This Court Heard The Junior Standing Counsel For Income-Taxdepartment. He Placed Reliance On Commissioner Of Income Tax v. B.chinnaiah (1994) 214 Itr 368 And Submits That The Incentive Bonus Cannotbe Treated As A Deduction Under Section 10(14) Of The Act

THE HON'BLE SRI JUSTICE V.V.S.RAOANDTHE HON'BLE SRI JUSTICE RAMESH RANGANATHAN R.C. No.197 of 1996 ORDER:(Per Hon’ble Sri Justice V.V.S.Rao) The respondent Sri M. Krishna Reddy, Development Officer in LifeInsurance Corporation of India filed return for 1984-85. He claimed 40% ofincentive bonus as exempt under Section 10(14) of the Income-tax Act,1961. The Commissioner of Income-tax, however, suo motu revised holdingthat incentive bonus forms part of salary under Section 17 and, therefore, isoutside the scope of Section 10(14). The assessee appealed successfully. On a reference sought by the revenue, the following question are referred tothe High Court. 1.Whether on the facts and in the circumstances of the case, theTribunal was justified in holding that 40% of the incentive bonusshould be allowed as an expenditure in addition to the standarddeduction under Section 16(1) and more so when the expenditureinvolved, if any, in travelling is covered by the conveyance andadditional conveyance allowance provided by the employer andexempted under Section 10(14) of the Income Tax Act, 1961?Tribunal was justified in holding that 40% of the incentive bonusshould be allowed as an expenditure in addition to the standarddeduction under Section 16(1) and more so when the expenditureinvolved, if any, in travelling is covered by the conveyance andadditional conveyance allowance provided by the employer andexempted under Section 10(14) of the Income Tax Act, 1961? 2.Whether on the facts and in the circumstances of the case, the ITATis correct in law in holding that the order of the CIT passed underSection 263 was not prejudicial to the interests of revenue?is correct in law in holding that the order of the CIT passed underSection 263 was not prejudicial to the interests of revenue? Inspite of service of notice, none appears for the assessee. This Court heard the Junior Standing Counsel for Income-taxdepartment. He placed reliance on Commissioner of Income Tax v. B.Chinnaiah (1994) 214 ITR 368 and submits that the incentive bonus cannotbe treated as a deduction under Section 10(14) of the Act. In K. A. Chowdary v. Commissioner of Income Tax (1990) 183 ITR29, it was held that the incentive bonus would fall within the meaning ofsalary under Section 17. In B. Chinnaiah[1], following the same, the Divisionbench answered a similar question in favour of the revenue. The relevantobservations are as follows: “A perusal of the abovesaid provisions shows that their requirementsare : (1) the amount in question is in the nature of special allowance orbenefit; (2) the special allowance or benefit is not in the nature of perquisitewithin the meaning of section 17 (2); (3) such amount is specifically grantedto meet expenses wholly, necessarily and exclusively incurred in theperformance of duties of an office or employment of profit; and (4) suchamount should be specified and notified in the Official Gazette by theCentral Government. It is only where there requirements are satisfied, that the deductionwould be allowable only to the extent to which such expenses are actuallyincurred for the purpose mentioned above. We shall now examine whether the said requirements are fulfilled inthis case. We have already noted the Division Bench judgment in M.Krishna Murthy's case [1985] 152 ITR 163 (AP), wherein it is laid down thatthe incentive bonus is in the nature of a perquisite within the meaning ofsection 17 (2) of the Income-tax Act; further, to enable the assessee to havethe advantage of the said provision there must be a notification by theCentral Government specifying the extent to which the expenses areallowable. In the instant case, there is no such notification. For thesereasons, in our view, the assessees cannot draw any support from section10 (14) of the Act. We shall now examine whether the said requirements are fulfilled inthis case. We have already noted the Division Bench judgment in M.Krishna Murthy's case [1985] 152 ITR 163 (AP), wherein it is laid down thatthe incentive bonus is in the nature of a perquisite within the meaning ofsection 17 (2) of the Income-tax Act; further, to enable the assessee to havethe advantage of the said provision there must be a notification by theCentral Government specifying the extent to which the expenses areallowable. In the instant case, there is no such notification. For thesereasons, in our view, the assessees cannot draw any support from section10 (14) of the Act. No judgment is brought to our notice taking a view contrary to thedecision of this court in K. A. Choudary v. CIT [1990] 183 ITR 29, which isbinding 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 into theother contentions raised by learned counsel appearing for the assessee ordeal with the judgments cited in support thereof.” In view of the two Division bench judgments of this Court, we answer the reference in the negative in favour of the revenue. There shall be noorder as to costs. ______________ V.V.S.RAO, J Date: 16.11.2010 ____________________________ RAMESH RANGANATHAN,J MRKR