COMMISSIONER OF INCOME TAX vs. P V ASHAR

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ITR/86/1994HC GujaratGJHC24020164199406 May 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH2 pages
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What did the High Court hold?

The High Court, referring to its earlier decision in ITR No. 54 of 1993 and other cognate matters, held that the Tribunal was right in directing the Income-tax Officer to allow the incentive bonus as a deduction. However, the deduction is allowed only to the extent of reimbursement of expenses actually incurred, with a maximum limit of 30% of the incentive bonus earned by the assessee. The net amount, after such deduction, is to be included in the salary income. The question is answered in the affirmative against the Revenue and in favour of the assessee. The reference stands disposed of accordingly with no order as to costs. No issue was expressly left undecided.

What were the facts?

The Commissioner of Income Tax (Revenue) has referred a question of law to the High Court of Gujarat at Ahmedabad under Section 256(1) of the Income-tax Act, 1961. The reference arises from an order passed by the Income-tax Appellate Tribunal (ITAT). The ITAT had directed the Income-tax Officer to allow a deduction of 40% of the incentive bonus as expenses incurred for earning that bonus. The Income-tax Officer had disallowed this deduction, considering the incentive bonus as part of the salary. The dispute concerns the assessment year(s) not explicitly stated but implied to be prior to the reference date of May 6, 1998. The procedural history involves the ITAT's decision which is now under challenge by the Revenue.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in directing the Income-tax Officer to allow deduction of 40% of the incentive bonus as expenses incurred for earning the incentive bonus, which was disallowed by the Income-tax Officer on the ground that incentive bonus was part of salary? (Question of law and fact, concerning the deductibility of incentive bonus as an expense). Assessee's Contention: The judgment does not record specific arguments made by the assessee before the High Court. However, the ITAT's direction to allow deduction implies the assessee argued for its deductibility. Revenue's Contention: The Revenue contended that the incentive bonus was part of the salary and therefore not deductible as an expense incurred for earning it.

Which sections of the Income-tax Act were involved?

Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 86 of 1994

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question 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?

-------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus P V ASHAR -------------------------------------------------------------- Appearance: MR MANISH R BHATT for Petitioner Mr.N.B. Divetia for the Respondent.

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CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH Date of decision: 06/05/98

ORAL JUDGEMENT

(Per R.K.Abichandani,J)

The Income-tax Appellate Tribunal has referred the following question for the opinion of this Court under section 256(1) of the Income-tax Act, 1961. "Whether the Appellate Tribunal is right in law and on facts in directing the Income tax officer to allow deduction of 40% of the incentive bonus as expenses incurred for earning the incentive bonus which was disallowed by the Income-tax officer on the ground that incentive bonus was part of salary ?"

2.

Similar question had come up for consideration before this Court in ITR No.54 of 1993 and other cognate matters. For the reasons given in our judgment dated 27.4.1998 in the said group of matters, we hold that the Tribunal was right in directing the Income-tax Officer to allow the incentive bonus as deduction, but only to the extent of reimbursement of expenses actually incurred to the maximum limit of 30% of the incentive bonus earned by the assessee and that it was right in including the net amount after such deduction to the salary income. The question is accordingly answered in the affirmative against the Revenue and in favour of the assessee. The Reference stands disposed of accordingly with no order as to costs.

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***darji

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