JAWAHAR DHIRAJLAL DHOLAKIA vs. ASSTT. C I T

Facts

The assessee, Jawahar Dhirajlal Dholakia, a Development Officer in LIC of India, filed his return for assessment year 1991-92 on June 15, 1991, declaring a total income of Rs. 3,94,830/-. He received an incentive bonus of Rs. 5,17,039/- and claimed an ad-hoc deduction of Rs. 2,06,816/-, representing 40% of the bonus, treating it as income from business and profession as per instructions no. 1546. The Assessing Officer questioned this deduction, stating that incentive bonus is part of salary. The assessee relied on previous allowances by the CIT (Appeals) and the ITAT, Ahmedabad for earlier assessment years. The appeal challenges the Income Tax Appellate Tribunal's order dated August 14, 2000.

Held

The High Court, while admitting the appeal, framed a substantial question of law regarding the allowability of actual expenditure incurred for earning incentive bonus after certification by LIC. The revenue's advocate, while citing the Supreme Court decision in T.K. Ginarajan v. Commissioner of Income-tax, [2013] 356 ITR 618 (SC), which held that incentive bonus is salary and only Section 16 deductions are permissible, conceded that they could not dispute the Supreme Court's ruling and that expenses incurred for the incentive should be allowed. Consequently, the Court found the question to be answered against the assessee and in favour of the Revenue, leading to the dismissal of the Tax Appeal. The operative direction was to dismiss the appeal.

Key Issues

1. Whether the Tribunal was right in law in directing the Assessing Officer to allow the actual expenditure incurred by the assessee for earning incentive bonus after getting duly certified by the L.I.C.? (Question of law) Assessee's Contention: The assessee claimed an ad-hoc deduction of 40% of the incentive bonus, treating it as income from business and profession. The assessee also relied on previous favorable decisions from the CIT (Appeals) and the ITAT for assessment years 1984-85 to 1990-91 and 1981-82 and 1982-83 respectively. Revenue's Contention: The revenue contended that incentive bonus is part of salary and therefore, only deductions permissible under Section 16 of the Income-tax Act, 1961, are allowable. The revenue cited the Supreme Court decision in T.K. Ginarajan v. Commissioner of Income-tax, [2013] 356 ITR 618 (SC), which held that incentive bonus paid to an employee is salary covered by Section 17(1). However, the revenue's advocate acknowledged they could not dispute the Supreme Court's decision and that expenses incurred for incentive should be allowed.