COMMISSIONER OF INCOME TAX Vs. GINARAJAN

JUDGEMENT

(1.) THE short question arising in all these income tax cases is the "head of income" under which "incentive bonus" received by the assessees who are development officers employed by the Life insurance Corporation of India is assessable under the Income Tax Act and the extent of deduction, if any, allowable in the computation of taxable income. While issuing notice in I. T. A. No. 31 of 2001, this Court framed the following three questions of law. 1. Whether, on the facts and in the circumstances of the case, and also in the light of the decision of the Supreme Court in 243 ITR 143, the Tribunal is right in law in allowing any deduction separately from incentive bonus? 2 Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding; (i) 30% of the incentive bonus is to be excluded from the definition of 'emoluments under S. 171. (ii) 30% of the incentive bonus should be excluded from the computation at the inception itself? 3 Whether, on the facts and in the circumstances of the case (and the incentive bonus being salary) the assessee is entitled to any deduction in excess/ different from standard deduction allowable/permissible under S. 16 (1) of the Income Tax Act?

(2.) THE assessees are admittedly regular employees of the l. I. C. of India and are assessed under the head "salary" in respect of the income earned by them from their employer in the form of salary and perquisites. Having regard to the nature of relationship between the L. I. C. of India and the assessees, as one of employer and employee, there is no serious dispute under the head of income under which "incentive bonus" also is assessable. The definition of "salary" under S. 15 of the Income Tax Act is so wide and is only an inclusive one taking in all receipts from the employer in the form of wages, commission, bonus, profit in lieu of or in addition to salary, etc. It is obvious that the legislature did not attach much importance to the euphemism used to describe the payment. Therefore any payment by the employer to the employee towards consideration for services rendered in the course of employment comes within the description of "salary" which includes perquisites as well. Probably this is why the assessees also have not raised any dispute against the assessment of "incentive bonus" received by them from their employer, namely L. I. C. of India under the head "salary". However, the assessees have raised a serious dispute with regard to the nature and content of incentive bonus received by them from the L. I. C. of India, which is directly related to the business canvassed by them and is a percentage of premium received by L. I. C. of India and which is paid over and above the normal salary and perquisites, to which they are entitled. According to the assessees, sizable amount is spent by them to earn the incentive bonus, and therefore irrespective of the head of income under which the same is assessable, they are entitled to deduction of the expenditure, or in other words, only the net income is assessable. On the other hand, the assessments have been completed treating the incentive bonus as part of the salary and deduction from salary was limited to standard deduction admissible under S. 16 of the Income Tax Act. A separate deduction claimed from out of incentive bonus by the assessees was ruled out by the Income Tax department. When the matter went in second appeal to the Tribunal, the Tribunal elaborately discussed the nature of the scheme under which incentive bonus is paid by the L. I. C. of India and relying on a letter issued by the L. I. C. of india to the Central Board of Direct Taxes estimating the expenditure incurred by the development officers at 30% of the incentive bonus accepted the contention of the assessees and allowed deduction at 30% of incentive bonus towards expenditure, or in other words, sustained assessments only at 70% of the incentive bonus received. by the assessees. In doing so, the Tribunal heavily relied on the decision of the Gujarat High Court in C. I. T. v. Kiranbhai h. Shelet, 235 ITR 635

(3.) THE Tribunal in its order analysed the nature of incentive bonus with illustration, which is extracted hereunder for convenience: Premium collected Rs. 6,00,000/ Lapsed Rs. 1,00,000/ Net eligible premium Rs. 5,00,000/ 20% of Net Rs. 1,00,000/ Annual Remuneration Rs. 5,000/-x 12 = Rs. 60,000/-ILLUSTRATION Therefore he is eligible to get incentive bonus because the annual remuneration does not exceed 20% of net premium. If his annual remuneration is above 20% net premium (Rs 1 lakhs) then he will not get incentive. So it is given more as remuneration and also to increase that basic remuneration. Hence it is in additional salary Gross premium Rs. 6,00,000/ Lapsed Rs. 1,00,000/ Net eligible premium Rs. 5,00,000/ Remuneration Rs. 1,00,000/ 20% of Net Rs. 5000/ x 12=rs. 60,000/ Rs. 5,00,000 less 7 x 60,000=42,0000 = 80000 x 4% = 3200 rs. 5,00,000 less 9. x 60,000 = 54,0000=2 % Nil Total Rs. 15,200/ From the above, it is clear that the incentive bonus is a percentage of the premium received by the L. I. C. of India for the business canvassed through the development officers. It is not the reimbursement of any expenditure and is not even linked to expenditure, if any, incurred by the development officers. Further, under the Scheme, in cases where the remuneration otherwise receivable by the development officers is in excess of 20% of the net premium, then the development officer is not entitled to any incentive bonus. There is no explanation from the assessees as to how the expenditure incurred by them even in such cases can be allowed when no incentive bonus is received, eventhough business is canvassed, which according to them, involves expenditure. Though the assessees have vehemently contended that they have sizable expenditure to earn the incentive bonus and the employer, namely, the L. I. C. of India has certified such expenditure having been incurred by them and has even estimated such expenditure at 30%, we have not seen a single case where any assessee has come forward before the department claiming any item of expenditure or furnished details of any such expenditure if at all incurred by him. Therefore, apart from the tall claim made by them, and the help rendered to them by the L. I. C. of India, by writing a letter, there is nothing on record to show that expenditure, if any, has been incurred by any of the assessees in the course of earning the incentive bonus. Anyhow, we are not influenced by the want of particulars of expenditure, if at all incurred by the assessees, because such details are required only if any such expenditure is allowable.