S. H. KAPADIA, J.

( 1 ) THE question referred to this Court by the Tribunal under section 256 (1) of the Income Tax Act, 1961 is as under :-QUESTION quoted from ITR. No. 52 of 1993. Whether on the facts and circumstances of the case, the Tribunal is justified in holding that 25% deduction is admissible at the threshold from the incentive bonus received by the assessee, a Development Officer of Life Insurance Corporation of India which is assessable under the head income from salaries

( 2 ) THE facts giving rise to the above References are as follows. For the sake of brevity, we have taken the facts from Income Tax Reference No. 52 of 1993. Since common question of fact and law arises in the above group of references, they are disposed of by this common judgment.

( 3 ) THE assessee is a Development Officer of LIC. He received an incentive bonus of Rs. 79,216/- from LIC. As a development Officer, he was required to maintain an organization, to recruit and train agents. For that purpose, he incurred certain expenses. He claimed a percentage of incentive bonus as deduction since he was required to meet the expenses to run the said Organisation. He claimed that he was working beyond duty hours. He claimed the above deduction in view of the structure of employment as evidenced by the rules framed by LIC as applicable to development Officers. He urged before the AO that, as a development Officer, he was required to employ and control agents who are not the employees of LIC. The said agents were appointed on contract basis for which commission was paid for procuring business for LIC. That, the Development had to look after the agents. That, they were required to be guided to procure more business. For doing this extra work, the Development Officer was paid incentive bonus over and above the salary paid to him to do his duties during the office hours. Accordingly, he claimed deduction of such expenses from the incentive bonus. He urged before the AO that the incentive bonus was a reward. That, he acted as a link between the agents and the Policy holders. He accordingly claimed deduction of the expenses at the rate of 40%. It was contended before the AO that the employee of development Officer with the LIC entitled him to receive only his basic pay, special pay, personal pay, D. A. , ex gratia bonus and other allowances and perquisites. That, the incentive bonus was payable only in cases where the organisation of the Development Officer contributed to the business generated for LIC. That, the payment in respect of incentive bonus did not result from his employment. That, if the Development Officer did not bring in business or if the development Officer did not conform to the expense limits then he wasnot entitled to incentive bonus. Therefore, the maintenance of his Organization was foreign to the contract of employment. Accordingly, the Development Officer-assessee claimed the above deduction at the rate of 40%. The AO rejected the above contentions of the Development Officer. The matter was carried in appeal to the CIT (Appeals ). It was contended before the First Appellate Authority that incentive bonus had no connection with the contract of employment. In the alternative, it was contended that the expenditure incurred for earning the incentive bonus should be excluded at the starting point itself. The above arguments were rejected by the First Appellate Authority which came to the conclusion that there was a clear-cut employer-employee relationship between the LIC and the development Officer. That, the incentive bonus cannot be divorced from the contract of employment. That, the assessee was not an insurance agent. That, he was an Officer of LIC. That, the entire Incentive Bonus Scheme was applicable because he is an Officer of LIC. That, the bonus was part of the salary. That, once it is found that the income received by the assessee falls under the head Salaries , the deduction to be allowed in the computation of his income