Calcutta H.C : Whether, on the facts and in the circumstances of the case, particularly, when the incentive bonus has been assessed under the head salary and not as professional income, the Tribunal was justified in law in allowing 40 per cent deduction from the incentive bonus ?

JUDGMENT

BY THE COURT :

On an application under s. 256(1) of the IT Act, 1961, the Tribunal has referred the following :

“Whether, on the facts and in the circumstances of the case, particularly, when the incentive bonus has been assessed under the head salary and not as professional income, the Tribunal was justified in law in allowing 40 per cent deduction from the incentive bonus ?”

2. The assessee is a Development Officer of the LIC. The assessee claimed an amount of Rs. 23,871 as expenses against incentive bonus received as per separate P&L a/c. The AO rejected the claim of the assessee on the ground that the assessee is an employee and received the incentive bonus on account of an employee of the LIC. When standard deduction under s. 16 has been allowed there is no question of further allowing 40 per cent deduction from the incentive bonus. This view has been affirmed by the CIT(A). In appeal before the Tribunal, Tribunal has followed the decision of the Bombay High Court in CIT vs. A.A. Baniyan (1992) 106 CTR (Bom) 276 : (1992) 197 ITR 717 (Bom) : TC 55R.186 and further took the view that when two informations are possible, following the view taken by apex Court in CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) : TC 49R.516, the view favouring assessee be taken.

None appeared for the assessee though the matter was listed 2/3 times. Heard learned counsel for the Revenue. Learned counsel for the Revenue submits that the ratio of the case an A.P. Baniyan (supra) is not applicable as there was a finding that assessee has received the bonus as professional income and that was not challenged. But in the case in hand, the assessee is employee of the LIC received the bonus in the capacity of employee of the LIC. He further placed reliance on the decision of Andhra Pradesh High Court, in K.A. Choudhury vs. CIT (1990) 183 ITR 29 (AP) : TC 58R.253.

The perusal of the authorities below including AO and the CIT(A) reveals that there is a categorical finding by the AO and CIT(A) that in the case in hand, the assessee in an Development Officer. He is not doing agency business for LIC. He is being paid as employee of the LIC. There is a clear relation of employer and employee between the assessee and the LIC. The incentive bonus on commission which has been paid for the extra work of the assessee by the employer, which is in lieu or in addition to the salary and form part of salary by virtue of s. 17(1) of the IT Act, 1961. The standard deduction has already been allowed to the assessee under s. 16(1) of the Act.

The same view has been taken by the CIT(A) when the assessee is an employee of LIC and the standard deduction has been allowed under s. 16(1)(i) of the IT Act, 1961, and, when the bonus is paid for its extra work, that is nothing but in lieu of salary and that forms part of the salary. No extra deduction out of that amount is permissible.

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

In the case of K.A. Choudhury (supra), the Andhra Pradesh High Court has relied on the decision of the Supreme Court in Gestetner Duplicators (P) Ltd. vs. CIT (1979) 8 CTR (SC) 371 : (1979) 117 ITR 1 (SC) : TC 15R.1187 and also on the decision in the case of M. Krishna Murthy vs. CIT (1985) 152 ITR 163 (AP) : TC 58R.333 wherein the view has been taken on incentive bonus while considering the applicability of s. 40A of the IT Act, that incentive bonus forms part of the salary. Once the standard deduction under s. 16 of the IT Act is allowed, no further deduction is warranted from the bonus receipts.

We are in agreement with the Andhra Pradesh High Court. When the employee received bonus from the employment while in employment for the extra work, this is nothing but forms part of the salary and once the standard deduction is allowed to the assessee as employee treating his income as salary income (sic there) is no question of any further allowance out of the bonus of commission received from the employment.

In the result, we answer the question in the negative that is in favour of the Revenue and against the assessee. The reference application so made is, accordingly, disposed of.

[Citation : 250 ITR 828]