(Per: HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. By this petition under Article 226 of the Constitution of India, the petitioner has challenged order dated 19.2.2002 passed by the Commissioner of Income-Tax, Jamnagar whereby he has rejected the petitioner's application under section 264 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The petitioner, an individual, was at the relevant time in the employment of the Life Insurance Corporation of India (LIC) as a Development Officer. It is the case of the petitioner that Development Officers receive from the LIC incentive bonus in order to reimburse the expenditure required to be incurred for procuring business. According to the petitioner, part of the incentive bonus received is required to be exempted under the provisions of the Act.
3. The petitioner raised the issue for the first time in the assessment year 1982-1983 which was accepted by the Appellate Commissioner by holding that the petitioner was entitled to deduction of 40% of the incentive bonus as expense. Since the petitioner had not claimed the said relief in the original return for the assessment years 1975-76 to 1981-82, he approached the respondent by way of a revision petition. The said revision petition came to be rejected as time barred. The petitioner challenged the said order before this court by way of a writ petition being Special Civil Application No.6688/1999. The said petition came to be disposed of with a direction to the respondent to rehear the petitioner’s revision application by taking into consideration the decision of this court in the case of Commissioner of Income-Tax v. Kiranbhai H. Shelat and another, (1999) 235 ITR 635 .
4. By the impugned order, the respondent- Commissioner held that the decision of this court in the case of Kiranbhai H. Shelat (supra) is in contradiction to the decision of the Supreme Court in case of Gestetner Duplicators P. Ltd. v. Commissioner of Income-tax, West Bengal, 117 ITR 1, as well as the decision of a Full Bench of the Karnataka High Court in the case of Commissioner of Income-tax v. M.D. Patil, 229 ITR 71, and accordingly, declined to follow the decision of this High Court and rejected the application under section 264 for all the assessment years. It is this order which has been called in question in the present petition.
5. Mr. Manish Kaji, learned counsel for the petitioner assailed the impugned order by submitting that despite there being a direct decision of the jurisdictional High Court in the case of Kiranbhai H. Shelat (supra) which squarely covers the issue in question, the respondent was not justified in rejecting the application. The attention of the court was drawn to the fact that the decision of the Supreme Court in the case of Gestetner Duplicators P. Ltd. (supra) had been considered by this High Court in the case of Kiranbhai H. Shelat (supra) under the circumstances, the respondent was bound to follow the binding decision of the jurisdictional High Court and ought not to have refused to follow it.
6. On the other hand, Mr. Pranav Desai, learned counsel for the respondent supported the impugned order by reiterating the grounds stated therein.
7. From the facts noted hereinabove, it is apparent that the sole issue that arises for consideration is as to whether the respondent was justified in rejecting the application under section 264 of the Act on the ground that the decision of this High Court in the case of Kiranbhai H. Shelat (supra) was contrary to the decision of the Supreme Court in case of Gestetner Duplicators P. Ltd. (supra) when the said decision had been duly considered by this court while deciding the point in issue.
8. In the case of Kiranbhai H. Shelat (supra), this court was dealing with the question as to whether the Appellate Tribunal was right in law and on facts in directing the Income-tax Officer to allow 40% of the incentive bonus as deduction and include the net amount after such deduction in the salary income. The court held thus:
“17. The incentive bonus under the old scheme of 1978 as is established had two components. It was to be paid only when the extra business was procured for the LIC. The incentive bonus con- tained remuneration for such extra results which component would admittedly come under the head salary being extra remuneration for the extra work that had resulted in more business to the LIC. If the entire incentive bonus was to be treated as remuneration, it would all be profit or gain to the employee. However, the facts proved clearly indicate that a part thereof was granted to the employee with a view to meet with the expenses that might have to be incurred by him as Development officer for the discharge of his duty. Therefore, when the expenses are actu- ally incurred by the Development officer, from that component which may fall under s. 2(24) and be treated as income, in cases where such income does not fall in the exemption category under s. 10(14), it is the profit element alone which re- mains with the assessee that can be treated as salary, being profit in addition to salary or wages. As can be seen from the communication dated 12th March, 1993 of the Government of In- dia, Ministry of Finance, Department of Revenue, CBDT to the LIC, even if no portion of the al- lowance qualified for exemption unless notified under s. 10(14)(i) of the Act, the incentive bo- nus which was actually spent by the Development officers for duties of office could still be ex- empted from being charged, if the LIC made the payment against the expenses incurred by the De- velopment officers by way of reimbursement of expenses and in that case such reimbursement would not form a part of the salary of the De- velopment officers and what is rightly described therein as "taxable incentive bonus" will alone appear in their salary certificates not by vir- tue of it being labelled as salary in the certi- ficate, but because it would actually be the salary. It requires no elaboration to state that mere label put on the receipt is not enough. Its nature alone will be decisive.
The LIC is a statutory body and it is borne out from the letter dated 29th September, 1986, ad- dressed to the CBDT, which has been quoted here- inabove, that four factors mentioned therein had gone into fixing the quantum of incentive bonus.
No separate reimbursement or special bonus to- wards the item of expenditure were being given at that time, because, as is apparent from the said letter, a part of the incentive bonus it- self was designed to meet with such expense. When the quantum of the incentive bonus given to the Development officer admittedly included a portion of amount to enable the Development of- ficer to meet with their expenses for the dis- charge of their duties, that would amount to grant of special allowance to meet such ex- penses. The LIC had proposed to certify 30 per cent of the incentive bonus earned as necessary expenses that would have to be incurred, stating that the internal system devised by it laid down guidelines to the operating offices regarding the percentage to be certified in each case hav- ing regard to the factors referred in the said letter, which influenced the size of expenditure incurred by a Development officer.
As noted above, s. 10(14) as it stood prior to 1st April, 1989 exempted any special allowance or benefit not being an allowance or other per- quisite under cl. (2) of s. 17, specially gran- ted to meet expenses wholly, necessarily or ex- clusively incurred in performance of the offi- cial duties to the extent to which they are ac- tually incurred. Therefore, in all cases gov- erned by that provision as it stood prior to 1st April, 1989 when the requirement of Government Notification (later changed to as may be pre- scribed) was superimposed, all the expenses des- ignated for the purposes and actually incurred stood exempted and could not be included in the total income of such assessee. Since only 30 per cent of the incentive bonus earned was intended to meet with such expenses, no higher amount could be claimed by such assessee as expenditure incurred out of the special allowance given for that purpose. That exemption applied only to the extent the expenses were actually incurred for the purpose for which they were granted. If any amount was not so expended out of the amount of 30 per cent incentive bonus earned, and as a result, it ended as profit to the assess- ee-development officer, that would be "profits
9. As is apparent on a plain reading of the above decision, the controversy involved in the present case stands concluded by the said decision in favour of the assessee. Thus once the jurisdictional High Court had, after taking into consideration the decision of the Supreme Court in Gestetner Duplicators P. Ltd. (supra), held that the assessee is entitled to expenses of 30% against incentive bonus, the respondent could not have refused to follow the same. Under the circumstances, the impugned order cannot be sustained.
10. For the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned order dated 19.2.2002 passed by the respondent-Commissioner of Income-Tax, Jamnagar is hereby quashed and set aside. The matter is restored to file of the respondent who shall decide the revision petition afresh keeping in view the binding decision of this court in the case of Commissioner of Income-tax v. Kiranbhai H. Shelat (supra). In the light of the fact that matter relates to assessment years 1975-76 to 1981-82, the respondent shall decide the same within a period of eight weeks from the date of receipt of a copy of this judgement.
11. Rule is made absolute accordingly with no order as to costs.
(Akil Kureshi,J.)
(Harsha Devani,J.)
(raghu)