COMMISSIONER OF INCOME TAX vs. SHRI GOPALJI H. VIHOL

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ITR/114/1996HC GujaratGJHC24021794199616 January 2001Author: HONOURABLE MR. JUSTICE J.M.PANCHAL,HONOURABLE MR. JUSTICE MOHIT S. SHAH3 pages
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What did the High Court hold?

The High Court held that the Appellate Tribunal was right in law in allowing a deduction for expenses incurred out of incentive bonus. However, it clarified that the maximum limit of such deduction allowable would be 30%. This decision was based on the High Court's own prior ruling in Commissioner of Income-tax v. Kiranbhai H. Shelat & another. The Court reasoned that while expenses are deductible, the extent of deductibility is capped at 30%. Therefore, the Reference was answered partly in favour of the assessee and partly against the Revenue, allowing deduction up to 30% of the incentive bonus. The issue of whether 40% should be allowed was decided against the assessee, limiting it to 30%.

What were the facts?

The assessee, an individual and a Development Officer of LIC of India, received incentive bonus to cover expenses incurred in discharging his duties. The Assessing Officer disallowed the claim of 40% of this bonus as expenses. The CIT(Appeals), following a previous decision, directed the ITO to allow 40% as a deductible expense. The Income Tax Appellate Tribunal upheld the CIT(Appeals)'s decision. The Revenue appealed to the High Court, which was asked to consider the assessment year 1987-88. The respondent assessee did not appear before the High Court.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in holding that 40% of the bonus commission should be allowed as deduction when the assessee was a Government Officer in LIC of India? (Question of law and fact, concerning deduction of expenses from incentive bonus). Assessee's Contention: Not recorded as the respondent did not appear. Revenue's Contention: The Revenue argued that the controversy was answered by a Division Bench of the High Court in Commissioner of Income-tax v. Kiranbhai H. Shelat & another, (1999) 235 ITR 635. This decision held that while a portion of incentive bonus spent by a Development Officer is deductible, the maximum limit of deduction allowable is 30%, as LIC proposed to certify 30% of the incentive bonus earned as necessary expenses.

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 114 of 1996

For Approval and Signature:

Hon'ble MR.JUSTICE J.M.PANCHAL and Hon'ble MR.JUSTICE M.S.SHAH

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus SHRI GOPALJI H. VIHOL -------------------------------------------------------------- Appearance: MR MANISH R BHATT for Petitioner SERVED BY RPAD - (N) for Respondent No. 1

--------------------------------------------------------------

CORAM : MR.JUSTICE J.M.PANCHAL and MR.JUSTICE M.S.SHAH

Date of decision: 16/01/2001

ORAL JUDGEMENT (Per : MR.JUSTICE J.M.PANCHAL)

At the instance of the Revenue, the Income Tax Appellate Tribunal, Ahmedabad Bench 'A' has referred following question of law for our opinion in respect of Assessment Year 1987-88 :

"Whether, the Appellate Tribunal is right in law and on facts in holding that 40% of the bonus commission should be allowed as deduction when the assessee was a Government Officer in LIC of India ?"

2.

The assessee is an individual. He is a Development Officer of LIC of India. He was paid incentive bonus with a view to meeting the expenses that might be incurred by him as a Development Officer for discharge of his duties. During the course of assessment proceedings, the assessing officer held that the claim of 40% of expenses from the incentive bonus commission was not admissible. On appeal, C.I.T.(appeals) following its own decision in the case of Shri P.V.Ashar directed the I.T.O. to allow 40% expenditure out of incentive bonus as admissible deduction and recompute the total income accordingly. On further appeal, the Tribunal has confirmed the decision of C.I.T.(A) and dismissedd the department's appeal.

3.

Though the respondent is served, no one has appeared on his behalf.

4.

We have heard the learned counsel for the Revenue. The learned counsel for the Revenue states that the controversy raised in the present Reference is answered by the Division Bench of this Court in Commissioiner of Income-tax v. Kiranbhai H. Shelat & another, (1999) 235 ITR 635. 5. In the above referred to decision, the Division Bench of this Court has held that portion of incentive bonus actually spent by the Development Officer does not constitute salary, but as L.I.C. has proposed to certify 30% of incentive bonus earned as necessary expenses that would have to be incurred, the maximum limit of deduction allowable is 30%. In view of the decision of the High Court quoted above, we are of the opinion that the Tribunal was right in law in allowing separate deduction of expenses out of incentive bonus, but deduction allowable would be upto the maximum limit of 30%. Therefore, we hold that the Appellate Tribunal was right in holding that the assessee was entitled to deduction of expenditure out of incentive bonus, but the maximum limit

of the same would be 30%. Therefore, to the extent of 30%, Reference is answered in favour of the assessee and against the Revenue.

The Reference accordingly stands disposed of, with no order as to costs.

(J.M.Panchal,J.)

( M.S.Shah, J. )

(patel)

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