Syed Shah Mohammed Quadri, J.:— In this batch of cases, under Section 256(1) of the Income Tax Act, 1961, the following two questions are referred to this Court for opinion.
(1) Whether on the facts and in the circumstances of the cases, the Income Tax Appellate Tribunal is correct in holding that 40% of the Incentive bonus is an allowance of the nature mentioned under Section 10(14) and exempting the same under that provision?
(2) “Whether on the facts and in the circumstances of the case, the finding of the Income-Tax Appellate Tribunal that the incentive bonus included an allowance either to the extent proved or reasonably 40% of the incentive bonus, which is exempt under Section 10(4), is based on any material available on record?
2. To answer the above questions it may be useful to refer to the facts in one of the cases. We proposed to refer to the facts as stated in the statement of case in R.C No. 30 of 1991. The assessee was the Development Officer in Life Insurance Corporation of India, Cuddapah. For the Assessment year 1983-1984, he returned income of Rs. 29,070/- and also disclosed that he received “incentive bonus” of Rs. 36,837-42 against which he claimed to deduct expenses at 40% of the said sum amounting to Rs. 14,732/- and accordingly deducted the same. The Income-tax Officer disallowed the expenses claimed by the assessee. Dissatisfied with the order of assessment dated March 27, 1986 the assessee preferred an appeal before the Appellate Assistant Commissioner of Income-tax. On May 27, 1987 the Appellate Assistant Commissioner of Income-tax allowed the Appeal upholding the claim of the assessee to deduct 40% of the incentive bonus towards expenses. Aggrieved by the said order of the Appellate Assistant Commissioner of Income-tax, the Revenue preferred an appeal before the Income-tax Appellate Tribunal, Hyderabad. The Appeal was heard along with a batch of appeals out of which some were filed by the assesses and some by the Revenue. As common questions of feet and Law were raised, the Tribunal disposed of those appeals by a common judgment on January 31, 1990. At the instance of the Revenue the afore mentioned questions of law were referred to this Court under Section 256(1) of the Income-tax Act, 1961. Sri Habeeb Ansari, the learned Standing Counsel for the Revenue, submitted that those questions are covered against the assessee by two Division Bench Judgments of this Court in Krishna Murthy v. C.I.T (1) 152 ITR 163 and K.A Choudhary v. C.I.T (2) 183 ITR 29.
3. Sri Y. Ratnakar, Sri A. Satyanarayana and Sri P. Srinivasa Reddy, the learned counsel appearing for the assessees in the above said R.Cs, supported the order of the Tribunal on various grounds. It was contended that the incentive bonus did not form part of the ‘Salary’ therefore it could not be included as receipt under, the head ‘Salary’ and that it should be treated as income from other sources and accordingly the net income after excluding necessary expenses should be taken as taxable income. They further submitted that even if it is treated as ‘SALARY’, the expression ‘salary’ should be so construed as to bring in net salary after excluding expenses incurred in earning the salary and that would be the real income. It was also contended that even though there was no provision in the Income-tax Act for deducting 40% of the incentive bonus, what was taxable was only the net in come and not the gross receipt, therefore to arrive at the correct income the expenditure incurred for earning such income should be deducted. It was argued that the Development Officers incurred lot of expenditure in holding seminars, in extensive travelling and in providing refreshments to the agents and others, so deduction of 40% of the incentive bonus should in any event be allowed.
4. On the above contentions, the following points arise for consideration:—
(1) Whether ‘incentive bonus’ fells within the meaning of ‘salary’ under Section 17 of the Income-tax Act, 1961?, and
(2) if so, whether any expenditure other than that mentioned in Section 16 can be permitted as allowable deduction?
5. Section 15 of the Income-tax Act, 1961 specifies the income as chargeable to Income-tax under the head “salary”. The word “Salary”, “perquisite” and “profits in lieu of salary” are defined in Section 17 for purposes of Sections 15 and 16. We may note here that Section 16 of the Act enumerates deductions which are deductable in computing the income chargeable, under the head “salary”.
6. From a Reading of the above said provisions, it follows that if incentive bonus falls within the meaning of “salary” or “perquisite” or “Profits in lieu of salary” within the meaning of those expressions under Section 17, it would be chargeable to tax under the head “salary” and the only deductions permissible in law are those specified in Section 16 of the Act. In Krishna Murthy v. C.I.T (1 Supra) one of the questions which fall for consideration of the Division Bench of this Court, was whether the incentive bonus paid to the employees of the A.P State Electricity Board, which was initially paid to the employees in the Thermal Station at Vijayawada but was later extended to the other employees of the Board, would fall within the meaning of “perquisite”. The Division Bench observed that the payment under the head “incentive bonus” had the character of additional remuneration for services rendered by the employees for exerting more strain to maximise generation of electricity and did fall within the meaning of “perquisite”. There it was mentioned that there was no contractual or statutory obligation on the part of the Board to pay bonus and that it was a voluntary payment and therefore it could not be treated as “perquisite” but the Division Bench rejected the same. However, it was urged by the learned counsel for the assessees that, that case did not relate to LIC employees. In our view for considering the question whether incentive bonus falls within the meaning of “perquisite”, the feet that, that case did not relate to the employees of the LIC would hardly make us any difference.
7. In a subsequent Judgment of the Division Bench of this Court in K.A Choudary v. C.I.T (2 Supra) which is a direct case on the point now in issue, the question before the Division Bench was whether incentive bonus paid to the Development Officers of the LIC would fall within the meaning of “Salary”. In that case the matter arose on a writ petition filed by a Development Officer of the Life Insurance Corporation of India. He had received certain amount by way of incentive bonus, viz., Rs. 9,536/- during the previous year relevant to the assessment year 1981-1982. He claimed deduction of Rs. 4,768/-, that is 50% of the incentive bonus by way of expenses in learning the said incentive bonus. That claim was rejected by Income-tax Officer and was confirmed on appeal by the Appellate Assistant Commissioner of Income-tax as well as by the Commissioner of Income-tax in revision. Challenging the correctness of the Order of the Commissioner of the Income-tax, the assessee filed the writ petition. The Division Bench which dealt with the writ petition referred to the Judgment in Krishna Murthy's case (1 Supra) and held that ‘incentive bonus’ would fall within the meaning of “Salary”.
8. Sri Y. Ratnakar, the learned counsel appearing for assessee in some of the batch cases, pointed out the fact that the Division Bench referred to the definition of the “Wages” under the Payment of Wages Act, 1936 to come to the conclusion that ‘bonus’ was included within the meaning of ‘wages’ and argued that the Payment of Wages Act had no application to the Development Officer of Life Insurance Corporation of India, as such the ratio of the said judgment required re-consideration. A perusal of the Judgment of the Division Bench shows that reliance on the Payment of Wages Act was an additional ground. The Division Bench rested its conclusion on the decision of this Court in Krishna Murthy's case (1 Supra) and the judgment of Allahabad High Court in CIT v. Hind Lamps Ltd. (3) 122 ILR 451 (Allahabad). Therefore, the reason that Payment of Wages Act had no application to the Development Officer, would not militate against the authority of that judgment of the Division Bench.
9. In view of the above judgment, it cannot but be held that “incentive bonus”, whether treated as part of the salary or perquisite, is taxable under the head “salary” and the permissible deduction under the said head are as specified under Section 16 of the Act. It is nobody's contention that 40% of the bonus, deducted by the assessee as expenditure and upheld by the Tribunal, falls under any of the items under Section 16. Thus the expenditure is other than permissible deductions under Section 16 of the Act. It has already been observed above that in only permissible deductions under the head “salary” are those mentioned in Section 16 and if any expenditure does not fall within the meaning of Section 16 it cannot be allowed.
10. However, it is further contended that the said expenditure would be allowable under Section 10(14) of the Act. The said provision, insofar as it is relevant for our purpose, reads as follows:
“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 Officer/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;
(ii) Any such allowance granted to the assessee either to meet his personal expenses at the place where he ordinarily resides, or to compensate him for the increased cost of living as the Central Government may, by notification in the Official Gazette, specify, to the extent specified in the notification.
11. Provided that nothing in Sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office of employment unless such allowance is related to the place of his posting or residence.”
12. A perusal of the above said Provisions shows that their requirements are;
(1) the amount in question is in the nature of special allowance or benefit;
(2) the special allowance or benefit is not in the nature of perquisite within the meaning of Section 17(2);
(3) such amount is specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of duties of an office or employment of profit; and
(4) Such amount would be specified and notified in the official Gazette by the Central Government.
13. It is only where these requirements are satisfied, that the deduction would be allowable only to the extent to which such expenses are actually incurred for the purpose mentioned above.
14. We shall now examine whether the said requirements are fulfilling in this case. We have already noted the Division Bench Judgment in Krishna Murthy's case (1 Supra) wherein it is laid down that the incentive bonus is in the nature of perquisite within the meaning of Section 17(2) of the Income-tax Act; further to enable the assessee to have the advantage of the said provision there must be a notification by the Central Government specifying the extent to which the expenses are allowable. In the instant case there is no such notification. For these reasons, in our view, the assessees cannot draw any support from Section 10(14) of the Act.
15. No judgment is brought to our notice taking the view contrary to the decision of this Court in K.A Choudary v. C.I.T (2 Supra) which is binding on us. In our view that judgment does not require reconsideration. In this view of the matter, we do not consider it necessary to delve in to the other contentions raised by the learned counsel appearing for the assessees or deal with the Judgments cited in support thereof. From the above discussion it follows that the first question will have to be answered in the negative, i.e, in favour of the Revenue as against the Assessee. So also the second question has to be answered.
16. The references in the above R.Cs are accordingly answered. In the circumstances of the cases, there shall be no order as to costs.