Commissioner of Income Tax vs Ramlal Agarwala

On an application u/s 256(1) of the Income Tax Act, 1961, the Tribunal has referred the following :

"Whether, on the facts and in the circumstances of the case, particularly, when the incentive bonus has been assessed under the head ''Salary'' and not as professional income, the Income Tax Appellate Tribunal was justified in law in allowing 40 per cent, deduction from the incentive bonus ?"

The assessee is a Development Officer of the Life Insurance Corporation. The assessee claimed an amount of Rs. 23,871 as expenses against incentive bonus received as per separate profit and loss account. The Assessing Officer rejected the claim of the assessee on the ground that the assessee is an employee and received the incentive bonus on account of an employee of the Life Insurance Corporation. When standard deduction u/s 16 has been allowed there is no question of further allowing 40 per cent, deduction from the incentive bonus. This view has been affirmed by the Commissioner of Income Tax (Appeals). In appeal before the Tribunal, the Tribunal has followed the decision of the Bombay High Court in Commissioner of Income Tax Vs. A.A. Baniyan, and further took the view that when two interpretations are possible, following the view taken by the apex court in The Commissioner of Income Tax, West Bengal 1, Calcutta Vs. Vegetables Products Ltd., , the view favouring the assessee be taken.

None appeared for the assessee though the matter was listed 2/3 times. Heard, learned counsel for the Revenue. Learned counsel for the Revenue submits that the ratio of the case in Commissioner of Income Tax Vs. A.A. Baniyan, , is not applicable as there was a finding that the assessee has received the bonus as professional income and that was not challenged. But in the case in hand, the assessee an employee of the Life Insurance Corporation received the bonus in the capacity of employee of the Life Insurance Corporation. He further placed reliance on the decision of the Andhra Pradesh High Court reported in K.A. Choudary Vs. Commissioner of Income Tax and Others, .

A perusal of the authorities below including the Assessing Officer and the Commissioner of Income Tax (Appeals) reveals that there is a categorical finding by the Assessing Officer and the Commissioner of Income Tax (Appeals) that in the case in hand, the assessee is a Development Officer. He is not doing agency business for the Life Insurance Corporation. He is being paid as an employee of the Life Insurance Corporation. There is a clear relation of employer and employee between the assessee and the Life Insurance Corporation. The incentive bonus on commission which has been paid for the extra work of the assessee by the employer, which is in lieu or in addition to the salary and forms part of salary by virtue of Section 17(1) of the Income Tax Act, 1961. The standard deduction has already been allowed to the assessee u/s 16(i) of the Act.

The same view has been taken by the Commissioner of Income Tax (Appeals) when the assessee is an employee of the Life Insurance Corporation and the standard deduction has been allowed u/s 16(i) of the Income Tax Act, 1961, and, when the bonus is paid for its extra work, that is nothing but in lieu of salary and that forms part of the salary. No extra deduction out of that amount is permissible.

In the case of Commissioner of Income Tax Vs. A.A. Baniyan, , though the Bombay High Court allowed the deduction of 40 per cent, from the bonus, commission the court has observed that this has been held as professional income of the assessee for the then assessment years and that finding is not under challenge before the High Court, That shows that the Bombay High Court has allowed deduction only on the ground that the Department itself has treated that bonus amount as professional receipt and that was not challenged before the High Court. Therefore, the High Court has allowed the deduction of 40 per cent, out of the bonus receipt.

In the case of Commissioner of Income Tax Vs. Toshniwal Electrodes Mfg. Co., , the Andhra Pradesh High Court has relied on the decision of the Supreme Court in Gestetner Duplicators Pvt. Ltd. Vs. Commissioner of Income Tax, West Bengal, and also on the decision in the case of M. Krishna Murthy and Others Vs. Commissioner of Income Tax, Andhra Pradesh, Hyderabad and Others, , 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 u/s 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 employee treating his income as salary income there is no question of any further allowance out of the bonus or commission received from the employment.

In the result, we answer the question in the negative, that is, in favour of the Revenue and against the assessee.

The reference application so made is, accordingly, disposed of.

All parties are to act on a xerox signed copy of the dictated order on the usual undertakings.