V.v.s.rao, J v. R.kantha Rao, J

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.38 of 1996 Dated:20.12.2011 Between: Commissioner of Income Tax,Andhra Pradesh-II, Hyderabad. …Applicant and Sri K.Vishweshwar Rao. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.38 of 1996 ORDER:(Per Hon’ble Sri Justice V.V.S.Rao) The following two questions are referred to this Court under Section 256(1) of the Income Tax Act, 1961 (the Act), at the instance of the Revenue. 1. Whether on the facts and in the circumstances of the case,the ITAT was justified in law in holding that the assessee, asalaried employee of LIC, was entitled to deduction of 40% onthe incentive bonus received from his employer? 2. Whether on the facts and in the circumstances of thecase, the ITAT was right in holding that the additionalconveyance allowance received by the assessee from hisemployer was entitled to exemption u/s.10(14) of the Income-Tax Act? To appreciate the questions, the brief facts may be noticed. The respondent/assessee at the relevant time was DevelopmentOfficer. For the financial year relevant to the assessment year1986-1987, he received incentive bonus from the Life InsuranceCorporation of India. He was also paid additional conveyanceallowance. In his return of income he claimed deduction of 40% ofthe incentive bonus under Section 10(14) of the Act. Insofar asthe additional conveyance is concerned, he claimed the entireamount as deduction. The Income Tax Officer disallowed thedeductions. The assessee was successful before theCommissioner of Income Tax (Appeals). Aggrieved, the Revenuewent in further appeal, and the Tribunal upheld the order of the firstappellate authority. Feeling aggrieved, the Revenue soughtreference under Section 256(1) of the Act. Insofar as the first question is concerned, the same issquarely covered by the judgment of the Division Bench of thisCourt in Commissioner of Income Tax v B. Chinnaiah[[1]], whereinit was held as under. … In view of the above judgments, it cannot but beheld that “incentive bonus”, whether treated as part of thesalary or perquisite, is taxable under the head “Salary” and thepermissible deductions under the said head are as specifiedunder Section 16 of the Act. It is nobody’s contention that 40percent of the bonus, deducted by the assessee asexpenditure and upheld by the Tribunal, falls under any of theitems under section 16. Thus the expenditure is other thanpermissible deduction under section 16 of the Act. It hasalready been observed above that the only permissibledeductions under the head “Salary” are those mentioned insection 16 and if any expenditure does not fall within themeaning of section 16, it cannot be allowed. … Insofar as the second question is concerned, it is alsocovered by an unreported decision of this Court in Commissionerof Income Tax, Visakhapatnam v P.V.Narasimaha Rao, Visakhapatnam(Referred Case No.117 of 1992, dated10.10.1996). Considering the similar question, this Court held asunder. Insofar as the second question is concerned, it is alsocovered by an unreported decision of this Court in Commissionerof Income Tax, Visakhapatnam v P.V.Narasimaha Rao, Visakhapatnam(Referred Case No.117 of 1992, dated10.10.1996). Considering the similar question, this Court held asunder. … In our view where amounts are paid to theemployees by an employer to meet expenses wholly,necessarily and exclusively for the performance of the duties,such amounts can be exempted to the extent it is shown thatit has been incurred for the purpose for which it was granted. In the case of employees of the State or Corporations,whether statutory or otherwise, where the employer afterhaving surveyed the actual expenditure necessary forperformance of the duty, grants monthly allowance generallyto all the employees, it is to be presumed that the entireexpenditure has been incurred for the purpose for which it hasbeen granted, for it is not incurred for which it has been given,it would entail disciplinary action against the employee. Unless such a case has been initiated against an employeeby an employer, the said presumption that the employee hasincurred the expenditure for which it is granted, will apply andit will not be necessary for the employees to submit accountsevery month to the employer and along with return to theassessing authority. If, in such matters, filing of the accountsand vouchers/receipts are insisted upon to claim exemptionunder Section 10(14) of the Act by the Income-tax authorities,it will lead to voidable waste of time and expenditure andwould serve no useful purpose but on the contrary it would becounter productive. In this view of the matter, we hold that theadditional conveyance allowance is exempt under Section10(14) of the Act. … Following the above, the first question is answered in thenegative in favour of the Revenue and against the assessee. Thesecond question is answered in the affirmative in favour of theassessee and against the Revenue. The Referred Case is accordingly disposed of without anyorder as to costs. _______________ (V.V.S.RAO, J) ____________________ 20.12.2011 vs [1](1995) 214 ITR 368 (R.KANTHA RAO, J)