- (1.) Whether the incentive bonus paid to the Development Officers by the Life Insurance Corporation (hereinafter referred to as 'LIC') prior to 01.04.1989 would form part of the salary and, thus, exigible to income tax, is the issue arising for consideration in this case. SHORT FACTS Appellant - T.K. Ginarajan, Development Officer in the LIC claimed deduction of 40% of the incentive bonus paid to him in the Return of Income-Tax for the various years prior to 01.04.1989 on the ground that he had incurred expenditure to the extent of 40% of the incentive bonus for canvassing business. LIC of India had requested the Central Board of Direct Taxes (hereinafter referred to as 'CBDT') for a clarification on deduction explaining that the Development Officers had actually incurred some expenditure in the performance of their duty, to the tune of at least 40% of the incentive bonus paid to them. However, the CBDT affirmed that the incentive bonus paid by the LIC to the Development Officers formed part of their income towards salary. To quote: ...Such portion of the incentive bonus which is actually spent by the Development Officer for duties of office can still be exempted from tax if the LIC makes the payment against the expenses incurred by the Development Officer by way of reimbursement of expenses. In that case, such reimbursement will not form a part of the 'salary' of the Development Officer and only the incentive bonus will appear in their salary certificates. LIC has not certified that a part of the incentive bonus is against the expenses incurred by the Development Officers by way of reimbursement of expenses. If such a part is certified and that part will not form part of the salary and that part of the incentive bonus which is not certified will appear in the salary certificate. Hence, no deduction is contemplated from the incentive bonus, which finds a place in the salary certificates....
(2.) However, with effect from 01.04.1989, the LIC itself issued a clarification to the effect that the Development Officers would be entitled to claim reimbursement to the extent of 30% of the incentive bonus granted to them. Thus, the dispute is confined only to the period prior to 01.04.1989 and, thereafter, the Development Officers are entitled to the reimbursement of actual expenses incurred by them, to the extent of 30%. In other words, after 01.04.1989, only that part of the incentive bonus after reimbursing the expenses to the extent of 30% will appear in the salary certificate. What is the fate of the incentive bonus to the Development Officers in LIC prior to 01.04.1989 for the purpose of income-tax is the question to be considered in this case.
(3.) Income towards salary is explained under Section 15 of the Income-Tax Act, 1961 (hereinafter referred to as 'the Act'). Permissible deductions arc provided under Section 16. The inclusive definition of 'salary', 'perquisite' and 'profits' in lieu of salary is given under Section 17 of the Act. It is now trite law that the Income-Tax Act, 1961 is a complete code as far as tax on income is concerned. 'Income' is defined under Section 2(24) of the Act and the computation of income is provided under Chapter-III of the Act (starling with Section 10). In the case of salaried persons, the only permissible deduction is under Section 16 of the Act. Section 17 has clearly provided for the details of income by way of salary. There is no serious dispute in this case that the incentive bonus paid to the employee by the employer is nothing but salary and there cannot be any dispute either since such payments are covered by the exhaustive definition of 'salary' under Section 17(1). For the purpose of ready reference, we shall extract the same: "Salary", "perquisite" and "profits in lieu of salary" defined. 17. For the purposes of Sections 15 and 16 and of this section,- (1) "salary" includes- (i) wages; (ii) any annuity or pension; (iii) any gratuity; (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; (v) any advance of salary; (vi) any payment received by an employee in respect of any period of leave not availed of by him; (vi) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under Rule 6 of Part A of the Fourth Schedule; (vii) the aggregate of all sums that are comprised in the transferred balance as referred to in Sub-rule (2) of Rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under Sub-rule (4) thereof; and (viii) the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in Section 80CCD;;