ORDER
R. L. SANGANI, J.M. :
These appeals by the assessee are directed against the common order dt. 31st Jan., 1989 relating to asst. yrs. 1984-85 to 1987-88 passed by the CIT, Gujarat III, Ahmedabad in exercise of powers under S. 263 of the IT Act, 1961.
2. The assessee was a Development Officer of the LIC. In addition to salary and perquisites, he received, what is known as incentive new business bonuss from the LIC. A Development Officer is essentially a field worker. He has to contact agents as well as prospective policy holders in the field. Although a Development Officer is a regular employee of the LIC and in that capacity gets certain fixed salary and perquisites, yet his efforts to bring extra business are compensated by LIC by giving him incentive new business bonus which is worked out on certain prescribed criteria. According to the LIC Development Officers order, 1978, the incentive bonus is not considered to be part of annual remuneration as will be clear from the following extracts :
“Annual remuneration” – means the basic pay, special pay, personal pay, dearness allowance, and all other allowances and non-profit sharing or ex gratia bonus due or paid to Development Officer during the appraisal year and includes the expenses payable or reimbursed to him or incurred by the Corporation during that year in respect of travelling, residential telephone and insurance premium and taxes on motor vehicles, but does not include, incentive bonus and additional conveyance allowance paid to him.”
3. The assessee had claimed deduction of expenses incurred for earning incentive bonus. The claim was 50% of the incentive bonus. The said claim had been allowed by the ITO in the original assessment orders for the above mentioned years. The learned Commissioner by his common order dt. 31st Jan., 1989, passed under S. 263 of the Act, has directed the ITO to withdraw deduction of expenses allowed in the assessment orders. The reason given by the learned Commissioner is that incentive bonus was part of salary and as such what all the assessee is entitled to is standard deduction under S. 16(1) and that expenses incurred in earning the incentive bonus were not allowable.
4. The learned counsel for the assessee relied on several decisions of the Tribunal which had also been cited before the learned Commissioner in which 40% of incentive bonus has been allowed as deduction. It was submitted that the Benches of the Tribunal have consistently upheld the allowance of 40% of the incentive bonus as deduction and as such the assessment orders could not be regarded as erroneous or prejudicial to the interest of Revenue.
5. The submission on behalf of the Department, on the other hand, was that we should not follow the earlier decisions of the Benches of the Tribunal in view of the subsequent decision of Andhra Pradesh High Court in K. A. Choudary vs. CIT (1990) 183 ITR 29 (AP).
6. We have considered the rival submissions and facts on record. We find that incentive bonus is not akin to the ordinary bonus given under the Payment of Bonus Act. It is an additional amount which is given to the assessee on the basis of the additional field work which results in bringing of additional premium to LIC from new customers. The definition of the term salary in S. 17 is very wide and that definition includes profits in lieu of and addition to salary. Consequently, the question to be considered is under what head the incentive bonus would be assessable. The answer would be that it would be assessable under the head salaries. As far as the amount which represents salary in the ordinary sense of the term is concerned, the gross amount received from the employer is liable to be included and only deduction allowable is that prescribed under S. 16(1) of the Act. However, incentive bonus in the present case does not represent salary in the ordinary sense of the term and it is included under the head salary because of wide definition in S. 17 of the Act. The incentive bonus represents additional profits which have been earned by the assessee by extra work. These profits are assessable under the head “salaries” along with the salary in the ordinary sense. However, as far as these profits are concerned, the net amount and not the gross amount would be includible. It is for this reason that the Tribunal in the case of ITO vs. Narendra V. Patel (1985) 21 TTJ (Bom) 60 (TM) : (1985) 21 Taxman 45 (Bom) (TM) has laid down that the expenditure incurred for earning the said incentive bonus was liable to be deducted at the starting point itself under S. 15 while determining the amount of incentive bonus which was chargeable to tax. This view was based on the principle laid in Badridas Daga vs. CIT (1958) 34 ITR 10 (SC) and Poona Electric Supply Co. Ltd. vs. CIT (1965) 57 ITR 521 (SC). This decision has been consistently followed by all the benches of the Tribunal.
7. As far as the decision of Andhra Pradesh High Court is concerned, we find that the petitioner in that case had filed writ petition in which he had claimed that incentive bonus represented income from profession and did not represent salary income and as such said income was assessable under the head income from business or profession and for that reason expenses incurred were allowable as deduction. The High Court considered the narrow question whether the said amount was assessable as income from salary or income from business or profession. The High Court held that the said amount was assessable as income from salary and not as income from business or profession. On the basis of this finding the conclusion was that expenses which were claimed as business or professional expenses were not allowable as deduction. The High Court did not consider the question whether the expenses incurred for earning the incentive bonus were allowable as deduction at the starting point itself in view of the fact that incentive bonus did not represent salary in the ordinary sense but it represented salary because of the technical definition given in S. 17 of the Act. That point had been considered by the Tribunal in the case of Narendra V. Patel (supra). Consequently, we find no justification for departing from the view which have been consistently taken by the Benches of the Tribunal on this point. We accordingly hold that expenses incurred for earning the incentive bonus by Development Officers were allowable as deduction and that net incentive bonus alone was includible in the computation of income under the head salary.
8. The question is as to what amount should be allowed as deduction. The Board has issued circular in which Assessing Officers were directed to allow an ad hoc deduction to insurance agents of LIC at 40% of the first years commission and 15% of the renewal commission for expenses. Since the nature of activities of insurance agents and development officers was similar, the benches of the Tribunal at Ahmedabad had been allowing 40% of incentive bonus as deduction to Development Officers. At Bombay some of the Benches had been allowing deduction at 25% of incentive bonus. It is true that regarding insurance agents the Board has by subsequent letter in 1984 raised the rate of deduction to 50%. However, as far as Development Officers are concerned, taking into consideration the fact that several facilities are allowed by the LIC, deduction in excess of 40% should not be allowed. In fact the allowance of deduction at 40% should not be regarded as invariable. In a given case, the ITO would be entitled to bring on record material which would indicated that the development officer would not have incurred 40% expenditure to earn incentive bonus. If such material is brought on record then expenditure at less than 40% would be allowable. Everything would depend upon what material the ITO brings on record. In the present case, the learned Commissioner was not justified in directing the ITO to withdraw the entire deductions allowed for earning the incentive bonus. On facts of the present case, when we are dealing with appeals against revision orders, we do not find justification for not allowing 40% of the incentive bonus as had been allowed in several cases which were cited before us. However at the same time, we see no reason for allowance of higher deduction at 50% as had been done by the ITO. We, therefore, modify the order of the learned Commissioner and direct the ITO to allow 40% of the incentive bonus as deduction and include the net amount after such deduction in the salary income.
9. The appeals are partly allowed.