Jammu & Kashmir High Court
R.K. Salhotra vs Ito on 30 August, 2002
Equivalent citations: [2002]125TAXMAN624(NULL)
ORDER
This is an appeal preferred under section 260A of the Income Tax Act. The short question of law which has been projected in this appeal is whether the incentive bonus, which is allowed to a Development Officer of Life Insurance Corporation of India is to be taken into consideration for assessing the total taxable income of such an officer and if it is to be calculated, then the further plea which has been put across is that whether only such portion of the allowance/bonus which is certified as having been incurred by the concerned officer in the performance of his duties should be taken as exempted under the provisions of section 10(14) of the aforesaid Act. The other plea which has been put across is that the Central Board of Direct Taxes issued a circular giving certain directions and that acquired force of law and notwithstanding the fact that this may be contrary to the provisions of the Income Tax Act, nevertheless, this can and in fact, has been given effect to. Thus, the issues which are required to be gone into in the present case are :
(i) Whether the incentive bonus given to the Development Officers of the Life Insurance Corporation of India is to be counted for the purposes of deduction of tax;
(ii) Whether at least that much portion of the incentive which has been incurred by the Development Officer for procuring business for the Corporation is exempt;
(iii) That as to whether while deciding the question posed at serial Nos. (i) and (ii) above, the circular issued by the Central Board of Direct Taxes is required to be taken note of and whether this circular has any force of law and effect over and above the provisions contained in the Income Tax Act.
So far as the first question is concerned, it is submitted by the respondents that this stands answered by a Division Bench of Punjab and Haryana High Court in the case of B.M. Parmar, Development Officer, Life Insurance Corpn. of India v. CIT (1999) 235 ITR 679 (P&H). Similar view has been expressed by the Madras High Court in the case of CIT v. E.A. Rajendran (1999) 104 Taxman 587 (Mad).
2. It is submitted that the above two decisions are directly on the point. It has been observed that a Development Officer of Life Insurance Corporation of India is a whole time employee of the Corporation. He is supposed to promote and develop life insurance business for the Corporation. It has also been observed that the primary concern and the function is to secure more business for the Corporation. Revenue thus urges that if in the performance of duty which is taken as the normal duty, some incentive is given, then that has to form a part of the taxable income. The relevant observations made by the Punjab and Haryana High Court in this regard are being reproduced below :
"Development Officers of the life Insurance Corporation of India are whole-time employees of the Life Insurance Corporation of India. They are employed for promoting and developing life insurance business. Their primary concern and functions are to secure more business for the Life Insurance Corporation of India. It cannot, therefore, be said that while working in the field they are doing work in a different capacity. Whatever income is received by the Development Officers from the Life Insurance Corporation of India, is by way of salary and is to be assessed under the same head...."
As indicated above, the High Court of Madras has also expressed similar view in the case of E.A. Rajendran (supra).
It would be worthwhile to notice here that the income-tax Tribunal functioning at Amritsar has honoured the view expressed by the Punjab and Haryana High Court. The judgment in question was noticed and decision was given by the Tribunal following the view expressed by the Punjab and Haryana High Court. So far as this aspect of the matter is concerned, we are of the opinion that the Tribunal at Amritsar is functioning within the territorial limits of Punjab and Haryana High Court and it was bound by the view expressed by the High Court and has rightly followed the judgment given by the Punjab and Haryana High Court.
3. The learned counsel for the appellant, however, submits that a different view has been expressed by the Gujarat High Court in the case of CIT v. Kiranbhai H. Shelat (1999) 235 ITR 635 (Guj). It is submitted that in this judgment a view has been expressed that the portion of incentive bonus actually spent by a Development Officer should not constitute part and parcel of salary for the purpose of assessing the tax.
4. The above judgment would be commented upon while dealing with the second and third question formulated above because it deals with the same concept as has been put across on the basis of circular issued by the Central Board of Direct Taxes.
5. The Central Board of Direct Taxes, as indicated above, has issued a circular. This has been reproduced in the grounds of Appeal. For facility of reference, this is being noticed below :
"...Sub: Incentive Bonus paid to Development Officers.
I am directed to refer to your Letter No. Mktg./DO/163 dated 5-1-1996, and the scheme submitted in pursuance to discussions the officers of the Corporation had with the CBDT when representatives of National Federation of Insurance Field Workers of India were also present. Your request for notifying "Incentive Bonus" under sub-clause (14) of section 10 of the Income Tax Act cannot be acceded to. It may, however, be added that the portion of the allowance certified as having been actually incurred in the performance of duties shall be exempt under the above provision...."
6. It is on the basis of the last three lines of the above circular, urged that once it is shown that a particular portion of the allowance is certified as having been actually incurred in the performance of duties, then it would be exempt under the provisions of section 10(14) of the Act. It is submitted that once a circular is issued, the Tribunals are bound to abide by the conditions laid down in the said circular. For this, reliance is being placed on a judgment given by a Division Bench of Kerala High Court reported as CIT v. Punalur Paper Mills Ltd. (1988) 170 ITR 37 (Ker). It is also urged that once a point of view is put before a judicial or quasi-judicial authority, then that has to be taken note of. For this, reference is being made to three judgmentsOm Prakash Virendra Kumar v. CST (1994) 94 STC 209 (All), CST v. Prakash Chand Jain (1992) 87 STC 318 (All) and Smt. Shree Kumari Mundra v. CIT (1997) 228 ITR 548 (Cal).
7. So far as the above argument is concerned, there can be no dispute to the fact that the judicial or quasi-judicial authorities are supposed to meet an argument which has been put across by a litigant before the said authority. For this, it was not necessary to cite an authority. This is a principle on which the judicial system in this country works. Therefore, it can safely be said that whenever a point of view is put across before a judicial or quasi-judicial authority, then that has to be taken note of.
8. The question posed at Serial No. (iii) be taken note of :
In Punalur Paper Mills Ltd.'s case (supra), a Division Bench of Kerala High Court has expressed an opinion that the circulars issued by the Central Board of Direct Taxes have force of law. The reason given for this was that these circulars are issued in the exercise of power conferred under section 119 of the Income Tax Act, 1961. These circulars, it was observed are in the nature of administrative relief. At page 40 of the judgment, it was observed that it is not open to the department to contend, even in cases where the circular goes beyond the terms of the section, that the circular has no legal effect or should not be given effect to. The circular would go to the assistance of the assessees. It is settled law that the circular cannot impose any burden on the taxpayer. But, by the issue of a circular, the rigour of the law can be relaxed by giving administrative relief...." it was observed that proposition in this regard is well settled. The decisions of the Supreme Court which were referred to in this regard are duly noticed at page 40 of the judgment. What was observed in this regard by the Division Bench of Kerala High Court is being reproduced below :
"Apart from the fact that such circulars are binding on the officers of the department, even if the circulars are relied on for the first time in the High Court during the course of hearing, the assessee will be entitled to the benefit afforded by the circular. The court is bound to take note of the circular. These propositions are well settled by a series of decisions of the Supreme Court as well as of the High Courts (Vide Navnit Lal C. Javeri v. K.K. Sen, AAC (1965) 56 ITR 198 (SC), Ellerman Lines Ltd. v. CIT (1971) 82 ITR 913 (SC), Tata Iron & Steel Co. Ltd. v. N. C. Upadhyaya (1974) 96 ITR 1 (Bom), F.C. Agarwal v. CIT (1976) 102 ITR 408 (Gau), Navnitlal Ambalal v. CIT (1976) 105 ITR 735 (Bom), CWT v. Gainnion India (P) Ltd. (1981) 130 ITR 471 (Bom) and Addl. CIT v. Mrs. Avtar Mohan Singh (1982) 136 ITR 645 (Del). This court has also taken the same view in a series of decisions. They are : Rajarajeswari Weaving Mills v. ITO (1978) 113 ITR 405 (Ker), CIT v. B.M. Edward, India Sea Foods (1979) 119 ITR 334 (Ker) (FB) and CIT v. T.S. Venkiteswaran (1979) 120 ITR 675 (Ker), it is too late in the day for the revenue to contend that the circular issued by the Board of Revenue is only an administrative direction or that it will not bind the department or that it shall not be given effect to, since it goes. As stated, the circular "supplants" the law and not "supplements" the law."
In this regard, it would also be apt to refer to a Division Bench judgment of this court in the case of CIT v. Abdul Ahad Najar (2001) 114 Taxman 655 (J&K). The view expressed was that the circulars issued under section 119 of the Income Tax Act, 1961 are binding and effective and can be taken note of. Another decision reported as UCO Bank v. CIT (1999) 237 ITR 889 (SC) is a decision of the Supreme Court of India. This is for the same proposition. It was observed that the power to issue circulars has been confirmed with a view to see that there is proper implementation of the statute.
9. In view of the above, the question posed at Serial No. (iii) is answered in favour of the appellant. We hold that the circulars issued by the Central Board of Direct Taxes are binding on the department and have the force of law.
10. The other two issues as projected may now be examined :
As indicated above, the other two issues have been considered by, the Punjab and Haryana High Court and also by the Madras High Court. The Gujarat High Court, has however, taken a view to the contrary. What been said by the Punjab and Haryana High Court has already been noticed above.
The decision given by the Gujarat High Court be now analysed.
11. The issue was considered by the Gujarat High Court in the case of Kiranbhai H. Shelat (supra) and the fact that the view expressed is in line with the view taken by the Central Board of Direct Taxes can be taken note of. In the above case, the precise question was the same as was in the present case. It was noticed that the Life Insurance Corporation of India is a statutory body; it grants incentive bonus to its Development Officers. It was observed that this bonus has two components. It has to be paid when extra business is procured by the Corporation. The Corporation put across its point of view before the Central Board of Direct Taxes and submitted that the incentive bonus is granted to an employee with a view to meet expenses that might have been incurred by him as a Development Officer in the discharge of his duties. It was accordingly held that where expenses are actually incurred by a Development Officer from the component which may fall under section 2(24) and is to be treated as income, then it is the profit element alone which has to be taken note of for the purposes of taxation under the Income Tax Act. The relevant observations made in this regard are being quoted below :
".......... However, the facts proved clearly indicate that a part thereof was granted to the employee with a view to meet the expenses that might have to be incurred by him as Development Officer for the discharge of his duty. Therefore, when the expenses are actually incurred by the Development Officer, from that component which may fall under section 2(24) and be treated as income, in cases where such income does not fall in the exemption category under section 10(14), it is the profit element alone which remains with the assessee that can be treated as salary, being profit in addition to salary or wages ......."
At page 658 of the judgment, it was observed as under :
"..... It would be the right of a citizen to ensure that any part of his receipts as is really not his income in any sense of the word intended for taxing purposes, is not taken away by taxing that portion. Therefore, working out the income which can be assessed to tax by making substractions of the non-income part of the receipt is not a matter of legislative grace but, the citizen's own right unlike effecting statutory deductions from the income so worked out to which the taxing law is intended to reach ......."
It was accordingly held :
"........ we hold that the Tribunal committed an error in holding that no deduction was available to the assessee as expenses out of the incentive bonus received by him as a Development Officer of the Life Insurance Corporation of India and further hold that the assessee was entitled to claim such deduction only to the extent of reimbursement of expenses actually incurred upto the maximum limit of thirty per cent of the incentive bonus earned by the assessee ......."
12. The aforementioned view expressed by the Gujarat High Court is in consonance with the circular issued by the Central Board of Direct Taxes.
Another decision which deals with the issue to some extent is CIT v. Sheo Raj Bhatia (1999) 235 ITR 523 (Raj). The incentive bonus paid by the Life Insurance Corporation to the Development Officers was treated as part of remuneration but what was paid to the Agents of Life Insurance Corporation was held to be not so. This was on the strength of a circular issued by the Central Board of Direct Taxes. The circular in the above case was issued on 22-9-1965. The ratio of judgment given in above case would apply to the facts of this case also. This is to the effect that if a circular is available, then that has to be given effect to. The circular in the above case was given effect to in case of agents of Life Insurance Corporation. As no such circular existed in the case of Development Officers, benefit was not given to them. But, now a circular exists even for the Development Officers of the Corporation, and, therefore, the ratio of decision given in Sheo Raj Bhatia's case (supra) holding that if a circular is there then that has to be given effect to, would apply to the facts of this case also.
13. We are accordingly of the view that the circular in question would have impact on the issue and this has to be given effect to.
14. The impact of the said Circular was not considered by the Punjab and Haryana High Court or for that matter by the Madras High Court. Therefore, the two authorities which have been cited by the revenue may not be of much assistance. On the other hand, the view expressed by the Gujarat High Court in the case, referred to above, takes notice of the view put across by the Life Insurance Corporation before the Central Board of Direct Taxes and as a matter of fact, the Board has chosen to take a decision by issuing a circular in this regard, which circular stands noticed above.
15. We accordingly prefer and follow the view expressed by the Gujarat High Court. This is because, the judgment in the above said case takes notice of the Circular issued by the Central Board of Direct Taxes whereas, the circular in question was not brought to the notice of Punjab and Haryana High Court, and, therefore, that court was not in a position to comment upon the impact of the said circular.
16. We are accordingly of the view that, that much component which is actually spent by a Development Officer when he procures extra business for the Corporation would be exempt. For this, the procedure as indicated by the respondent authorities can be taken note of. In the alternative, this has to be established as a fact that some amount out of the incentive bonus has actually been spent on account of discharge of duties or to procure extra business for the Corporation.
17. The questions posed at Serial No. (i) and (ii) are answered accordingly.
18. This appeal is accordingly allowed. For determining the limited issue as to what was the amount of incentive bonus and out of this amount how much was actually spent by the concerned officer for procuring extra business, the matter is sent back to the Income Tax Officer, who would go into the above aspect of the matter and it is only after the proof of factual foundation referred to above, the assessee would be eligible to seek benefit of exemption and also of the circular issued by the Central Board of Direct Taxes.
Disposed of accordingly.