COMMISSIONER OF INCOME TAX vs. K M VERMA

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ITR/106/1994HC GujaratGJHC24020184199406 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 of Gujarat, per R.K. Abichandani, J., held that the Appellate Tribunal was right in its direction. The Court referred to its own judgment dated 27.04.1998 in ITR No. 54 of 1993 and other connected matters. In those cases, the Court had held that the deduction of incentive bonus claimed by the assessee from LIC could not be disallowed, but only to the extent of reimbursement of expenses actually incurred, up to a maximum limit of 30% of the incentive bonus earned by the assessee. Therefore, the question referred to the High Court is answered in the affirmative, in favour of the assessee and against the revenue. The reference stands disposed of accordingly with no order as to costs. The Tribunal's direction for 40% deduction was modified by the High Court's prior ruling to a maximum of 30% of expenses incurred.

What were the facts?

The Commissioner of Income Tax (Revenue) has referred a question of law to the High Court of Gujarat at Ahmedabad concerning an Income Tax Appellate Tribunal (ITAT) order. 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 assessment year(s) are not explicitly stated. The dispute revolves around the deductibility of expenses related to earning incentive bonus.

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 expenses related to incentive bonus under the Income Tax Act, 1961). Assessee's contention: The assessee argued that the incentive bonus earned should be allowed as a deduction to the extent of expenses incurred in earning it. The ITAT's direction to allow 40% deduction supports this. (Implicit from the ITAT's direction and the question referred). Revenue's contention: The Revenue, through the Commissioner of Income Tax, contended that the incentive bonus was part of the salary and therefore not deductible as an expense. (Stated in the facts of the question). The judgment also refers to a previous decision in ITR No. 54 of 1993 and other cognate matters.

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 106 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 K M VERMA -------------------------------------------------------------- Appearance: Mr.Pranav Desai for MR MANISH R BHATT for Petitioner MR NR 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 holding that the deduction of the incentive bonus claimed by the assessee from the LIC cannot be disallowed, but only to the extent of reimbursement of expenses actually incurred upto the maximum limit of 30% of the incentive bonus earned by the assessee. The question referred 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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