Ramachandran Nair,J v. I.t.a. Nos.27 Of 2003 And 513 Of 2009

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN WEDNESDAY, THE 28TH OCTOBER 2009 / 6TH KARTHIKA 1931 ITA.No. 27 of 2003() -------------------- ITA.238/2002 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT: ----------------------------------------- THE COMMISSIONER OF INCOME TAX, KOTTAYAM. BY ADV. SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENT(S): APPELLANT: ------------------------- SHRI JOHN VARGHESE, DEVELOPMENT OFFICER, LIC OF INDIA, KADAMMANITTA. ADV. SRI.A.KUMAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 28/10/2009 ALONG WITH ITA NO.513/09, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. --------------------------------------------- I.T.A.Nos. 27 of 2003 & 513 of 2009 --------------------------------------------- Dated this the 28[th] day of October, 2009 J U D G M E N T Ramachandran Nair,J: The question raised in the connected casespertaining to assessment of L.I.C.Development Officers iswhether the Tribunal was justified in holding that 35% ofthe Incentive Bonus paid by the L.I.C. to the developmentofficers is exempted from income tax based on theIncentive Bonus Scheme, 1997 and Reimbursement ofExpenses Scheme, 1997 framed by the L.I.C. of India.The issue came up before this Court on an earlieroccasion and in the decision reported in C.I.Tv.T.K.Ginarajan, Development Officer, L.I.C. of India(253 ITR 463), this Court held that incentive bonusconstitutes salary and the deduction admissible tosalaried employees is only standard deduction providedunder Section 16(1) of the Income Tax Act, 1961. I.T.A. Nos.27 of 2003 and 513 of 2009 However, it was left open to the LIC to providereimbursement of actual expenditure incurred in thecarrying on the activities of the Development Officers.The L.I.C. has framed the above schemes wherein withoutproviding for reimbursement of actual expenditure, theyhave provided that 35% of the incentive bonus paid istreated as actual expenditure. Even though originally theassessing officers allowed the claim, it was later re-opened by the Commissioner under Section 263. TheTribunal, however, set aside the orders of theCommissioner and held that the LIC Scheme should befollowed for the purpose of the assessment of incentivebonus given to the Development Officers. We sought aclarification from the Central Board which has conveyedits opinion that the LIC Scheme on incentive bonus is notconsistent with the provisions of the Income Tax Act andRules. In other words, there is conflict between the twoDepartments of the very same ministry viz., the Finance I.T.A. Nos.27 of 2003 and 513 of 2009 :-3-: Ministry. In our view, this is not a matter which should beleft to the court for decision or before departmentalauthorities and it should be sorted out by the Ministryitself. We are further of the view that it would not be fairto reopen the assessments completed granting taxbenefits in terms of the scheme framed by the LIC. We,therefore, dismiss the appeals giving freedom to theCentral Board to take up the matter with the LIC so thatthe scheme is suitably amended consistent with theprovisions of the Income Tax Act and Rules. C.N.Ramachandran Nair, Judge. V.K.Mohanan, Judge. MBS/ I.T.A. Nos.27 of 2003 and 513 of 2009 :-4-: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. --------------------------------------------------- I.T.A.NO. OF 200 -------------------------------------------- I.T.A. Nos.27 of 2003 and 513 of 2009 :-5-: J U D G M E N T DATED: -9-2009 I.T.A. Nos.27 of 2003 and 513 of 2009