Kishore Kapoor [1993] 202 ITR 129 (Orissa). A Bench of this court, following the decision of the Supreme Court in Gestetner's case [1979] 117 ITR 1, had held that the terms of engagement having clearly reflected the relationship between the employer and employee, the commission received by the employee was assessable as income from salary." Learned counsel for the respondents/assessees placed heavy reliance on the decision rendered in the case of R.K. Salhotra [2002] 125 Taxman 624 (J&K) wherein the Bench referred to the circular issued by the Central Board of Direct Taxes. The said circular reads as under: "...Sub: Incentive Bonus paid to Development Officers. I am directed to refer to your letter No. Mktg./DO/163 dated January 5, 1996, and the scheme submitted in pursuance to discussions the officers of the Corporation had with the Central Board of Direct Taxes when representatives of National Federation of Insurance Field Workers of India were also present. Your request for notifying 'incentive bonus' under sub-clause (14) of section 10 of the Income-tax Act cannot be acc....