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1994 Supreme(AP) 13
Andhra Pradesh High Court
Judges : A.S.BHATE, S.S.M.QUADRI
B.Chinnaiah - Appellant
Versus
B.Chinnaiah and Ors. - Respondent
Decided On : 01-01-94
Incentive bonus is included in the definition of salary under section 17 of the Income-tax Act, 1961, and is taxable under the head "salary". The only permissible deductions under the head "salary" are those mentioned in section 16 of the Act.
Headnote:
INCENTIVE BONUS - SALARY - SECTION 10(14), 15, 16, 17 - Whether incentive bonus is included in the definition of salary under section 17 of the Income-tax Act, 1961? Whether any expenditure other than that mentioned in section 16 can be permitted as allowable deduction?
Fact of the Case:
The assessee, a Development Officer in the Life Insurance Corporation of India, received an incentive bonus of Rs. 36,837.42. He claimed to deduct expenses at 40% of the said sum amounting to Rs. 14,732. The Income-tax Officer disallowed the expenses claimed by the assessee. On appeal, the Appellate Assistant Commissioner of Income-tax allowed the appeal upholding the claim of the assessee to deduct 40% of the incentive bonus towards expenses. The Revenue preferred an appeal before the Income-tax Appellate Tribunal, Hyderabad, which disposed of the appeals by a common judgment. At the instance of the Revenue, the questions of law were referred to the High Court under section 256(1) of the Income-tax Act, 1961.
Finding of the Court:
The High Court held that the incentive bonus is in the nature of a perquisite within the meaning of section 17(2) of the Income-tax Act, 1961. The Court further held that to enable the assessee to have the advantage of section 10(14) of the Act, there must be a notification by the Central Government specifying the extent to which the expenses are allowable. In the instant case, there was no such notification. Therefore, the assessees cannot draw any support from section 10(14) of the Act.
Issues: 1. Whether incentive bonus falls within the meaning of salary under section 17 of the Income-tax Act, 1961? 2. If so, whether any expenditure other than that mentioned in section 16 can be permitted as allowable deduction?
Ratio Decidendi: 1. The Court held that the incentive bonus is in the nature of a perquisite within the meaning of section 17(2) of the Income-tax Act, 1961, and is taxable under the head "salary". 2. The Court further held that the only permissible deductions under the head "salary" are those mentioned in section 16 of the Act. In the instant case, the expenditure claimed by the assessee did not fall under any of the items under section 16. Therefore, the expenditure is not allowable.
Final Decision: The High Court answered both the questions in the negative, i.e., in favor of the Revenue and against the assessees.
( 1 ) IN this batch of cases, under section 256 (1) of the Income-tax Act, 1961, the following two questions are referred to this court for opinion :" (1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in holding that 40 per cent. of the incentive bonus is an allowance of the nature mentioned under section 10 (14) and exempting the same under that provision ? (2) Whether, on the facts and in the circumstances of the case, the finding of the Income-tax Appellate Tribunal that the incentive bonus included in allowance either to the extent proved or reasonably at 40 per cent. of the incentive bonus, which is exempt under section 10 (14), is based on any material available on record ?"
( 2 ) TO answer the above questions, it may be useful to refer to the facts in one of the cases. We propose to refer to the facts as stated in the statement of case in Revision Case No. 30 of 1991. The assessee was the Development Officer in the Life Insurance Corporation of India, Cuddapah. For the assessment year 1983-84, he returned an income of Rs. 29,070 and also disclosed that he received "incentive bonus" of Rs. 36,837. 42 against which he claimed to deduct expenses at 40 per cent. of the said sum amounting to Rs. 14,732 and, accordingly, deducted the same. The Income-tax Officer disallowed the expenses claimed by the assessee. Dissatisfied with the order of assessment dated 27/03/1986, the assessee preferred an appeal before the Appellate Assistant Commissioner of Income-tax. On 27/05/1987, the Appellate Assistant Commissioner of Income-tax allowed the appeal upholding the claim of the assessee to deduct 40 per cent. of the incentive bonus towards expenses. Aggrieved by the said order of the Appellate Assistant Commissioner of Income-tax, the Revenue preferred an appeal before the Income-tax Appellate Tribunal, Hyderabad. That appeal was heard along with a batch of appeals out of which some were filed by the assessees and some by the Revenue. As common questions of fact and law were raised, the Tribunal disposed of those appeals by a common judgment on 31/01/1990. At the instance of the Revenue, the aforementioned questions of law were referred to this court under section 256 (1) of the Income-tax Act, 1961.
( 3 ) SRI Habeeb Ansari, learned standing counsel for the Revenue, submitted that those questions are covered against the assessee by the two Division Bench judgments of this court in M. Krishna Murthy v. CIT [1985] 152 ITR 163 and K. A. Choudary v. CIT [1990] 183 ITR 29.
( 4 ) SRI Y. Ratnakar, Sri A. Satyanarayana and Sri P. Srinivasa Reddy, learned counsel appearing for the assessees in the abovesaid revision cases, supported the order of the Tribunal on various grounds. It was contended that the incentive bonus did not form part of "salary", therefore, it could not be included as receipt under the head "salary" and that it should be treated as income from other sources and accordingly the net income after excluding necessary expenses should be taken as taxable income. They further submitted that even if it is treated as "salary", the expression "salary" should be so construed as to bring in its net salary after excluding expenses incurred in earning the salary and that would be the real income. It was also contended that even though there was no provision in the Income-tax Act for deducting 40 per cent. of the incentive bonus, what was taxable was only the net income and not the gross receipts, therefore, to arrive at the correct income the expenditure incurred for earning such income should be deducted. It was argued that the Development Officers incurred a lot of expenditure in holding seminars, in extensive travelling and in providing refreshments to the agents and others, so deduction of 40 per cent. of the incentive bonus should in any event be allowed.
( 5 ) ON the above contentions, the following points arise for consideration : (1) Whether
