Income Tax Appellate Tribunal - Nagpur
V.H. Jajoo vs Income-Tax Officer on 26 July, 1996
Equivalent citations: [1998]67ITD619(NAG)
ORDER
K.P.T. Thangal, Judicial Member
1. This appeal by the assessee pertains to the assessment year 1991-92. The only effective ground of objection by the assessee is directed against the order of the learned CIT (Appeals) in not allowing deduction of expenses incurred by the assessee for earning income by way of incentive bonus/salary. According to the assessee he has incurred expenses for earning the above incentive bonus and claimed the same at 40% of the gross receipt as held by the Tribunal in assessee's own case for the preceding assessment year. The claim of the assessee is that 40% of the incentive bonus should have been allowed as deduction which the assessee actually incurred.
2. For the assessment year 1991-92 the assessee filed the return on 14-8-91 showing income at Rs. 61,440. The assessee derives income from salary from LIC of India, Amravati Branch. Assessee has shown incentive bonus received from LIC as business income in his return. In the Salary Certificate issued by the LIC incentive bonus has been included as a part of salary. The case was processed under section 143(1)(A) treating the claim as income from other sources.
Assessee filed an application under section 154 and the same was rejected. The learned CIT (Appeals) in further appeal against the order passed under section 154 allowed the claim of the assessee vide his order dated 27-1-1993 for 1990-91 and 1991-92.
3. The case was selected for scrutiny under section 143(2) and a notice was issued to the assessee. In response to the above notice, assessee filed a written statement on 18-2-1993 and contended that ITAT, Nagpur Bench, having dismissed departmental appeal for assessment year 1983-84 against the order of the learned CIT (Appeals) allowing the claim of the assessee, there is no case for the department. Assessee further relied upon the decision of the ITAT, Pune Bench as well as the decision of the Bombay High Court in the case of CIT v. A. A. Baniyan [1992] 197 ITR 717. Assessee further contended that in view of the decision of the Bombay High Court in the case of CIT v. Smt. Godavaridevi Saral [1978] 113 ITR 589, the decision of the Bombay High Court in the case of A.A. Baniyan (supra), is binding on the Tribunal as well as all other authorities in the State and the case should be decided in favour of the assessee.
4. The learned Assessing Officer, however, could not agree with the claim of the assessee with regard to expenses from incentive bonus and decided the issue against the assessee. The learned Assessing Officer held that incentive bonus is a part of salary and by no dint of imagination it could be entitled for any other deduction for expenses other than the standard deduction. The LIC has paid incentive bonus according to the services rendered by the Development Officer as per terms and conditions of the service. It is a perquisite liable to be taxed under section 17(2) of the Income-tax Act, held the learned Assessing Officer. The learned Assessing Officer further relied upon the Instruction No. 1774 dated 14-10-1987 of the Central Board of Direct Taxes which was clarificatory and wherein it was stated that incentive bonus receivable by the Development Officer of LIC forms part of salary and no separate deduction is admissible except the standard deduction under section 16(1). He further got support from the decision of the ITAT 'A' Bench, Madras, in ITA No. 1186/Mds/1987 dated 25-9-1989, wherein the Tribunal held that no deduction is to be allowed other than the standard deduction from the incentive bonus. While rejecting assessee's claim, the learned Assessing Officer further noted that the decision of the Tribunal, Nagpur Bench, has not been accepted by the department and reference has been made against the same. He distinguished the facts in the case of A.A. Baniyan (supra) from the instant case of the assessee. The learned Assessing Officer further relied on the decision of the Andhra Pradesh High Court in the case of K. A. Chotidary v. CIT [1990] 183 ITR 29 [1989] 44 Taxman 472. In this case the Hon'ble A.P. High Court held that incentive bonus received from the employer is a part of a salary and, therefore, assessee is entitled only to standard deduction and not entitled for the deductions of expenses incurred to earn the bonus as defined by the Payment of Wages Act, 1936. Aggrieved by the above order, the assessee went in appeal before the CIT (Appeals). It was contended before the first Appellate Authority that in assessee's own case for the earlier years both the CIT (Appeals) and the Tribunal had accepted similar claim of the assessee and allowed 40% of the incentive bonus as expenses. Assessee further pointed out before the first Appellate Authority that while deciding the issue in favour of the assessee holding that 40% of the incentive bonus is allowable as expenses as claimed by the assessee for the year under consideration also both authorities had decided the issue in favour of the assessee in view of the decision of the jurisdictional High Court in the case of A.A. Baniyan (supra). The learned counsel further contended before the first Appellate Authority that for the very assessment year assessee's appeal under section 154 had been allowed on the very same issue and, therefore, the relief cannot be denied to the assessee against the very same assessee. The learned first Appellate Authority decided the issue against the assessee vide para 3 of its order. For the reasons stated in para 3 of his order, para 3 of order is reproduced hereinbelow :-
"3. I have considered the facts of the case and the above submissions of the learned counsel. The appeal against the Assessing Officer's order under section 154 for this year decided earlier was on the specific issue as to whether the claim could be disallowed while processing the return by way of prima facie adjustment. It was held in my order dated 27-1-1993 that the disallowance could not be made under the provisions of section 143(1)(a) of the Act. We are now concerned with the regular assessment order passed under section 143(3) of the Act and hence the appellant cannot derive any support from the earlier appellate order concerned the scope of adjustments to be made under section 143(1)(a). The decision of the Bombay High Court in A.A. Baniyan's case (supra) was concerned with whether the case before the court involved a question of law arising from the order of the Tribunal. The court held that no question of law had arisen from the order of the Tribunal and on that basis dismissed the departmental appeal. The court did not enter into the merit of the issue. The appellant cannot derive any support from the above decision of the Bombay High Court. That being the position, the decision of the Andhra Pradesh High Court in the case of K.A. Choudary v. CIT (183 ITR 2) is squarely against the appellant. Similarly, the decision of the Orissa High Court in the case of CIT v. Sarat Chandra Sahu (195 ITR 364) is clear authority for the proposition that once the incentive bonus is considered as part of the salary, no expenditure could be allowed from the same other than standard deduction. As per this decision of the Orissa High Court the order of the Special Bench of the Income Tax Appellate Tribunal in P. Dayakar Warrangal v. ITO [IT Appeal Nos. 13, 18 and 139/Hyd/86] relied upon by the ITAT, Nagpur Bench in the appellant's own case for earlier years becomes untenable because in Dayakar's case the Special Bench of the Tribunal had proceeded on the footing that incentive bonus was assessable as salary income but deduction for expenditure was to be allowed from the same under the provisions of section 10(14) of the Act. It is worth repeating here that as per the decision of the Orissa High Court, once the income is held to be salary income, no deduction other than standard deduction would be admissible. Suffice it to say, this decision of the Orissa High Court was not cited before the ITAT, Nagpur Bench in the appellant's case. The decision in K.A. Choudary's case is the only High Court decision available as on date dealing specifically with the issue. The order of the Special Bench of ITAT in Dayakar's case cannot be regarded as good law in view of the Osrissa High Court's decision mentioned above. I am, therefore of the view, the ITO's action in not allowing deduction for expenses from incentive bonus in this case is in accordance with law and the same is confirmed."
It is against this order of the CIT(A), assessee is in appeal before the Tribunal.
5. The learned counsel for the assessee Mr. Dewani invited our attention to the Scheme of Incentive Bonus to Development Officers dated 7-2-1978. He submitted that it is not true to say that all the Development Officers are entitled to get incentive bonus by virtue of their mere appointment in the post. The first criteria or the eligibility to get the incentive bonus is that the officer's cost ratio (ratio of his annual remuneration in an appraisal year of the eligible premium in that year) did not exceed 20% in an appraisal year shall only become eligible for grant of incentive bonus in respect of that appraisal year in accordance with the scheme. The formula for determining basic incentive bonus is given in clause 5 of the Scheme. It is as under :-
5. Formula for determining Basic Incentive Bonus :
Basic Incentive Bonus shall be determined as per formula shown below :
Stipulation Basic Incentive Bonus
(a) "Net eligible premium" in the 6 per cent of
appraisal year in excess of such excess,
FIVE times the annual plus
remuneration of the Development
Officer in that year.
(b) "Net eligible premium" in the 4 per cent of
appraisal year in excess of such excess,
SEVEN times the annual plus
remuneration of the Development
Officer in that year.
(c) "Net eligible premium" in the 2 per cent of
appraisal year in excess of NINE such excess.
times the annual remuneration of the
Development Officer in that year.
The learned counsel further brought to our attention the Annexure XI 'A' the terms and conditions of appointment as Probationary Development Officer. Clause 3(i) of the terms and conditions stipulates that officers who devote whole-time and undivided attention for development and intensification of Life Insurance Business and other duties assigned to the Officers from time to time. The learned counsel also brought to our attention to clause 5 the duties and obligations of the officer. Clause 5A(i) stipulates that the officer shall work 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 the officer or in which the officer is allowed to work from time to time through the agents placed under officer's supervision by the Corporation and in consonance with the corporate objectives of the Corporation;
(ii) To guide, supervise and direct the activities of the agents placed under Officer's 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 policy holder conducive to better policy servicing.
(vi) To carry out the investigation of claims, revival of lapsed policies and liaison work in connection with salary savings scheme business.
(viz) To perform such other duties as may be entrusted or assigned to officer from time to time.
The learned counsel invited our attention to norms for Development Officers dated 1st December, 1969, under clause 19.
"III. Special Need for Norms and Incentives in the case of Development Officers :
19. While it is true that the Development Officers are regular employees of the Corporation, it must be clearly recognised that, owing to the nature of their duties and conditions of work, even after the grant of automatic increments, there are bound to be essential variations in the operation of the salary grade in relation to Class II employees and other categories of employees. This has been clarified in the Government decision dated February 16, 1969 on the joint reference made by the L.I.C. and the Federation of Class II Federation :
'The duties of this class (Development Officers) differ fundamentally from those of others. In fact, they have no parallel either in government or in the public sector. While Development Officers may not be salesmen in the sense insurance agents are, promoting sale of insurance policies is not only the most important part of their duties but the real justification for their employment. They have neither an office nor regular hours of office. The only proper way of judging their performance under these conditions is through an assessment of the volume of business obtained by them making due allowance for varying conditions of work in different areas. In fact, remunerating field personnel partly on the basis of results has been the general practice both in India and elsewhere."
Thus relying upon the terms and conditions of the appointment of the Development Officer reproduced above and especially relying on the norms for Development Officers dated December 1, 1969, Clause 19, the learned counsel submitted that the Development Officer is not merely an officer appointed by the L.I.C. but also he has a relation with the L.I.C. as Principal and Agent. On one side he has a relation with L.I.C. that of an employer and employee. In addition to this he has a relation with the LIC that is in the nature of a relation between Principal and Agent. The work rendered by a Development Officer which entitles him to receive incentive bonus arises from the services rendered in the second nature, id est, from the relation of Principal and Agent. He further submitted that the incentive bonus he received is not a payment made under Payment of Bonus Act. This incentive bonus is not based on condition of appointment but an altogether different scheme. By virtue of this scheme he receives incentive bonus if he satisfies certain criteria. This criteria has universal application as far as the Development Officers are concerned. He receives salary for the services rendered for that part of the work that he renders as an employer and employee. But for the other services rendered by virtue of the scheme, he receives incentive bonus and it has nothing to do with his employment's terms and conditions. It is precisely because of this reason that Clause 19 of the scheme of norms and incentives for the Development Officers dated December 1, 1969, Clause 19 categorises the Development Officers and their duties to an altogether different category. It states that the duties of the Development Officers have no parallel either in Government or in the public sector. The Development Officers are not actually categorised as salesmen in the sense of insurance agents, but they are in fact. The promoting sale of insurance policies is the most important part of their duties and also the real justification of their employment. They have neither an office nor regular hours of work. Distinguishing the nature of the work rendered by the Development Officer that entitles him to receive the incentive bonus from that of any ordinary employment, the learned counsel submitted that the expenses incurred by a regular employee while discharging his official duties are reimbursed by the employer whereas in the case of a Development Officer he is not reimbursed.
6. The learned counsel for the assessee brought our attention to paper book page 58, a letter dated 29th September, 1986, issued by the Managing Director clarifying the nature of additional conveyance allowance and incentive bonus is paid to the Development Officer. With regard to the rationale behind additional conveyance allowance the clarification given by the Managing Director is as under :-
"As already mentioned in our earlier letters to you, Additional Conveyance Allowance, as an addition to Conveyance Allowance at flat rates in force from time to time, was granted to Development Officers specifically to meet the expenses wholly, necessarily and exclusively for the purpose of new business procuration through his agency organisation. As regards the certification that the amount had been actually and wholly incurred for that purpose, we have now devised a suitable internal system which will enable us to satisfy ourselves regarding the expenditure incurred by each individual Development Officer having regard to the details of his actual performance, type of vehicle used, area of operation etc., and certify the same under section 10(14).
Hence we wish to confirm that we would now be in a position to append a certificate in the salary certificate on the lines mentioned in your letter under reference. May we, therefore, request you to kindly instruct the department to accept the certification by our offices ?"
With regard to the new incentive bonus scheme, the explanation is as under :-
"As regards Incentive Bonus, we have taken note of your clarification in the matter. We are at present designing a new Incentive Bonus Scheme for our Development Officers where it might be possible to provide for a separate allowance or for a distinct/separate element of payment in the nature of reimbursement of expenses which, we know, are necessarily to be incurred in the process of earning that Incentive Bonus. As this would take some more time, we would request you to allow some relief, in the meanwhile, to our Development Officers on this account.
As you know, Incentive Bonus is a production-oriented income, inasmuch as, higher bonus becomes payable to a Development Officer on achieving higher production. When his actual performance is beyond the normal levels of performance expected of him, he has to incur expenditure in respect of items such as (i) entertainment to agents/clients (ii) prizes declared in competition amongst his agents (iii) conveyance facilities to his agents, and (iv) office expenses such as rent, secretarial assistance, printing and stationery, postage trunk calls and telephone charges etc. The quantum of Incentive Bonus is decided taking into account factors such as the number of policies procured by a Development Officer, his agency organisation, the nature of territory operated by him i.e., whether rural or urban etc. These very same factors also influence the size of his expenditure.
We do not at present allow reimbursement or special allowance as such towards these items, it being understood that a Development Officer is required to spend a part of the Incentive Bonus on this account. It is, therefore, proposed to certify, under section 10(14), an amount upto 30% of the Incentive Bonus earned as necessary expenses that would have to be incurred and the internal system devised by us lays down guidelines to the operating offices regarding the percentage to be certified in each case having regard to factors referred to earlier.
We would be grateful if you could kindly examine the points clarified in this letter and issue suitable guidelines to your offices to accept the certification given by the LIC offices both with reference to Additional Conveyance Allowance and Incentive Bonus, as above."
Since there is no reimbursement of the expenses incurred, the services rendered by the LIC Officer which entitles him to earn incentive bonus, the learned counsel submitted, necessarily is a service rendered as an agent. Relying upon the decision of the Hon'ble Supreme Court in the case of Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT [1966] 61 ITR 428, the learned counsel submitted that whether an income falls under one head or another has to be decided according to the common notion of a practical man for the Act does not provide any guidance in the matter. Further relying upon the decision of the Allahabad High Court in the case of CIT v. Kundan Lal Chand [1961] 41 ITR 245 he submitted that the question whether a certain income is received as salary or income from business is essentially a question of fact depending on the facts and circumstances of the case. Relying upon this decision the learned counsel contended that the character of the receipt decides the nature of income. Inviting our attention to section 17(1) of the Income-tax Act, 1961, the learned counsel submitted that bonus received by an employee is not a salary. He invited our attention to the decision of the ITAT, Chandigarh Bench, in the case of ITO v. Raj Kumar Sethi [1982] 1 ITD 907. In this case Tribunal held that incentive bonus paid as a compensation for the efforts put in by the assessee beyond the call of duty in propagating the virtues of insuring lives and thereby securing business for the employer. Incentive bonus was neither covered by the Payment of Bonus Act nor otherwise a part of salary as per conditions of employment. The very fact that the definition of 'salary' in section 17 has avoided the use of the word 'bonus' and a separate provision has been made in section 36(1)(ii) for purposes of allowing bonus as an admissible deduction in computing total income, will clearly show that the Legislature has not considered it advisable to keep bonus as part of salary specifically. In the case of Sixth ITO v. Narendra V. Patel [1985] 11 ITD 587, ITAT, Bombay Bench 'B' (Third Member) held :
"that for arriving at the profits and gains of business, account must necessarily be taken of all losses and expenses incurred, otherwise one cannot arrive at the true profits and gains. In other words, some deductions have to be allowed under section 28 itself because the starting point of section 28 is the profits and gains which have to be understood in a commercial sense. The same analogy can be applied in the case of computation of income under the head 'Salaries' also. Moreover, the incentive bonus/commission, which is over and above the salary and perks, may not be regarded as salary in the commercial sense. It is treated as income chargeable to tax under the head 'Salaries' because of inclusive definition of salary in section 17. The section, however, makes it clear that the meaning of salary has been extended for the purposes of sections 15 and 16 only.
It is not possible to draw an inference from the deletion of section 16(v) that the Legislature had intended to take into account the cases of incentive bonus/commission without reducing it by the expenditure incurred for earning it, because, as stated in the memorandum explaining the provision of the Finance Bill, 1974, this amendment was brought only to simplify the assessment procedure of salaried tax-payers.
Accordingly, the expenditure incurred by the assessee for earning the incentive bonus/commission should be reduced from the bonus/commission at the starting point itself, i.e., at the point it was treated as the income chargeable under the head 'Salaries'."
The learned counsel submitted that the letter of the Managing Director reproduced hereinabove in para 5 if considered in the light of the decision of the Tribunal cited supra will make it clear that the claim of the assessee that 40% of the incentive bonus received by the assessee is to be allowed as expenses, is sound. In view of section 10(14)(i) the learned counsel submitted that the actual expenses incurred by a Development Officer to meet expenses wholly, necessarily and exclusively in the performance of his duties should be allowed to the extent of actual expenditure incurred. He also relied upon the decision of the ITAT, Hyderabad Bench 'B' in the case of K. Rami Reddy v. ITO 8 ITD 633. In this case Tribunal held as under :-
"Even assuming that the assessee's income was taxable only as salary, incentive bonus itself was an allowance and the part relating to expenses wholly, necessarily and exclusively incurred for the performance of his duties of employment had to be treated as a special allowance covered by section 10(14). Any other view would result in hardship which could not be justified either on facts or on the basis of statute. What is contemplated is the tax on the net salary and not gross salary including all the allowances which a taxpayer may get by way of reimbursement of expenses incurred solely for purposes of his employment."
On the basis of the above the learned counsel contended that even if it is taken as a salary it is the net receipt that has to be taxed in the hands of the employee and not the gross receipt. For this proposition, he further relied upon the decision of the Tribunal, Ahmedabad Bench 'B' in the case of Kiranbhai H. Sheelat v. ITO. The Tribunal held that incentive bonus earned by Development Officer of LIC is salary within the meaning of section 17 and net receipt after deduction for expenses incurred is includible in salary. The learned counsel further submitted that there is no provision in Income-tax Act, 1962 to tax an income which is actually not received by the assessee and as such expenses incurred by a Development Officer for procuring business which makes him eligible to earn incentive bonus if not allowed goes against the very principle of income-tax. The very same view has been taken by the Tribunal, Nagpur Bench, in the case of ITO v. M. O. Maheshwari, [IT Appeal Nos. 82 and 83 (Nag.) of 1977-78] for assessment years 1973-74 and 1975-76 dated 16-2-1978 and the Tribunal Bangalore Bench in the case of K.P. Joseph Bangalore, ITA No. 789/Bang./84 dated 10-7-1985. If a particular item falls under two heads, the assessee has the right to choose the head which subjects him to lesser tax - CIT v. Bosotto Bros. Ltd. [1940] 8 ITR 41 (Mad.).
7. The learned counsel further submitted that the scheme of incentive bonus to Development Officers was not considered by several High Courts which have taken a contrary view to the effect that the incentive bonus received by a Development Officer is salary. The Hon'ble Andhra Pradesh High Court in the case of K. A. Choudary (supra) has also not considered the scheme while deciding the issue in favour of the revenue holding that incentive bonus received from the employer is a part of salary. In this case the assessee who was an employee of LIC of India received a sum of Rs. 9536 as incentive bonus and claimed deduction of expenses in earning the bonus. The ITO declined to give the deduction. CIT (Appeals) and Tribunal confirmed the order of the ITO. The above decision was challenged in Writ Petition No. 7216 of 1983 and the order of the Tribunal was confirmed by the Hon'ble High Court.
8. In the case of CIT v. Ram Krishna Bank [1995] 215 ITR 901/81 Taxman 288 the Hon'ble Gauhati High Court and in the case of CIT v. M. C. Shah [1991] 189 ITR 180 the Hon'ble Bombay High Court have taken a view in favour of the assessee on the basis of the facts before the Hon'ble High Courts. The learned counsel brought our attention to the decision of ITAT (Special Bench) decision in the case of P. Dayakar v. ITO [IT Appeal Nos. 1318 and 1319 (Hyd, of 1986 dated 23-3-1989]. Since there was a difference of view between the Calcutta Bench of the Tribunal in the case of ITO v. L. N. Goswanmi 8 ITD 661 and Hyderabad Bench of the Tribunal in the case of K. Rami Reddy (supra), the following questions were referred to the Special Bench for its consideration :
"(a) Whether in the case of the assessee, who is a Development Officer, an amount paid by the Life Insurance Corporation as additional conveyance allowance can be included in the total income, and
(b) Whether the amount paid by the Life Insurance Corporation as incentive bonus is fully taxable or whether any deduction could be allowed thereout under the provisions of section 10(14) of the Income-tax Act, 1961."
After considering the issue Tribunal held that in addition to additional conveyance allowance expenditure to the extent of 40% out of the incentive bonus was allowed to the assessee as the same has been incurred by the assessee wholly and exclusively and necessarily in the performance of his duties. Thus learned counsel submitted that there are conflicting decisions of various High Courts in the matter. On one side Bombay High Court decision in the case of M. C. Shah (supra) and Gauhati High Court decision in the case of Ram Krishna Banik (supra) wherein the Hon'ble High Court held that 40% of the expenses of the incentive bonus is to be allowed as deduction. A contrary view had been taken by the Hon'ble Andhra Pradesh High Court in the case of K. A. Choudary (supra). The learned counsel further submitted that the point whether the amount paid by the LIC of India as incentive bonus is fully taxable or whether any deduction could be allowed thereout under the provisions of section 10(14) of the Income-tax Act, 1961, was referred to the Hon'ble Andhra Pradesh High Court and the question was answered in favour of the assessee in LIC No. 160 & 196/85 dated 13-8-1986. Under the above circumstances, the learned counsel submitted that in view of the decision of the jurisdictional High Court in the case of C.D. Thadani, ITO v. Universal Ferro & Allied Chemicals Ltd. [1988] 172 ITR 30/[1987] 35 Taxman 500, the Tribunal has to take the view in favour of the assessee. In this case in Universal Ferro & Allied Chemicals Ltd. (supra) the Hon'ble Bombay High Court held that a decision rendered in a writ petition cannot be taken into consideration if there was an alternative efficacious remedy available to the assessee. Since the decision of the Hon'ble Andhra Pradesh High Court in the case of K. A. Choudary (supra) was rendered in a writ petition, the judgment cannot be referred in any case against the decision of the Bombay High Court in the case of M. C. Shah (supra) and Hon'ble Gauhati High Court decision in the case of Ram Krishna Banik (supra) which was rendered on a question specifically referred on the point to the Hon'ble High Court. Further relying upon the decision of the Hon'ble Supreme Court in the case of CIT v. Madho Pd. Jatia [1976] 105 ITR 179, the learned counsel contended that one view favourable to the assessee should be followed. In this case the Hon'ble Supreme Court held as under :-
"Held, affirming the decision of the High Court, that item 38 placed a limit in respect of the deduction which was permissible in an assessment for one year. Where, however, the amount of irrecoverable rent exceeded the amount of rent payable for a year the right of the assessee to claim the benefit of the exemption under item 38 did not get exhausted by his having claimed exemption in one year; the assessee could claim deduction in respect of the balance of the irrecoverable rent in subsequent years also till such time as the assessee got relief in respect of the whole of the amount of irrecoverable rent.
It is well-settled that there is no equity about tax. If the provisions of a taxing statute are clear and unambiguous, full effect must be given to them irrespective of any consideration of equity. Where, however, the provisions are couched in language which is not free from ambiguity and admits of two interpretations a view which is favourable to the subject should be adopted. The fact that such an interpretation is also in consonance with ordinary notions of equity and fairness would further fortify the court in adopting such a course."
Further relying upon the decision of the Hon'ble Supreme Court in the case of Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402, the learned counsel contended that while determining the nature of tax, the standard or measure on which the tax is levied may be a relevant consideration, it is not the conclusive consideration; its pith and substance must determine the category in which it falls. Those Development Officers who are getting the same conveyance allowance and additional conveyance allowance who are appointed on the same terms and conditions received incentive bonus according to the service they rendered, additionally procuring the business to the LIC of India. This in substance indicates that this service and the receipt of incentive bonus therefrom are independent and do not flow from the employer-employee relation. Thus the learned counsel submitted that the incentive bonus should be treated separately and the expenses should also be allowed in any case under section 10(14) of the I.T. Act.
9. Coming to the decision of the Hon'ble Orissa High Court in the case of CIT v. Govind Chandra Pani [1995] 213 ITR 783/83 Taxman 364, the learned counsel submitted that the Hon'ble High Court had no occasion to consider the scheme under which the LIC Development Officer received the incentive bonus. The counsel further submitted that the Hon'ble High Court also did not have an opportunity to consider the concept of real income in this case. The learned counsel also submitted that no argument was advanced before their Lordships as to the applicability of section 2(24) where the income is defined.
10. The learned counsel Mr. T. S. Ramakrishnan contended that even if it is held that the Development Officer of LIC is an employee of the company, there is no bar in his acting in dual capacity as an employee and also an agent. For this proposition he relied upon the decision of the Hon'ble Supreme Court in the case of Ram Prashad v. CIT [1972] 86 ITR 122. In this case the issue before their Lordships was whether an amount received by the Managing Director by way of commission could be assessed under section 7 of the 1922 Act as salary in his hands or as a business income under section 10, in which case there was further question as to whether it was not to be included in his income because it had to be deducted as expenses. In this case their Lordships held that a person who is engaged to manage a business may be a servant or an agent according to the nature of his service and the authority of his employment. Their Lordships further held as under :-
"A managing director may have a dual capacity. He may both be a director as well as an employee. In the capacity of a managing director he may be regarded as having not only the capacity as persona of a director but also has the persona of an employee, or an agent depending upon the nature of his work and the terms of his employment. Where he is so employed, the relationship between him as the managing director and the company may be similar to a person who is employed as a servant or an agent, for the term 'employed' is facile enough to cover any of these relationships. The nature of his employment may be determined by the articles of association of a company and/or the agreement, if any, under which a contractual relationship between the director and the company has been brought about, whereunder the director is constituted an employee of the company, if such be the case, his remuneration will be assessable as salary under section 7. In other words, whether or not a managing director is a servant of the company apart from his being a director can only be determined by the articles of association and the terms of his employment."
Shri Ramakrishnan submitted that Development Officer of LIC is in fact acting in dual capacity (i) as an employee and (ii) as an agent procuring business and the incentive bonus he received is akin to receipt by the Managing Director of a company by virtue of the employment term. The receipt he got by way of salary, the learned counsel submitted, is taxable salary whereas the other receipt that is incentive bonus is received as a result of procuring business independent as an agent. This can be considered as income from business and all the incidental expenses are to be allowed. The stand of the department is that whatever may be the source of receipt, the amount received by the Development Officer of LIC can only be taxed under the head 'Salary' cannot be sustained, the learned counsel contended.
11. Countering the above argument of the learned counsels, the learned Senior Departmental Representative Shri R. K. Sinha contended that the appointment order and condition of service of Development Officer of LIC, clause 3 of the terms and conditions, stipulate that it shall be a whole-time employment. Clause 3(i) further stipulates that the assessee shall devote his whole-time and undivided attention for the development and intensification of Life Insurance Business and other duties assigned to him from time to time. Coming to the duties and obligations of the LIC Development Officer, it is stated :-
(i) Development Officer shall develop and increase the production of Life Insurance business in a planned way as far as may be practicable within the area that may be allotted to the officer or in which the officer is allowed to work from time to time, through the agents placed under supervision by the Corporation and in consonance with corporate objectives of the Corporation;
(ii) To guide, supervise and direct the activities of the agents placed under officers supervision by the Corporation.
(iii) To introduce suitable persons to the Corporation for appointment as new agents.
It further states that after the agent recruited at the instance of an officer has continuously worked for the Corporation for a period of 5 years or more and the Branch Manager is satisfied that the agent is no longer in need of help and guidance of any Development Officer, such an agent may be treated as a Direct Agent at the sole discretion of the Corporation.
Thus the learned Departmental Representative submitted that since the Development Officer being a full time employee whatever he receives is as a consequence of the employment. He submitted that the officer discharges his duty through the medium of agents. He further submitted that the agents are paid by the LIC to the tune of 40 per cent whatever procured by the individual agent. The agreement is between the LIC and agent and the agreement to procure the business for the LIC is between the agent and the LIC and not between Development Officer and his agent, though he is introduced by the Development Officer. The learned Departmental Representative Mr. Deulkar brought our attention to the decision of the Hon'ble Supreme Court in the case of Gestetner Duplicators (P.) Ltd. v. CIT [1979] 117 ITR 1/1 Taxman 1. In this case the facts are as urider :-
The assessee, a private company, employed three categories of salesmen. Under the terms of contract of employment, assessee paid these salesmen a fixed monthly salary and also commission at fixed percentages of the turnover achieved by each salesman. Assessee paid employer's contribution on the basis of the monthly salary as well as the commission to the individual accounts of the salesmen in a provident fund maintained by it and recognised by the Commissioner of Provident Fund. The recognition of the provident fund was continued and was in force during the relevant assessment years. The ITO disallowed proportionate amounts pertaining to the commission paid to the salesmen on the ground that salary within the meaning of rule 2(h) of Part A of Sch. IV to the Income Tax Act 1961, did not include such commission. The Appellate Tribunal held that the commission paid by the assessee to the salesmen was a contractual obligation and forms part of salary, and contributions made on that basis were liable to be deducted under section 36(1)(iv). On reference the Hon'ble High Court held that the proportionate contribution appertaining to the commission was not an allowable deduction under section 36(1)(iv). In further appeal their Lordships held reversing the decision of the High Court :-
(i) that the entire remuneration determined partly by reference to time and partly by reference to the volume of work done partook of the character of salary and, therefore, the commission paid by the assessee to his salesmen clearly fell within the expression 'salary' as defined in rule. 2(h) of Part A of Schedule IV to the Act and the proportionate contributions appertaining to the commission paid by the assessee to his salesmen were deductible under section 36(1)(iv).
In this case their Lordships further held :
"Conceptually there is no difference between salary and wages, both being a recompense for work done or services rendered, though ordinarily the former expression is used in connection with services of non-manual type while the latter is used in connection with manual service. The expression "wages" does not imply that the compensation is to be determined solely upon the basis of time spent in service; it may be determined by the work done; it could be estimated in either way. If conceptually salary and wages mean one and the same thing then salary could take the form of payment by reference to the time factor or by the job done. In fact, in the case of salary, the recompense could be determined wholly on the basis of time spent on service or wholly by the work done or partly by the time spent in service and partly by the work done. In other words, whatever be the basis on which such recompense is determined it would all be salary.
If under the terms of the contract of employment remuneration or recompense for the services rendered by the employee is determined at a fixed percentage of turnover achieved by him, then such remuneration or recompense will partake of the character of salary, the percentage basis being the measure of the salary and, therefore, such remuneration or recompense must fall within the expression 'salary' as defined in rule 2(h) of Part A of the Fourth Schedule to the Act."
12. Relying upon the decision of the Hon'ble Andhra Pradesh High Court in the case of M. Krishna Murthy v. CIT [1985] 152 ITR 163/23 Taxman 126, the learned Senior Departmental Representative further submitted that whatever amount received by the Development Officers will fall within the ambit of either salary or profit in lieu of salary. In this case the Hon'ble High Court held that the incentive bonus received by some of the employees employed in the Thermal Station but which was not extended to other employees of the Board would fall within the ambit of perquisite. The learned Senior D.R. submitted that this view also gets support from the decision of the Hon'ble Allahabad High Court in the case of CIT v. Hind Lamps Ltd. [1980] 122 ITR 451/3 Taxman 278 wherein the Hon'ble High Court held that profit bonus comes within the ambit of section 17(3)(ii) because it is an amount paid by an employer to his employees. He submitted that whatever amount received by the Development Officers flows from a relation that exists between a master and servant.
13. On behalf of the revenue the learned Departmental Representative Mr. Deulkar submitted that, in view of the decision of the Hon'ble Andhra Pradesh High Court in the case of K.A. Choudary (supra) and contended that incentive bonus received from the employer is a part of salary. In this case the Hon'ble High Court held that the assessee had received the said amount as incentive bonus because he was in the employment of LIC and, therefore, it formed the part of his salary. The learned D.R. also relied upon the decision of Hon'ble Orissa High Court in the case of CIT v. Sarat Ch. Sahii [1992] 195 ITR 364/65 Taxman 555. The learned D.R. also relied upon the decision of the Hon'ble Orissa High Court in the case of Govind Chandra Pani (supra) and contended that salary is inclusive of bonus received by the Development Officers of the LIC. The learned D.R. relying upon the Hon'ble Andhra Pradesh High Court decision in the case of CIT v. B. Chinnaiah [1995] 214 ITR 368 contended that the benefit of section 16 of the Income Tax Act, 1961 cannot be made applicable to the incentive bonus received by the Development Officers of LIC. Relying upon the decision of the Hon'ble Bombay High Court in the case of CIT v. Goodlass Nerolac Paints Ltd. [1991] 188 ITR 1, the Senior D.R. contended that this Bench is bound to follow earlier decision of the Tribunal, Nagpur Bench, in the case of Rajkumar B. Dudhwani v. ITO [IT Appeal No. 309 (Nag.) of 1994 dated 12-12-1995]. In this case Tribunal held that there was no justification in allowing 40% deduction to the Development Officer.
14. From the above argument, the following issues arise in our decision in this case :
1. Was the decision of the Bombay High Court in A.A. Baniyan's case (supra) decided on merit ?
2. Is it possible to work for a full time employee in dual capacity ..... as an employee as well as a professional ?
3. What are the terms of appointment of LIC Development Officers ?
4. Did the conflicting decisions of the High Courts consider the issue in the light of the terms of appointment of the Development Officers in any of the cases either decided in favour of the assessee or against the assessee ?.
5. The changes in incentive bonus indicate what ...... it is salary or receipt for the services rendered.
6. Can a notional income (which is not actually received) be taxed even if it is a part of salary ?
15. We have seen that the Bombay High Court's decision in the case of A.A. Baniyan (supra) was decided on facts. In this case Tribunal held that the incentive bonus commission received by the assessee was a professional income of the assessee. This finding was not challenged by the revenue before the Hon'ble High Court. In the instant case of the assessee before us there is a specific finding by the revenue authorities that incentive bonus commission received by the assessee is salary. Hence the decisions of the jurisdictional High Court in the case of A.A. Baniyan (supra), and M.C. Shah (supra), are distinguishable on facts from the instant case of the assessee. So also the decision of the Hon'ble Gauhati High Court in the case of Ram Krishna Banik (supra), which followed the decision of the Gauhati High Court in M.C. Shah's case (supra). In the case of K.A. Choudary (supra) the Hon'ble Andhra Pradesh High Court in Writ Petition No. 7216/1982, held that incentive bonus received from the employer is a part of salary. The Hon'ble High Court followed the decision of the Hon'ble Supreme Court in the case of Gestetner Duplicators (P.) Ltd. (supra). In this case the issue before their Lordships was whether the disallowance of proportionate amount pertaining to the commission paid to the salesman was salary. The assessee a private company employed three categories of salesmen. Under the terms of contract of employment assessee paid these salesmen a fixed monthly salary and also commission at fixed percentages of the turnover achieved by each salesman. Out of the total contributions to a recognised provident fund Assessing Officer disallowed a proportionate amount of the commission paid to the salesmen on the ground that it is salary within the meaning of rule 2(h) of Part A of Schedule IV to the Income Tax Act, 1961. This view was upheld by the Tribunal and, the High Court. Their Lordships of the Supreme Court reversed the decision and held that -
"Conceptually there is no difference between salary and wages, both being a recompense for work done or services rendered, though ordinarily the former expression is used in connection with services of non-manual type while the latter is used in connection with manual service."
However, their Lordships in this case, at page 14, held that -
"It is, therefore, clear that the ratio of the decision and the observations made by this court in a different context in that case would be inapplicable to the facts of the present case."
Their Lordiships further observed that the recognition was given to the provident fund as far back as 1937 by the CIT and such recognition was granted after true nature of the commission payable by the assessee to its salesmen under the contract of the employment had been brought to the notice of the Commissioner and that the said recognition was continued and remained in operation during the relevant assessment year in question. It was under these circumstances, their Lordships held that until the assessee contravened any of the conditions required to be satisfied for the recognition of the provident fund and until the Commissioner acting under the powers reserved to him withdraws such recognition the taxing authority must proceed on the basis that the provident fund has satisfied all the requisite conditions for its recognition for that year. It was under these circumstances their Lordships held that conceptually there is no difference between salary and wages, both being a recompense for work done or services rendered, though ordinarily the former expression is used in connection with services of non-manual type while the latter is used in connection with manual service. There was no occasion for their Lordships to consider in this case as to whether any expenditure incurred by the agent or the employee, it should be allowed or not as deduction. Hence the decision of their Lordships that the commission also partakes the character of salary for the purpose of provident fund, did not preclude us from considering whether actually expenditure incurred by the assessee should be allowed as deduction or not. Another question that arises for our consideration is as to whether it is always necessary to follow a decision in favour of the assessee where there are conflicting decisions of the High Courts on the same point. As a matter of fact it is an accepted position that when there are two conflicting decisions which is equally possible, the one in favour on the subject should be followed. But the Hon'ble Supreme Court ruled that if there are conflicting decisions, the one which the Bench feels more acceptable can be followed. Their Lordships had no occasion to go through the various rules and schemes with regard to incentive bonus as in none of the cases argument to this effect was advanced. In the case of Sarat Ch. Sahu (supra), their Lordships of the Orissa High Court remanded the matter back to the Tribunal to decide as to whether the incentive bonus is actually a part of salary or commission on the ground that coming to a conclusion that it is a part of salary Tribunal was not justified in holding that the expenditure incurred for the purpose of earning incentive bonus should be allowed. Coming to the argument of the learned Departmental Representative that this Bench has to follow the decision of the Tribunal which was decided in favour of the revenue in the case of Rajkumar B. Dudhwani (supra). It is necessary to state the facts and circumstances of the case. One of the arguments advanced by the Departmental Representative was that the department allows a deduction of 40% plus other admissible allowances to the subagents. A further allowance of 40% as a deduction again will almost lead to a total deduction of about 80%. We are afraid this argument is without basis. What is allowed to sub-agents is 40% of the 40% that is given to the Development Officers. Therefore, this argument of the Departmental Representative has no basis. In one of the cases before us Tribunal has taken a view against the assessee. However, at that time neither the Departmental Representative nor the assessee did bring to our notice the decision of the Hyderabad Special Bench of the Tribunal in the case of P. Dayakar (supra) [IT Appeal Nos. 1318 and 1319 (Hyd.) of 1986 dated 23-3-1989]. One of the arguments advanced by the learned counsel Mr. Dewani on behalf of the assessee was that the Development Officers are working in dual capacity - as an employee and also as an agent. Incentive bonus receipt flows from the services rendered by the LIC Development Officers in their capacity as agents. We have reproduced the relevant portions of the norms of Development Officers issued by Life Insurance Corporation of India dated 1st December, 1969. Clause 19 of the above norms states that though the Development Officers are regular employees of the Corporation, owing to the nature of their duties and conditions of work, even after the grant of automatic increments, they have no parallel either in Government or in public sector and their duties differ fundamentally from those of others. It further states that the Development Officers may not be salesmen in the sense insurance agents are, promoting sale of insurance policies is not only the most important part of their duties but the real justification for their employment. They have neither an office nor regular hours of office. The only proper way of judging their performance under these conditions is through the assessment of volume of business obtained by them making due allowance for varying conditions of work in different areas. In fact the remunerating field personnel partly on the basis of results has been the general practice both in India and elsewhere. Incentive bonus is paid on the basis of a separate scheme. In the appointment order there is no mention of any incentive bonus either during the probationary period or after confirmation. As a matter of fact all the officers whose salaries are the same do not receive incentive bonus equally and/or perhaps some of them may not receive at all. The committee appointed for the review of rules regarding the Development Officers made a suggestion that LIC should approach the CBDT to accept the services rendered by the Development Officers that entitle him to earn incentive bonus, rendered as an agent of the Corporation.
16. Letter reproduced in para 6 above from the Managing Director makes it clear that the L.I.C. of India does not allow reimbursement or special allowances towards expenditure in respect of items mentioned therein on the ground that the Development Officers are required to spend a part of the incentive bonus on this account. Hence the authority concerned makes a request that deduction under section 10(14) upto 30 per cent of the incentive bonus earned may be allowed as necessary expenses. This is a letter from the employer him-self indicating that the incentive bonus received by the Development Officers does not take part of salary but flows from the service rendered by him in a different capacity - agent. We have n noted hereinabove that the Development Officers are required to maintain independent offices, they have no specific time in office and have to incur expenditure on entertainment of agents etc. The above expenditure which is incurred if not taken into consideration treating whatever the Development Officer receives is salary which is taxing a subject on a notional income which he not only not receives but in fact he will never receive. This part of service rendered by the Development Officer takes the character of service rendered by an agent. In the case of Ram Prasad (supra) their Lordships of the Supreme Court held that -
"A managing director may have a dual capacity. He may both be a director as well as an employee. In the capacity of a managing director he may be regarded as having not only the capacity as persona of a director but also has the persona of an employee, or an agent depending upon the nature of his work and the terms of his employment. Where he is so employed, the relationship between him as the managing director and the company may be similar to a person who is employed as a servant or an agent, for the term 'employed' is facile enough to cover any of these relationships. The nature of his employment may be determined by the articles of association of a company and/or the agreement, if any, under which a contractual relationship between the director and the company has been brought about, whereunder the director is constituted an employee of the company, if such be the case, his remuneration will be assessable as salary under section 7. In other words, whether or not a managing director is a servant of the company apart from his being a director can only be determined by the articles of association and the terms of his employment."
It is clear from the above decision that the person can work in dual capacity as an employee as well as an agent depending upon the terms of agreement or appointment. We have seen hereinabove that the employer himself states that the duties of the Development Officers differ fundamentally from others and they have no parallel either in Government or in public sector. We have seen that the incentive bonus is received by the Development Officers not directly from the employment but from a different scheme introduced by the employer so as to encourage them f or the work. We have also seen that they are not having specific time or office and they have to incur expenditure on maintenance of office, training their sub-agents, travelling expenses etc. Hence it is not correct to say that whatever they receive is to be treated only as 'salary' and nothing else.
17. The question before us is whether the additional conveyance allowance received by the assessee is to be excluded from the total income by virtue of section 10(14) of the Income-tax Act.
"10(14)(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 the Central Government may, by notification in the Official Gazette, specify, to the extent to which such expenses are actually incurred for that purpose."
It is true that basic conveyance allowance is granted to Development Officers. It is also agreed that this basic conveyance allowance does not form part of the total income. The second limb of argument of the revenue is that since the additional conveyance allowance is linked to the quantum of premium received, it has no nexus with actual amount expended. It is also one of the arguments that the standard deduction is permitted, under section 16(1) of the Income-tax Act, it presupposes to cover the conveyance allowance expenditure and, therefore, no additional conveyance allowance is permissible.
18. The conveyance allowance in addition to the standard deduction in terms of provisions of section 16 has not been disputed by the department. Hence the dispute is only with regard to the additional conveyance allowance. In the case of P. Dayakar (supra) B-Ward, Warangal, Tribunal held vide para 6 of its order that the provisions of section 16(1) of the Income-tax Act, 1961 being in response to the provisions of section 7(2) of the 1922 Act, instead of various deductions that were permissible under 1922 Act, a standard deduction came to be prescribed and the quantum thereof has been varied from time to time. Tribunal further held that whatever may be the objection of allowing of an amount as standard deduction under section 16(1), it cannot be said that it fully covers all the expenditure incurred on conveyance allowance though it may take within the purview such expenditure also. Tribunal further held that the additional conveyance allowance in the case of a Development Officer is not an entertainment allowance nor is it a perquisite within the definition of section 17(2). We have seen that this expenditure is granted to meet expenses to Development Officers to sell life insurance policies and such expenses are wholly, necessarily and exclusively incurred for the purpose of their duties. Thus it follows that additional conveyance allowance is provided to neutralise the expenditure by the Development Officer in procuring new business. This additional conveyance allowance is based on the past experience of a statutory body. We have also seen hereinabove the Development Officers are appointing their sub-agents, they are having no specific office time nor the offices. They have to convey meetings, conventions and to incur expenditure on maintaining an office etc. In the letter hereinabove produced, we have also seen that the L.I.C. of India itself admits that they are not making any payment for the expenditure incurred. Thus there are certain expenditures which precede the incentive bonus receipt.
19. It is well known that only the actual receipt can be taxed. In the case of L.I.C. Officers they have already incurred certain expenditure. Under these circumstances only the actual receipt in their hands can be taxed whatever be the nature of income. Whatever be the nomenclature given whether salary or commission, an amount which has not been received actually cannot be taxed in the hands of the subject. If the assessee maintains an account then of course it is only the actual expenditure that can be allowed.
20. Shri T. S. Ramakrishnan, Advocate and Shri M. M. Jain, C.A., argued before us as amicus curia. Shri M. M. Jain invited our attention to the income from house property. It was submitted that the income from house property is to be assessed in accordance with sections 22 to 27 of the Act. Under section 23 Annual Letting Value of the property is determined. Section 23 provides the procedure for determination of Annual Value. The courts have been taking a view that when a landlord of a multi-storeyed building lets out different flats to different people and charges rent for that, then he charges a rent not only for the occupation of the accommodation but also for providing access to the accommodation. Maintenance of lift, provision of light in the passages are expenses incurred by the landlord on that portion of the property which is not let-out to a tenant. Therefore, if any deduction is not allowed to the landlord for the expenses incurred on providing such facilities to the tenants that the landlord will be burdened with an impossible burden. In such a case the annual letting value can be computed only after deducting such expenses incurred by the landlord. The other expenses are deducted only after computing the annual letting value in such a manner. It was submitted that when the Development Officers receive certain sum from the Life Insurance Corporation of India the expenditure that is required for earning that bonus or sum is built in the same. Shri Ramkrishnan invited our attention to the concept of real income. He submitted that the Development Officers are expected to incur certain expenses which are not reimbursed by the Life Insurance Corporation of India. They are expected to incur that expenditure from the commission or bonus or sum that is received by them. The expenditure is inherent in that bonus or sum. It is submitted that under the Income-tax Act unless there is a specific provision for not allowing a particular type of deduction to a person, such a deduction claimed by the person has to be allowed if without incurring that expenditure the person cannot earn the bonus or commission or such income. It was submitted that in case the Development Officer maintains an account of such expenses then the same has to be allowed in accordance with the account maintained by them. Otherwise any amount which is considered to be reasonable by revenue may be allowed. It is submitted that such expenses had to be reduced from the income received by them.
We are of the opinion that the job of a Development Officer is entirely different from the job of any other employee in any other organisation. The Development Officer is a salaried employee of the Life Insurance Corporation of India and receives a definite salary in a particular scale. Over and above that salary he becomes entitled to receive incentive bonus only if he brings prescribed minimum business to the L.I.C. The Development Officers of the L.I.C. of India has to maintain an independent office, has to call for the meeting of agents and has to pay rental to L.I.C. of India in case the conference of agents is addressed by him in a property belonging to L.I.C. of India. Therefore, we are of the opinion that the incentive bonus even if it is assessable under the head 'Salary' is receivable by the assessee only to the extent to which the assessee actually receives. We are of the opinion that none of the decisions relied upon either by the revenue or by the assessee deal with the concept of real income in the hands of such Development Officers. The incentive bonus receivable by such Development Officers can be received only if the Development Officer incurs certain expenditure for the same. Therefore, the expenditure is in-built in the amount receivable. Unless and until the Income-tax Act provides for a notional income to be assessed under the head "Salary" it will not be legally correct and proper to tax the person on the entire amount of the incentive bonus under the head 'Salary'. As rightly argued by Shri M. M. Jain many a times the annual letting value of a property is determined after allowing such expenses from the gross rental which strictly according to section 23 or 24 are not allowable. Expenses like that of lift maintenance, providing safe passage to the accommodation rented had to be deducted out of the gross rental. The whole idea behind such deduction is to arrive at real income and not a notional income. If any notional income has to be assessed then that has to be assessed specifically under the provisions of the Income-tax Act, under the head "Profits and gains of business or profession", section 28 prescribes for charging tax under the head 'Profits & gains of business or profession' from the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year. Clauses 2 to 5 provide for certain specific items which are to be treated as assessable under the head 'Income from business or profession'. The income from profits and gains of business or profession had to be computed in accordance with the provisions contained in sections 30 to 43 D. If we make a study of the different sections from 30 to 43 D, we find that the expenses incurred by an assessee on account of purchases made for making sales is not provided in any one of the sections. The reason is obvious that the same is considered as an outgoing under section 20 itself. We are, therefore, of the opinion that merely because a particular item of receipt is treated as taxable under the head'Salary'an assessee cannot be denied a charge against such a salary if it is in-built in the receipt itself. Their Lordships of the Supreme Court in the case of Ram Prasad (supra), have clearly distinguished the dual capacity of a Managing Director. Therefore, it is possible for an assessee deriving an income from a particular master to receive a certain incentive which can be received by him only if he incurs a particular expenditure. In such a given case the expenditure which is built in such a receipt has to be deducted before the income can be treated as assessable under the head 'Salary'.
21. As discussed above, it is possible under the provisions of the Income-tax Act to allow deduction under a particular head of income which is specifically not provided under that particular head of income. If it is held that it is not possible to earn income under that head without incurring that expenditure we can say that such an expenditure is a sort of charge at the very inception of the receipt. The Development Officer will not receive the incentive bonus unless he makes certain arrangements, contacts people, organises them and incurs expenditure on that. As a matter of fact the Development Officer receives the bonus only after paying out certain amounts as an overriding charge. We are, therefore, of the opinion that this assessee before he received the incentive bonus incurred certain expenditure on the same. As clarified by the L.I.C. such Development Officers do not receive any reimbursement of expenses incurred by them for earning the incentive bonus. We are, therefore, of the opinion that even if the amount received by the assessee is assessable under the head "Salary" he has to be assessed only on that amount which is actually received by him or which can be actually received by him and not the notional income. If an assessee maintains complete accounts for incurring expenditure then the deduction has to be given on the basis of such a claim. In case he does not maintain proper books of account a certain reasonable amount may be allowed as deduction as a charge against this head of income. Such a reasonable amount may be fixed by the CBDT under its own powers. In this case such an expenditure is claimed at 40 per cent of the gross receipt which, in our opinion, is quite reasonable and has to be allowed as deduction. We so direct.
22. In the result, the appeal is allowed.