Income Tax Appellate Tribunal - Jabalpur
S.N. Mishra vs Income Tax Officer. Ito V. Prakash Kumar ... on 25 November, 1998
Equivalent citations: [1999]70ITD539(JAB)
ORDER
G.D. Agrawal, A.M.
1. All these appeals/cross-objections are directed against the various orders of Dy. CIT(A), CIT(A), Jabalpur and CIT(A)-II, Raipur. Since the common issues are involved in all the appeals/cross-objections, they are being disposed of together for the sake of convenience.
2. The facts of the case are that all the above assessees are Development Officers of Life Insurance Corporation of India (hereinafter referred as 'LIC'). Apart from the salary income, they received conveyance allowance, additional conveyance allowance and incentive bonus. The assessees claimed deduction in respect of conveyance allowance and additional conveyance allowance under s. 10(14) of the IT Act, 1961. They have also claimed 40 per cent out of incentive bonus as expenditure incurred for earning incentive bonus. The AO did not accept the claim of the assessee. On appeal in some of the cases, the CIT(A) has accepted the contention of the assessees, while in other confirmed the order of the AO. The Revenue is in appeal where the CIT(A) accepted the assessee's contention, while the assessees are in appeal where the order of the AO have been upheld. Thus, in all the above appeals, following two questions are involved :
(a) Whether the conveyance allowance/additional conveyance allowance received by the Development Officers of LIC are exempt under s. 10(14) of the Act ?
(b) Whether the Development Officers of LIC are entitled to 40 per cent deduction of the incentive bonus received by them as an expenditure incurred for earning incentive bonus ?
3. At the time of hearing before us, the learned Departmental Representative argued at length. His arguments are summarized as below :
(a) Regarding conveyance allowance/additional conveyance allowance :
That the assessees are salaried employees of LIC. They received the conveyance allowance/additional conveyance allowance from the employer. Deduction under s. 10(14) of the Act, as amended w.e.f. 1st April, 1989, is permissible only to the extent the Central Government specify for this purpose and which is actually incurred by the assessees in performance of the duties of the office. Since the Government has not specified the conveyance allowance/additional conveyance allowance to be exempt for the purpose of s. 10(14), the assessees cannot be allowed deduction as claimed. He alternatively stated that in a Circular dt. 18th March, 1991, issued by the LIC after consultation with CBDT has specified certain expenditure, which can be considered to have been incurred by the Development Officers for the purpose of their employment. He stated that in any case the deduction allowed, if any, such not exceed the limit specified in this circular of LIC dt. 18th March, 1991.
(b) Regarding incentive bonus That all the Development Officers are full-time employees of the LIC. As per the IT Act, 1961, the only deduction permissible in the case of salaried employee is standard deduction under s. 16 of the Act. That the Development Officers are not required to incur any extra expenditure for earning incentive bonus. The CBDT in Instruction No. 1774, dt. 14th October, 1987, has clarified that in the case of Development Officers, no other deductions except the deduction permissible under s. 16(1) is to be allowed. He further stated that the case of Development Officers are different than the LIC agents. Therefore, any circular for allowing ad hoc deduction in the case of LIC agents would not be applicable in respect of Development Officers. In support of this contention, he relied upon the following deductions :
(1) K. A. Choudhary vs. CIT (1990) 183 ITR 29 (AP);
(2) CIT vs. Govindchandra Pani (1995) 213 ITR 783 (Ori);
(3) CIT vs. B. Chhinnaiah (1995) 214 ITR 368 (AP);
(4) CIT vs. Shivraj Bhatiya (1997) 227 ITR 7 (Raj);
(5) R. N. Verma vs. CIT (1997) 227 ITR 24 (Raj);
(6) CIT vs. M. D. Patil (1998) 229 ITR 71 (Kar) (FB); and (7) LIC Class I Officer Association vs. LIC (1998) 229 ITR 510 (Bom).
4. Shri H. S. Shrivastava, Shri A. K. Shrivastava, Shri Vijay Gupta and Shri G. N. Purohit, learned counsels for the assessees, argued at length. We hereby summarise the arguments of the learned counsels are under.
Arguments of Shri H. S. Shrivastava, Advocate He submitted that the Development Officers have dual capacity, one as salaried employee of the LIC and other as the agent/representative of LIC. The activity and the services rendered by the Development Officers are not comparable with any other employees. The Development Officers have no fixed duty hours and no office work is required to be performed by them. They have only field duty. The Development Officers are required to recruit new agents and on their recommendations, the agents are appointed by LIC. The agents are trained by the Development Officers. The agents work under the direct control and the guidance of Development Officers. The incentive bonus is paid for their professional work. Incentive bonus is worked out on the basis of premium collected on the new insurance policies sold by them through agents. For rendering the proper services, the Development Officers are required to incur lot of expenditure, which are not reimbursed by the LIC. Therefore, the deduction for such expenditure incurred by the Development Officers for earning of incentive bonus should be allowed. He stated that income-tax is chargeable on income and not on gross receipts. If the deduction for the expenditure incurred in earning of incentive bonus is not allowed, it would amount to taxing the gross receipt, which would be violation of the constitution itself. In support of this contention, he relied upon the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Kiranbhai H. Shelat/Chiman Bhai S. Patel vs. CIT (1998) 99 Taxman 63 (Guj).
That conveyance allowance and additional conveyance allowance is the reimbursement of the expenditure incurred by the Development Officers in performance of duties. The Government of India in Notification No. GSR 606(E), dt. 9th June, 1989, has notified that the expenditure incurred on conveyance in performance of duties of an office shall be exempt under s. 10(14). He stated that the LIC allowed conveyance allowance only after considering the work done by the Development Officers. There are strict norms for allowing such conveyance allowance. Thus, the conveyance allowance is the expenditure actually incurred by the Development Officers and it has already been notified by the Government to be exempt under s. 10(14). He, therefore, stated that the entire conveyance allowance should be exempt under s. 10(14). He also relied upon the decision of Tribunal Cochin Bench in the case of Thomas Vaidyan vs. ITO (1997) 63 ITD 324 (Coch).
Arguments of Shri Arun Shrivastava He is addition to arguments advanced by Shri H. S. Shrivastava, Advocate, stated that before taxing any receipt the nature of receipt should be considered and from such receipt the actual expenditure should be deducted to work out the income the only income portion of the receipt can be charged to income-tax. He further stated that the incentive bonus is not the same bonus, which is allowed to other employees. Sec. 32 of the Payment of the Bonus Act debar payment of bonus to the employees of LIC. Thus, incentive bonus to the Development Officers are not the same bonus, which is paid under the Payment of Bonus Act. The incentive bonus is in fact, the payment made to the Development Officers on the basis of their performance. There is fixed system for calculation of incentive bonus. The working of Development Officers is altogether different than any other employees either in Government or private sector. The Development Officers incur expenditure for procuring business and, therefore, such expenditure should be allowed as deductions.
Arguments of Shri Vijay Gupta, Advocate Shri Gupta stated that there is no employer-employee relationship between Development Officers and the LIC for procurement of new business and there is no prescribed rules or method, how the Development Officers are to perform their activities. Therefore, the incentive bonus received by the Development Officers is not the part of the salary received by the Development Officers. He stated that the incentive bonus, even if considered as part of salary, it can be considered only as profit in lieu of salary under s. 17(1)(iv) of the IT Act, 1961. The word "Profit" denotes net gain to the assessee i.e., receipt minus expenditure. Therefore, under s. 17(1)(iv), the only net profit i.e., incentive bonus reduced by the expenditure incurred can be taxed and not the gross receipt in the form of incentive bonus. Regarding conveyance allowance and additional conveyance allowance, his arguments are similar to that of Shri H. S. Shrivastava. He also relied upon the decision of Tribunal Nagpur Bench in the case of V. H. Jajoo, Amravati vs. ITO, ITA No. 795/Nag/1994.
Arguments of Shri G. N. Purohit, Advocate He stated that the incentive bonus is neither income from salary nor profit & gains of the business, but it is income from other sources. While determining income from other sources, the expenditure incurred on earning such income should be deducted. Therefore, from the incentive bonus, the expenditure incurred by the Development Officers for earning such income, the expenditure incurred should be reduced. He further stated that even if the incentive bonus is considered as profit in lieu of salary, then also only the net profit should be taxed and not the gross receipt. In support of this contention, he relied upon the decision of the Hon'ble Gujarat High Court in the case of Chiman Bhai S. Patel vs. CIT (supra).
In the rejoinder, it is stated by the learned Departmental Representative that the Development Officers are full-time employee of the LIC. They procure business through agents and on such business procured by them, the incentive bonus is allowed. It is only part of salary and no other deduction except standard deduction under s. 16(1) is permissible. Even if it is considered as profit in lieu of salary, the entire bonus received by them is profit in lieu of salary and no further deduction is permissible.
5. We have considered the arguments of both the sides and have perused the material brought to our knowledge. In all the above appeals whether by the Revenue or by the assessees, mainly two issues are involved-(i) Whether the conveyance allowance or additional conveyance allowance received by the Development Officers of LIC are exempt under s. 10(14) of the Act; (ii) Whether 40 per cent deduction is permissible out of incentive bonus received by the Development Officers towards the expenditure incurred by them.
6. The assessees have claimed the conveyance allowance and additional conveyance allowance to be exempt under s. 10(14). Sec. 10(14)(i) at the relevant time reads as under :
"(i) any such special allowance or benefit, not being in the nature of a perquisite within the meaning of cl. (2) of s. 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 the Central Government may, by notification in the Official Gazette, specify, to the extent to which such expenses are actually incurred for that purpose;"
From the above, it is clear that deduction can be claimed under s. 10(14)(i) - if the following conditions are satisfied :
(a) the amount is paid by way of special allowance or benefit;
(b) the special allowance or benefit is not in the nature of perquisite within the meaning of s. 17(2);
(c) the amount is paid to meet the expenses wholly, necessarily and exclusively incurred in performance of duties of an office or employment of profit;
(d) the amount is specified by Central Government by way of notification; and
(e) the expenses are actually incurred by the assessee.
Let us examine whether the above conditions are satisfied in the case of the assessee before us.
(i) Conveyance allowances/additional conveyance allowance is certainly in the nature of special allowance or benefit provided to the assessees. Thus, first condition is duly satisfied.
(ii) The allowance or benefit are not in the nature of any of the perquisite provided in s. 17(2) of the IT Act, 1961.
(iii) The Development Officers are full-time employees of the LIC. They are categorised as Class II Officers. As per the instruction of LIC, a Development Officer has the following duties and obligations to perform :
"(4) Duties and obligations :
(A) His duties as a Development Officer shall be, -
(i) to develop and increase the production of life insurance business in a planned way as far as may be practicable in the area that may be allotted to him or in which he is allowed to work from time to time through the agents placed under his supervision by the Corporation and in consonance with the corporated objectives of the Corporation;
(ii) to guide, supervise and direct the activities of the agents, placed under his supervision by the Corporation;
(iii) to introduce suitable persons to the Corporation for appointment as new agents;
(iv) to act generally in such a way as to activise existing agents and motivate new agents, so as to develop a stable agency force;
(v) to render all such services to policyholders as conducive to better policy so as servicing;
(vi) to carry out investigation of claims, revival of lapsed policies and liaison work in connection with salary savings scheme business;
(vii) to perform such other duties as may be entrusted or assigned to him from time to time; and
(viii) he shall ensure that the agents in his organisation conduct their work and/or business strictly in accordance with the provisions of the Insurance Act, 1938, rules framed thereunder and such other rules and regulations that the Corporation may issue from time to time and the Life Insurance Corporation of India (Agents) Regulations, 1972, as amended from time to time and in the best interest of the Corporation.
(B) & (C) ........"
To fulfil the above duties, the Development Officers are required to travel extensively within the area allotted to them. Such duties cannot be fulfilled while sitting in the office. They have to visit to various policyholders and also to the prospective policyholders. No vehicle is provided to them from the LIC. However, they are provided the loan to purchase the vehicle. The conveyance allowance/additional conveyance allowance is to compensate for the expenses incurred in travelling for the performance of their duties as the Development Officers. Therefore, we hold that the conveyance allowance/additional conveyance allowance is granted to meet the expenses incurred in performance of duties of an office or employment.
7. The Government of India in Notification No. GSR 606 (E), dt. 9th June, 1989, has specified the conveyance allowance in performance of duties to be exempt under s. 10(14)(i). For the sake of completeness, we reproduce the notification as under :
"II. In exercise of the powers conferred by sub-cl. (i) or cl. (14) of s. 10 of the IT Act, 1961 (43 of 1961), the Central Government hereby specified any allowance granted to meet the expenditure incurred on conveyance in the performance of the duties of an office or employment of profit, for the purposes of the said sub-clause for the asst. yr. 1989-90 and subsequent assessment years. [Notification No. GSR(E), dt. 9th June, 1989].
Thus, the fourth condition is also satisfied, because the conveyance allowance has been specified by the Government to be exempt under s. 10(14) for asst. yr. 1989-90 and subsequent assessment years. The assessment year involved in all the above appeals before us are asst. yrs. 1989-90 to 1992-93. Thus, the above notification would be squarely applicable in respect of all the years before us.
That the fifth and the last condition is that the amount received as an allowance should have been actually incurred for the purpose as mentioned above in condition No. 3 i.e., the amount is spent in performance of duties of an office or employment of profit. Now, out of the conveyance allowance/additional conveyance allowance received by the Development Officers whether entire amount was actually spent or not would depend upon the facts of each case. In none of the cases before us, the enough material is available with us to reach to the conclusion as to what amount was actually incurred by the assessee in performance of their duties. The learned Departmental Representative has suggested that the LIC has issued a circular dt. 18th March 1991, vide Ref. No. MKFG/ZD/4/91. In this circular, the LIC in consultation with CBDT has specified various amounts, which should be accepted to have been incurred by the Development Officers. The amount is specified considering the area where the particular Development Officer is performing his duty and considering the vehicle being used by him for the purpose of his duties.
7.1. In the above circumstances, we deem it proper to set aside the orders of authorities below on this point and restore the matter back to the file of AO. He shall examine that out of conveyance allowance/additional conveyance allowance, how much amount is actually spent by the assessees for the purpose of his duties of office or employment. When the Development Officers are able to produce the evidences to the satisfaction of the AO in respect of the expenditure incurred by them out of conveyance allowance/additional conveyance allowance in the performance of their duties, such actual expenditure should be allowed as exempt under s. 10(14). In the absence of such particulars, the AO shall accept the amount specified in the circular of LIC dt. 18th March, 1991, (supra), as the expenditure actually incurred towards the performance of duties. He shall accordingly work out the permissible deduction under s. 10(14)(i) out of conveyance allowance/additional conveyance allowance received by various assessees. He shall also allow adequate opportunity to the assessees to produce evidence in support of their claims for expenditure incurred.
8. The next issue in all these appeals is with regard to the expenditure claimed by various assessees out of incentive bonus received by them. As we have already mentioned that all the assessees are Development Officers of LIC and in addition to salary they have received conveyance allowance, additional conveyance allowance and incentive bonus. It has been vehemently contended by the counsels appeared on behalf of the assessees that the Development Officers have dual capacity, one as the employee of the LIC for which salary is paid to them other as agent of the LIC. In their second capacity, they work for procuring more business for the LIC and they are paid incentive bonus on the basis of business procured by them. Thus, this incentive bonus is not part of the salary received by them from LIC. It is stated by Shri H. S. Shrivastava and Shri Arun Shrivastava, Advocates, that the incentive bonus is profit & gains of the business. Shri Ganesh Purohit, Advocate stated that the incentive bonus is neither income from salary nor profit & gains of business, but it is income from other sources. The learned Departmental Representative contended that it is income from salary and only standard deduction under s. 16 is permissible.
9. We have carefully considered the arguments of both the sides. The Development Officers are full-time employees of the LIC, their duties and obligations, as per instruction from LIC has been given in detail by us at p. 9, para 3 of our order. They are required to develop and increase the business of life insurance. They have to achieve this work through the agents, who are working under them. They are also required to introduce the suitable person for the appointment of agents. They have to motivate and activate the agents, so as to get the business for LIC. They are also required to carry out liaison work in connection with salary saving schemes business. To achieve the objective, they have to visit number of persons at number of places. There is no fixed office hours for them. For performing all these activities, they are certainly required to incur many expenses out of their pocket. Part of such expenses are reimbursed by the LIC. Thus, the case of Development Officers are not comparable with any other employee either in Government service or in private service. While they are whole-time employees of the LIC, at the same time, they have to perform the activities as an independent agents or representatives for LIC. The incentive bonus is not the bonus as in the case of any other employee. In fact, the payment of Bonus Act prohibits the payment of bonus to the Development Officers of LIC. Incentive bonus is not calculated on the basis of salary paid to them, but it is calculated on the basis of business secured by them. Despite these facts, we are unable to accept the submissions of the learned counsels for the assessees that the incentive bonus is to be considered as profit & gains of the business or income from other sources. Shri Gupta, learned counsel for the assessee contended that there is no employer-employee relationship vis-a-vis receipt of incentive bonus is concerned. We are unable to accept this argument also. The Development Officers are whole-time employees of the LIC. They are Class-II Officers. They can earn incentive bonus only while remaining in the service and not otherwise. Thus, the employer-employee relationship between the Development Officers and LIC does exist. Sec. 17 of the IT Act defines the word. "Salary" as under :
"17(1) "salary" includes -
(i) wages;
(ii) any annuity or pension;
(iii) any gratuity;
(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
(v) any advance of salary;
(va) any payment received by an employee in respect of any period of leave not availed by him.
(vi) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under s. 6 of Part A of the Fourth Schedule; and
(vii) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-r. (2) of r. 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund to the extent to which it is chargeable to tax under sub-r. (4) thereof."
9.1. From the perusal of the above definition of "Salary" and considering each of the items mentioned above, in our opinion, the incentive bonus can be properly classified as profit in addition to any salary. Therefore, we hold that the incentive bonus is to be assessed under the head "Salary" being profit in addition to the salary received by the assessee. We have already stated that unlike other employees, the Development Officers are required to incur various expenditure for earning incentive bonus. Such expenditures are not fully reimbursed by the LIC. Therefore, in our opinion, deduction for such expenditure should be allowed. In fact, the word "Profit" itself signifies the receipt minus expenditure. Under s. 17(1)(iv) "Profit" in addition to salary is to be considered as part of salary and not the gross receipt. Had the legislature intended to tax the gross receipts, they could have used the word "any receipt" in addition to salary. However, instead of the words "any receipt", the word "Profit" has been used. Therefore, for determining profit, the expenditure incurred for earning such profit has to be deducted. This view of ours finds support from the decision of Gujarat High Court in the case of Chimanbhai H. Patel vs. CIT (supra).
10. The learned Departmental Representative had relied upon the decision of Hon'ble Andhra Pradesh High Court in the case of K. A. Choudhary vs. CIT (supra) and B. Chinnaiah (supra) and also of Orissa High Court in the case of Govind Chandra Pani (supra), Rajasthan High Court in the case of Shivraj Bhatia (supra) and R. N. Verma (supra), the Karnataka High Court in the case of M. D. Patel (supra). In all the above cases, the Hon'ble High Courts have taken the view that the incentive bonus received by the Development Officers are part of the salary and no other deduction except the standard deduction is permissible. Hon'ble Gujarat High Court in the case of Chimanbhai H. Patel (supra) have taken the view that the incentive bonus is to be assessed under the head "Salary", but the expenditure incurred for earning such incentive bonus should be allowed. It is a settled law that if two views are possible, the view which is in favour of the assessee should be adopted. While making this proposition, we derive support from the decisions of Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC), and CIT vs. J. K. Hosiery Factory (1986) 159 ITR 85 (SC). In view of the above, we hold that the incentive bonus is to be assessed under the head "Salary" being profit in addition to salary as per s. 17(1)(iv) of the IT Act. Therefore, the expenditure incurred on earning such incentive bonus is to be allowed as a deduction, so as to determine the true profit, which can be taxed under s. 17(1)(iv). However, on the perusal of assessment order and order of the first appellate authority, we find that the necessary particulars are not available on record, so as to give the correct finding with regard to the expenditure incurred by various assessees in these appeals. Therefore, we set aside the order of the authorities below and restore the matter back to the file of AO. He shall examine what was the expenditure incurred by the assessees for earning of incentive bonus. He shall also consider if any of such expenditure is reimbursed by the LIC. If so, only net expenditure incurred by the assessee will be allowed as a deduction. If the required particulars or the details are not available with the assessees, he may allow the expenditure on estimate basis considering the facts of each case and the evidences/explanations furnished before him.
11. In the result, all the appeals whether by the assessees or by the Department as well as the cross-objections by the assessee are deemed to be allowed for statistical purposes.