Income Tax Appellate Tribunal - Ahmedabad
Jaysukh R.Patel, Vapi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C"
Before SHRI MAHAVIR SINGH,JM & SHRI A N P AHUJ A, AM
ITA No.4162/Ahd/2007
(Assessment Year:-2005-06)
Assistant Commissioner of V/s Shri Jaysukh Ratilal Patel,
Income-tax, Vapi Circle, At Rampore, PO Sukesh,
Vapi Tal: Killa Pardi - 396 125
[PAN: ABRPP 4783 B]
[Appellant] [Respondent]
Revenue by :- Shri K M Mahesh, DR
Assessee by:- Shri Tushar Hemani, AR
O R D E R
A N Pahuja: This appeal by the Revenue against an order dated 14- 09-2007 of the ld. CIT(Appeals), Valsad, raises the following grounds:-
"1. On the facts and circumstances of the case and in law the CIT(A) has erred in allowing the claim of the assessee of incentive bonus of Rs.4,83,872/- and Additional Conveyance Allowance of Rs.2,81,900/-.
2. On the facts and circumstances of the case and in law, the learned CIT(A) has granted relief to the assessee without distinguishing the ratios laid down in the judgments reported in 257 ITR 790, 267 1TR 763, 263 TIR 536, 184 CTR 420, 253 ITR 790 and 229 ITR 71 as relied on by the AO in the assessment order.
3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in granting relief to the assessee relying upon the decision of the Hon'ble Gujarat High Court reported in 235 ITR 635 though the said judgment has been distinguished by the Hon'ble Mumbai High Court in the case reported in 248 ITR 819 subsequently followed by the Hon'ble Rajasthan High Court in the case reported in 257 ITR 790.
4. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the claim for higher exemption U/s. 10(14) of the IT Act then what is allowed by employer in respect of conveyance and additional conveyance allowance, keeping in view the Government of India's Notification No. S. O. 940 (E) dated 25.09.01 amending IT Rules with effect from 01.04.01.
5. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.9,540/- made on account of ITA No.4162/Ahd/2007 accrued interest on NSC without considering the fact that not evidence for such in form of certificate was filed by assessee and interest was paid on the borrowings of house construction which was not completed during the year.
6. It is therefore, prayed that the order of the learned CIT(A) be set aside and that the order of the AO be restored.
The appellant craves to add, alter or amend any grounds of appeal."
2 Facts, in brief, as per relevant orders are that return declaring income of Rs.16,48,930/- filed on 13-02-2006 by the assessee, a development officer with the Life Insurance Corporation [LIC],was processed u/s 143(1) of the Income-tax Act, 1961 [hereinafter referred to as the "Act"].Subsequently, the Assessing Officer (AO in short) noticed that the assessee claimed deduction of conveyance allowance- Rs.2,81,900 and incentive bonus- Rs.4,83,872/- from the gross salary . Since the Hon'ble MP High Court had held in CIT vs. Gurudeo Singh Jaggi,267 ITR 763 that deduction on additional conveyance allowance is allowed only if the assessee has actually incurred the expenditure while there were no details on record to show that the assessee actually incurred an expenditure of Rs.2,81,900/-,referring to decisions in CIT vs. A K Ghosh (2003), 263 ITR 536,CIT vs. T.K.Ginarajan,253 ITR 790(Kerala),CIT vs. MD Patel,229 ITR 71(Karnataka) and H M Parekh vs. CIT, 257 ITR 790 (Raj), the assessment was reopened u/s 147 of the Act with the issue of a notice u/s 148 on 24-10-2006. In response, the assessee filed return declaring income of Rs.16,48,930/- on 21-11-2006. During the course of assessment proceedings, the assessee explained that being a development officer, nature of his duties required expenditure on travelling, maintenance of car, employees, stationery, agents training, meetings, prize competitions, gift to agents, rickshaw fare, etc.. Since he had incurred expenditure in performance of his duties , deduction should be allowed in view of decision of the Honorouble Gujarat High Court in the case of CIT vs. Kiran H Shelat,235 ITR 635(Guj) out of incentive bonus 2 ITA No.4162/Ahd/2007 commission and on the decision of Honourable MP High Court in the case of A K Ghosh and others in respect of his claim for conveyance and additional conveyance. However, the AO after analyzing the Incentive Bonus Scheme, 1997 and the "Reimbursement Scheme of Expense, 1997", did not accept the submissions of the assessee and concluded that the decision of Hon'ble Gujrat High Court, holding that the D.O. was entitled to claim such deduction only to the extent of reimbursement of expenses actually incurred up to the maximum limit of thirty percent of the incentive boring earned by him, was in the context of old scheme existing prior to 1997. Since the LIC introduced the Incentive Bonus Scheme, 1997 alongwith the Reimbursement of Expenses Scheme, 1997, the Reimbursement of Expenses Scheme applies to all those DOs who earn Incentive Bonus in the relevant appraisal year in accordance with the I.B. Scheme 1997 and eligible D.O.s' can claim the amount to be reimbursed under the scheme. Therefore, as per reimbursement expenses scheme, the D.O. was entitled to claim the following expenses incurred in the performance of duties for earning the incentive bonus:
i. For mobilizing & mopping of eligible premium (productivity) tin ouch agents i.e., productivity ii. For development and building up of clientele contact. iii. For recruitment and assistance to the agents of my organization.
iv. For conducting agents training meetings.
v. For agents competition 2.1 The AO further pointed out that the aforesaid reimbursement was limited to an overall ceiling as per the instructions of the LIC from time to time. The D.O. was required to submit a declaration of the expenditure incurred for performance of duties for earning incentive bonus and prefer the claim for reimbursement of expenses in format prescribed i.e. Annexure-A. He was also required to furnish Annexure-B for reimbursement of claim besides annexure-C, which was the report in respect of the agents meetings and competitions 3 ITA No.4162/Ahd/2007 held by him in the relevant appraisal year. As per this annexure, he has to furnish the proof of expenses incurred and the LIC reimbursed the actual expenditure incurred. The claim of expenses in respect of items at sr. no. i) & iii) above was on the basis of the premium eligibility. Since the exact quantum of the expenditure was difficult to be worked out, a formula was devised, based on productivity/net eligible premium etc for granting these expenses. In respect of the items at sr. no. iv & v , the assessee was required to furnish evidence in. support of the expenses. The expenses reimbursed in the Reimbursement Scheme were not considered for the purpose of computation of salary u/s. 15 r.w.s 17. No part of these reimbursed expenses was included in salary as was apparent from the salary certificate issued by LIC in form no. 16 and total amount of Rs. 189055/- was stated to have been reimbursed to the assessee during the year under consideration under the Reimbursement of Expenses Scheme as per the following bifurcation:
a. Reimbursement of Productivity Expenses - 60000 b. Reimbursement of Bldg up of Clientele Expenses 36000 c. Reimbursement of Recruitment of agents expenses 50000 d. Reimbursement of agents training expenses 33055 e.. Reimbursement of agents competition expense 10000
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189055 2.2 Accordingly, the AO concluded that with the introduction of Reimbursement of Expenses Scheme in 1997, the incentive bonus has to be treated as part of the salary for the purpose of tax. Thus, the claim of the assessee for further deduction @30% of the incentive bonus in addition to the expenses reimbursed to him as per the Reimbursement of Expenses Scheme, 1997, was not tenable being not in tune with the decision of Hon'ble Bombay High Court Order in the case of Shri C.M. Shah, the AO observed. As regards judgment of the Hon'ble Gujarat High Court in the case of CIT Vs. Kiran Shelat 1999 235 ITR 635 (Guj), the AO observed that the said 4 ITA No.4162/Ahd/2007 decision was relevant to the assessment year prior to AY 1997-98.
Accordingly, the AO concluded that f urther deduction of expenses @ 30% of incentive bonus was not allowable, inter alia, in view of decisions in CIT Vs. A. K. Ghosh [2003] 263 ITR 535, Dipak Mishra- 184 CTR [MP] 420, H. M. Pareek Vs. CIT 257 ITR 790 [Raj], CIT Vs. T. K. Ginarjan 253 ITR 790 [Kerala] and CIT Vs. M. D. Patil 229 ITR 71 [Full Bench]. The AO also pointed out a decision in HM Pareek(supra),wherein following their decision in CIT Vs. Gopal Krishna Suri & Others, 248 ITR 819, distinguishing the judgment of the Hon'ble Gujarat High Court in K. H. Shelat(supra), the Hon'ble Rajasthan High Count held that incentive bonus was part of salary . The proposition that expenditure has to be deducted while treating Incentive Bonus as a profit in the hands of the assessee was against the principle laid down by the Apex Court in Karmachari Union Vs. Union of India (2000)(243 ITR 242), the AO added.
3. As regards claim for additional conveyance allowance, the AO pointed out that the assessee claimed deduction of conveyance & addl. conveyance allowance of Rs.2,81,900/-,relying upon the judgment of Hon'ble M.P. High Court in the case of A.K.Ghosh(supra). The issue in the said case was decided on the basis of notification No. 606 dt. 9.6.99 of Government of India. Thereafter, the Government of India issued Notification dated 25.9.01 amending the I.T. Rules w. e. f 1.4.01. Accordingly, in. case of DOs desiring a higher amount of exemption on account of conveyance allowance and addl. conveyance allowance were required to satisf y the following conditions:
I. Maintenance of complete details of journey undertaken for official purpose which includes details of journey destination, mileage, and the amount of expenditure incurred thereon.
II. Giving a certificate that the expenditure was incurred wholly and exclusively for the performance of the official duties;5 ITA No.4162/Ahd/2007
III. The supervisory authority of the employee, wherever applicable gives certificate, gives certificate to the effect that the expenditure was incurred wholly and exclusively for the performance of official duties.
They were required to maintain a log book containing the details of journey undertaken by them which in turn has to be certified by Sr. Branch Manager in charge. The petrol/diesel bills etc have also to be produced for claiming higher amount of exemption from Income tax deductible at source. Therefore, the AO asked the assessee to produce log book & other details bills, vouchers etc which he was required to maintain. He was further asked to file justification to the fact that journeys were undertaken for the performance of his duties. However, the assessee did not produce the log book and other details and merely furnished self made vouchers and some of the bills issued by the petrol pump for an amount of Rs.67,826/- besides other expenditure of Rs.1,95,367/- under the head staff salary / conveyance / mobile / stationery / insurance etc. Since no details regarding journeys undertaken, place and number of persons attending the meetings and result of such meetings were furnished nor any other evidence in order to ascertain as to whether or not the expenditure was incurred for the professional purpose or personal purposes while the assessee had received reimbursement of expenses of Rs.1,89,055/- from the employer , the AO disallowed the claim for deduction of Rs.2,81,900/-.
4. On appeal, the learned CIT(A) concluded on the claim for additional conveyance allowance in the following terms:
" 5.3 I have gone through the findings of the AO as has been reflected in the assessment order. I have also carefully perused the submission as made by the AR and also the judicial findings as relied upon by him. After going through the provisions of section 10(14), it is found that while computing the total income of an assessee of a previous year, any special allowance or benefit, not being in the nature of perquisite 6 ITA No.4162/Ahd/2007 within the meaning of clause (2) of section 17 especially granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit (as may be prescribed) to the extent to which such expenses are actually inclined for that purpose will not be included. The remark that the AO has erred in disallowing the full amount of Rs.2,81,900/- has also been considered by me, "
After having considered the submissions of the Appellant as well as then tidings of the AO in the assessment order, I find that there is a force in the arguments of the AR that Government Notification No.606 dated 09/06/1989 has specified that the conveyance allowance granted in performance of the duty/is exempted from tax. The findings of the Hon'ble Madhya Pradesh High Court are clear-cut and reliance was placed by the Court on the above mentioned Notification as well as the factual scenario in proper perspective keeping in view the instruction of LIC and Gazette Notification issued by the Government of India. It is also true that a Salaried Employee cannot be expected to maintain log book, each and every bill and voucher for the journeys taken in. performance of the duty. In the instant case the appellant did maintain bills and vouchers in support of the claim in which the AO has not pin-pointed any glaring defects. II is not very relevant only to take into consideration the internal procedure devised by LIC because the same is always with a limited intention to comply with TDS law and to arrive at the TDS required to be made from the payment to the development officer. Only because the employer has made TDS on the entire gross amount and shown the allowance as taxable in Form No.16, it would not vitiate the claim of exemption of the Appellant. What is decisive is whether the allowance has been granted to specifically incur the same in performance of the duty of office or not. The name itself suggests that it is an "allowance" and not a 'pay" or "perquisite". Even the LIC has certified in Form No.16 itself, that the Appellant employee may opt for the additional allowance / exemption before the Assessing Officer. This particular observation is very relevant to suggest that LIC was conservative from the view point of TD5 liability and therefore, 'be Conveyance Allowance has been shown as taxable in Form No. 16 to ensure conservative approach in TDS compliance. It doesn't imply that the Appellant has not spent such amount in performance of the duty of office. Especially when the appellant has maintained bills and vouchers in support of the claim, there is no plausible reason to disbelieve his claim.
7 ITA No.4162/Ahd/2007Based on above discussions and authorities relied upon, I am of the, view that entire amount of Rs.2,81,900/- is allowable as the same has been granted by LIC of India to (he Appellant to specifically meet the expenses wholly, necessarily and exclusively in performance of the duty as a field officer of LIC of India. In view of the above discussed facts, I am of the view that the AO was not justified in disallowing the full amount of Rs.2,81,900/- out of Conveyance and Additional Conveyance allowance as the same is allowable u/s. 10(14). Thus, the AO is directed to allow the full claim of Rs.2,81,900/- as per return of income of the appellant and in the result, the appellant's grounds of appeal No-3 is allowed."
5. As regards deduction out of incentive bonus, the ld. CIT(A) held that "6.5 After going through the findings of the AO in the assessment order and also after perusing the submission as made by the AR (as stated above) and the case laws relied upon by him, I am of the view that the findings of the Gujarat High Court in the case of CIT V/s Kiranbhai H.Shelat and ITAT Ahmedabad in case of Balvant.S.Desai aid Amrut R. Patel respectively are very rationalised and fully applicable to the facts of the case of the appellant and respectfully following that, I allow the claim of Rs.4,83.872 made by the appellant @ 30% of the Incentive Bonus, received by him treating the same as incurred for the purpose of duty. Thus, the Appellant's Ground No-2 is allowed."
6 The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned DR while referring to Incentive Bonus Scheme-1997 & Reimbursement Scheme of Expenses-1997 for Development Officers of LIC, contended that the learned CIT(A) was not justified in granting relief to the assessee relying upon the decision of the Hon'ble Gujarat High Court in the case of Kiran H Shelat(supra) since the said decision was rendered in the context of old Scheme. Moreover, the said judgment has been distinguished by the Hon'ble Bombay High Court in the case reported in CIT vs. Gopal Krishna Suri,248 ITR 819, followed subsequently by the Hon'ble Rajasthan High Court in HM Pareek vs. CIT,257 ITR 790(Raj).As regards additional conveyance allowance, the ld. DR pointed out that the learned CIT(A) was not justified in 8 ITA No.4162/Ahd/2007 allowing the claim for higher exemption u/s 10(14) of the Act then what was allowed by the employer in respect of conveyance allowance and additional conveyance allowance, keeping in view the Government of India's Notification No. S.O. 940 (E) dated 25-09- 2001 amending IT Rules,1962 with effect from 01-04-2001.On the other hand, the learned AR on behalf of the assessee supported the findings of the learned CIT(A) and contended that the entire amount of additional conveyance allowance has been given as reimbursement only and spent in the performance of duties and that there was no requirement in law to maintain books of accounts and other such details. Inter alia, the ld. AR relied upon decisions in CIT vs. AK Ghosh,263 ITR 536 (MP) ,267 ITR 763 (MP), LIC vs. Union of India & Others,260 ITR 41 (Raj) and CIT vs. Chandulal J Patel ,127 ITR 786 (Guj). The ld. AR also referred to certain decisions,holding that if two views are possible, the view in favour of the assessee has to be adopted. Regarding deduction out of incentive bonus, the ld. AR relied upon decisions of the Hon'ble ITAT in ACIT vs. Amratlal R Patel [ITA No.1717/A/2006, dated 11-09-2006, ACIT vs. Nailesh Desai [ITA No.2960-1/A/2006, & 2962 to 2966/A/2007 dated 27-11- 2007 and ACIT vs. Mukesh B Desai [ITA No.1767 and 1768/A/2006, dated 06-10-2006, following the decision in the case of Kiran H Shelat (supra).
7. We have heard both the parties and gone through the facts of the case. As regards these issues of deduction of additional conveyance allowance and deduction out of incentive bonus, we find that the AO disallowed the claim for deduction of additional conveyance allowance since the assessee claimed the expenditure on self made vouchers and produced petrol pump slips for an expenditure of only Rs.67,826/- besides claiming other expenditure of Rs.1,95,367/- while the assessee had already received reimbursement of expenses of Rs. 1,89,055/- from the employer which had been exempted from tax. In the absence of any evidence of incurring of expenditure actually, the AO disallowed the claim in the light of notification no. SO 940 dated 25.9.2001 9 ITA No.4162/Ahd/2007 amending IT Rules,1962 w.e.f. 1.4.2001. On appeal, the ld. CIT(A) allowed the claim u/s 10(14) of the Act in the light of notification no.606 dated 09/06/1989 and decision of the Hon'ble MP High Court in CIT vs. AK Ghosh,184 CTR 420. The ld. AO f urther disallowed the claim for deduction of 30% of the incentive bonus in the light of aforesaid 1997 scheme and distinguishing the decision in the case of Kiran H Shelat(supra) while the ld. CIT(A) allowed the claim in terms of the said decision. Before proceeding further, we may have a look at the relevant provisions of sec. 10(14) of the Act, which govern the exemptions of such nature. The provisions of said section read as under:
(i) any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, as may be prescribed, to the extent to which such expenses are actually incurred for that purpose;"
7.1 The Rule 2BB(1) prescribing the allowances for the purpose of sec.10(14) of the Act, reads as under:
"2BB. Prescribed allowances for the purposes of clause (14) of section
10. (1) For the purposes of sub-clause (i) of clause (14) of section 10, prescribed allowances, by whatever name called, shall be the following, namely:---
(a) any allowance granted to meet the cost of travel on tour or on transfer;
(b) any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty;
(c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit:10 ITA No.4162/Ahd/2007
Provided that free conveyance is not provided by the employer;
(d) any allowance granted to meet the expenditure incurred on a helper where such helper is engaged for the performance of the duties of an office or employment of profit;
(e) any allowance granted for encouraging the academic, research and training pursuits in educational and research institutions;
(f) any allowance granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of the duties of an office or employment of profit.
Explanation: For the purpose of clause (a), "allowance granted to meet the cost of travel on transfer" includes any sum paid in connection with transfer, packing and transportation of personal effects on such transfer."
7.2 In respect of claim for deduction of additional conveyance allowance, we are concerned with clause (c) of the aforesaid Rules. In order to allow exemption in terms of the aforesaid provisions, what is stipulated is that the expenditure should be wholly, necessarily and exclusively actually incurred in the performance of the duties of an office or employment of profit . The AO concluded that the assessee did not furnish necessary details in support of expenditure on conveyance actually incurred while the ld. CIT(A) held otherwise. The details regarding the said expenditure were not placed before us. But a number of decisions were referred to by both the sides. Here, we may have a look at the relevant decisions on the issues before us . Hon'ble Gujrat High Court in their decision in CIT vs. Chandulal J Patel ,127 ITR 786 in the context of the extant provisions of sec. 16(v) of the Act applicable for the AYs 1968-69 & 1969-70 held that the assessee provided with car by his employer and also paid conveyance allowance and the assessee by the conditions of his service required to spend the amounts out of his remuneration wholly, necessarily and exclusively in the performance of his duties, was entitled to deduction of expenses incurred on maintenance and use of car under s. 16(v) of the Act.
7.3 In CIT vs. MD Patil,229 ITR 71(Karnataka), Hon'ble High Court following their earlier decision in CIT v. K. C. Patil (I.T.R.C. No. 2 of 1989, dated April 3, 11 ITA No.4162/Ahd/2007 1992), held that the incentive bonus/commission was not granted by the Life Insurance Corporation for the purpose as set out in section 10(14) and, therefore, the assessee could not claim sustenance of 40 per cent. deduction by taking shelter under section 10(14) of the Act.
7.4 In HM Pareek vs. CIT, 257 ITR 790(Raj), Hon'ble Rajasthan High Court held that since the Development Officer of the Life Insurance Corporation is a salaried employee, the incentive bonus received by him is part of salary . Therefore, there is no question of any deduction out of that bonus amount.
7.5 In LIC vs. Union of India & Others ,260 ITR 41(Raj),Hon'ble Rajasthan High Court held that Development Officers in the Life Insurance Corporation were entitled to claim exemption under section 10(14) of the Act in respect of conveyance allowance/additional conveyance allowance upon satisfying the conditions that such allowances have actually been spent for the purpose for which they were given wholly, necessarily and exclusively in the performance of duties 7.6 In CIT vs. AK Ghosh,263 ITR 536(MP),Hon'ble MP high Court held while following the view taken by the Hon'ble High Courts of Bombay, Calcutta, Madras, Karnataka, Rajasthan, Kerala, Orissa and Punjab and Haryana that incentive bonus paid to the Development Officers working in the Life Insurance Corporation, is only a part of the salary of the assessees and the assessees are not entitled to any deduction over and above the standard deduction. As regards conveyance allowance/ additional conveyance allowance,Hon'ble High Court concluded that the said allowances are exempted under section 10(14) of the Act.
7.7 In CIT vs. Gurdeo Singh Jaggi,267 ITR 763(MP), Hon'ble MP High Court reiterated their view in AK Ghosh(supra) 12 ITA No.4162/Ahd/2007 7.8 We find that Hon'ble Bombay High Court in their decision reported in CIT v. Gopal Krishna Suri [2001] 248 ITR 819, after analyzing the terms and conditions of service of Development Officers of LIC held 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, then their performance is regarded as satisfactory. With a view to encourage such officers to rise above the minimum standard, they are given incentives. Similarly, if their performance falls below the minimum standard, then they are penalised by way of disincentives. The scheme is applicable only to the employees of the Life Insurance Corporation as a full time employee, a Development Officer receives salary and that salary is liable to decrease if his efficiency falls below a standard which is measured by the cost ratio. The remuneration payable to such officers under the rules cannot exceed certain percentage of the net eligible premium collected on the policies secured by the Development Officers. The instruction also states that the incentive bonus shall be payable only to those officers whose cost ratio is less than a stipulated percentage. Under the circumstances, the amount paid as incentive, the amount paid as remuneration as also the amounts paid after deducting the disincentives constitute salary in the hands of the employees. Such payments do not have any other legal character. Sections 16 and 17 of the Income-tax Act are wide enough to take within their ambit all the above payments which are made only by virtue of the Development Officer being an employee of the Life Insurance Corporation. These payments are in the nature of commission which is calculated at a percentage of the premium generated. Hence, they are exigible to tax as part of salary income. Once these payments are exigible to tax as salary income then 'such employees cannot claim any deduction other than standard deduction under section 16. Similarly, in the absence of any notification under section 10(14) granting exemption, the incentive bonus is liable to be assessed to tax as salary."
7.9 Similarly in the case of B.M. Parmar, Development Officer, LIC of India v. CIT [1999] 235 ITR 679 (P & H), the Hon'ble High Court held incentive bonus is assessable under the head 'Salaries' and not under the head 'Profits and gains of business or profession'. It was further held that deduction under section 16(i) of the Act is admissible under the head 'Salaries' and no separate deduction on account of expenditure is permissible.
13 ITA No.4162/Ahd/20077.10 Likewise ,the Hon'ble Madras High Court in the case of CIT v. P. Arangasamy [2000] 242 ITR 563 have held :
"Profits, fees, commissions and perquisites referred to in section 17(1)(iv) may be in lieu of or in addition to regular salary or wages. They are all as such taxable as regular salary or wages. A lump sum paid in lieu of a taxable benefit is equally taxable. The payment must be a reward or return for his acting as an employee. Incentive bonus cannot in any view be properly regarded as 'profit' for the earning of which expenditure is required to be incurred and which expenditure can be claimed as a deduction. It can at best be regarded as a commission as it is calculated as a percentage of the premium generated. No deduction thereafter is permissible while computing the total income of the assessee. Having regard to the scheme providing for these payments which shows in abundantly clear terms that the incentive is an addition to the normal remuneration for performance at a level higher than the minimum it is only an addition to the salary. Incentive bonus paid is not only to Development Officers of the Life Insurance Corporation but to workers in almost every large industry and such incentive bonus has not been regarded as 'profit'."
7.11 A Full Bench of the Karnataka High Court in the case of CIT v. M.D. Patil [1998] 229 ITR 71 held thus:
"...keeping in view the aforesaid discussion, since a Development Officer receives the incentive bonus/commission based on the insurance business promoted by him but in addition to the salary payable to him, therefore, the additional income so derived by the Development Officer during the course of and pursuant to the terms and conditions of his employment can be brought to tax only under the head of income 'Salary' and not under the head 'Profit and gains of business or profession' and further the only deductions permissible under the provisions of the Act are to be those as specified in section 16 of the Act."
7.12 In this context it is worth referring to a decision rendered in the case of CIT v. Ramlal Agarwala [2001] 250 ITR 828 (Cal), wherein the Division Bench referred to a 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.14 ITA No.4162/Ahd/2007
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"
7.13 We may also refer to another decision rendered in the case of CIT v. H.S. Sandhu [1999] 237 ITR 167 (P & H). While dealing with question which pertains to allowing of deduction of 40 per cent in regard to incentive bonus the Bench expressed the view as under:
"Question No.1 is concluded by the judgment of this court in Income-tax References Nos. 105 and 106 of 1986, decided on October 27, 1998, in the case of B.M. Parmar, Development Officer, LIC v. CIT [1999] 235 ITR 679, wherein the question has been answered in favour of the Revenue and against the assessee. In that view of the matter, this question is answered in the negative, i.e., in favour of the Revenue and against the assessee."
7.14 In the case of CIT v. T.K. Ginarajan, Development Officer, LIC of India [2002] 253 ITR 463, theHon'ble High Court of Kerala held as under:
"We are unable to accept the finding of the Tribunal that 30 per cent of the incentive bonus represents the expenditure at the hands of the assessees. The Tribunal has stated that the assessees should have expended 30 per cent on account of their activities which are in the nature of training agents, maintaining establishment for the same, etc. We do not find any material to support this finding of the Tribunal. The Tribunal has not gone into the nature of duties of the Development Officers, for which they are paid usual salary. We requested counsel for the assessees to clarify the nature of duties of the Development Officers and from the nature of duties explained by him, we feel what was stated by the Tribunal was part of the normal duties of the Development Officers for which they are paid salary. It is not out of place to refer to the details furnished in the decision of the Karnataka High Court, wherein the High Court has referred to Schedule III of the Regulations which provides for payment of travelling allowances and reimbursement of other expenses, incurred by the Development Officers in the normal discharge of their duties. Therefore, we find that the incentive bonus which is a share of premium on extra business canvassed is an additional payment whether it can be called as 'commission', as was done by the Bombay High Court, or profit in lieu of salary or in addition 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 15 ITA No.4162/Ahd/2007 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.
7.15 Following the decisions of the High Courts and 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 Hon'ble Gujarat High Court, Hon'ble MP High Court in A.K.Ghosh & Others(supra) held that incentive bonus was only a part of the salary of the assessees and the assessees are not entitled to any deduction over and above the standard deduction. It was further concluded that the proposition canvassed by the assessees that incentive bonus is 'profit' and the profit in the hands of the employees has to be computed after deducting expenditure is against the principle laid down in the decision of the Supreme Court in Karamchari's case [2000] 243 ITR 143."
7.16 In CIT v. Branch Manager, LIC of India [2008] 298 1TR 358 (P&H) Hon'ble High Court in the context of Reimbursement of Expenses Scheme, 1997, followed the view taken by Hon'ble Rajasthan High Court in Life Insurance Corporation of India's case [2003] 260 ITR 41, holding that the Development Officers in the Life Insurance Corporation were entitled to claim exemption under section 10(14) of the Act in respect of conveyance allowance/additional conveyance allowance upon satisfying the conditions that such allowances have actually been spent for the purpose for which they were given wholly, necessarily and exclusively in the performance of duties.
7.17 Now coming to the decision of the Hon'ble jurisdictional High Court in Kiran H Shelat(supra). In this decision, the Hon'ble jurisdictional High Court held that the Tribunal committed an error in holding that the entire incentive bonus earned by the assessee as Development Officer of the Life Insurance Corporation of India was part of salary within the ambit of section 17(1)(iv) of the Act and the only deduction admissible was under section 16(i) of the Act. Accordingly, Hon'ble High Court held that the assessee was entitled to claim such deduction but only to the extent of reimbursement of expenses actually incurred 16 ITA No.4162/Ahd/2007 up to the maximum limit of thirty per cent of the incentive bonus earned by the assessee. The ld. DR pointed out that this decision related to AYs 1983-84 to 1989-90 that is much before the insertion of Incentive Bonus Scheme- 1997 & Reimbursement Scheme of Expenses-1997 for Development Officers of LIC and that there was nothing in the said decision to suggest that development Officers were also entitled to deduction of conveyance allowance besides incentive bonus nor such an issue relating to conveyance allowance was raised before the Hon'ble High Court. However , we find that co-ordinate Benches of the ITAT while referring to the Reimbursement Scheme ,1997 in their decision dated 11.9.2006 in ITA no.1717/Ahd./2006 for the AY 2003- 04 in the case of Amratlal Ravjibhai Patel, decision dated 27.11.2007 in ITA nos.2960 to 2966 for the AYs.2001-02 to 2005-06 in the case of Nileshbhai Umanglal Shah and decision dated 6.10.2006 in ITA nos.1767-1768/Ahd./2006 for the AYs 2002-03 & 2003-04 in the case of Shri Mukeshbhai B Desai, followed the decision in the case of Kiranbhai H Shelat(supra) and allowed the claim for deduction of expenditure to the extent of 30% of the incentive bonus. Our attention was also drawn to a decision dated 28.11.2007 in Tax Appeal nos. 641 & 642 of 2007 in the case of Sheri Mukeshbhai B Desai, wherein the Hon'ble jurisdictional High Court did not find any mistake in the approach of the Tribunal in following the decision in Kiranbhai H Shelat(supra) in allowing the claim of the assessee for expenditure incurred by the Development officers in the course of their duties to the extent of 30 % of the incentive bonus.
8. In the light of aforesaid judicial view and considering the facts and circumstances, even though a majority of the Hon'ble High Courts have taken the view that incentive bonus being part of salary, a Development Officer of LIC is not entitled to any deduction other than what is provided in sec. 16 of the Act, Hon'ble jurisdictional High Court in their aforesaid decision dated 28.11.2007, following their own decision in Kiranbhai H Shelat(supra) allowed the claim of the 17 ITA No.4162/Ahd/2007 assessee. In these circumstances, since the additional conveyance allowance provided by the employer to the assessee for the performance of his duties falls within the provisions of section 10(14) read with Rule 2BB(1)(c) of the IT Rules 1962 while deduction of expenditure to the extent of 30% of incentive bonus has to be allowed in terms of the aforesaid decisions of the Hon'ble jurisdictional High Court , we have no alternative but to hold that the assessee is entitled to deduction of expenditure actually incurred to meet expenses wholly, necessarily and exclusively incurred in the performance of his duties .However, since relevant details of the expenses have not been placed before us, the AO shall verify the details of expenses and allow the claim of the assesseee to the extent actually incurred by the assessee in terms of provisions of sec. 10(14) of the Act as also in the light of aforesaid binding decision of Hon'ble jurisdictional High Court. Subject to these directions, ground nos. 1 to 4 in the appeal are dismissed.
9. Next ground no.5 relates to disallowance of Rs. 9,540/- on account of interest. Tthe AO noticed on perusal of the computation of total income that the assessee claimed an amount of Rs.16,440/- on account of interest on borrowed capital for house property. The assessee enclosed a certificate issued by LIC confirming the interest payment of Rs.6,900/- on the housing loan. However no evidence for the balance amount of Rs.9,540/- was filed with the return. During the course of assessment proceedings, the assessee was asked to produce details of investment made in the house property, certificate of interest payment from the LIC and copy of receipt of property tax paid. The assessee submitted that the house was not completed during the year. He furnished the first house-lax receipt of Rs.1,575/- for the financial year 2005-06 dated 07.11.05. Since the construction of house was not completed in the assessment year 2005-06 and the assessee did not produce any evidence of incurring the expenditure on payment of interest to the extent of Rs. 9,540/-, the AO rejected the claim of the assessee in terms of last proviso to section 24(b) of the Act.
18 ITA No.4162/Ahd/200710. On appeal, the learned CIT(A) adjudicated the issue as under:-
"7. In the Ground No-5, the Appellant has raised the contention that the AO has erred in denying the partial claim of Rs.9,540/- out of claim of Rs.16,440/- made in the return of income on interest on housing loan.
7.1 The AO disallowed the partial claim of Rs.9.450/- for deduction of interest on Housing Loan for want of evidences. The appellant submitted that the evidences were filed before the employer and therefore it was not possible to obtain copies immediately. The AR argued that the AO did not allow proper opportunity to submit the same and therefore it remained to be submitted. The appellant therefore submitted the same during the course of appellate proceedings. The AR argued that as such the claim was certified by the employer in Form No-16 and therefore it is not a fresh or an additional evidence and the same may be considered on merits.
7.2 I have considered the facts of the case and the claim of the appellant. Since the appellant has filed evidences in support of entire interest paid on housing loan, the partial disallowance of Rs.9,540/- made by the AO is uncalled for. The appellant's Ground No.5 is allowed."
11. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR pointed out that the ld. CIT(A) allowed the claim of the assessee ,even when no evidence was submitted before the AO in respect of claim for deduction of interest while the construction of property was not completed in the year under consideration. There is nothing to suggest that the assessee completed the construction of the property in the year under consideration nor the ld. CIT(A) recorded any findings on that aspect. On the other hand, the ld. AR merely supported the findings of the ld. CIT(A).
12. W e have heard both the parties and gone through the facts of the case. As is apparent from a mere glance at the impugned order, the ld. CIT(A) did not record any findings on the 19 ITA No.4162/Ahd/2007 facts pointed out by the AO that the assessee had not completed the construction of the property in the year under consideration. In these circumstances, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to the file of the AO with the directions to allow a final opportunity to the assessee for establishing their claim in terms of provisions of the sec. 24(b) of the Act and thereafter, readjudicate the issue afresh in accordance with law, after allowing sufficient opportunity to the assessee, bringing out clearly the year of completion of construction of the said property. With these observations, ground no. 5 in the appeal of the assessee is disposed of.
13. Ground no. 6 being mere prayer, does not require any separate adjudication while no additional ground having been raised in terms of the residuary ground, accordingly, these grounds are dismissed.
14. In the result, appeal is partly allowed, but for statistical purposes.
Order pronounced in the court today on 15-10-2010
(MAH AVIR SINGH) (A N P AHUJ A)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated : 15-10-2010
Copy of the order forwarded to:
1. Shri Jaysukh Ratilal Patel, At Rampore, PO Sukesh, Tal:
Killa Pardi - 396 125
2. ACIT, Vapi Circle, Vapi
3. CIT concerned
4. CIT(A), Valsad
5. DR, Bench-C, ITAT, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD 20