Facts of the case:
The assessee in a development office of LIC. The issue that arises here is – whether the incentive bonus received by DO-LIC is a salary income. If so, whether amount so received by him is entitled to a separate deduction?
Whether 30 periods of incentive bonus were to be excluded from the definition of ’emoluments’ under section 17?
Whether incentive bonus being salary, the assessee was entitled to any deduction excess/different from standard deduction allowable under section 16(1)?
Analysis of fact:
Whether any expenditure is allowable in the computation of income or any receipt has to be added to income only after providing for the expenditure is a matter to be found in the statute, that is, the income-tax Act. The scheme of the Act is compartmentalization of income under various heads and computation of the taxable portion strictly in accordance with the formula of deductions, rebates, and allowances provided therein.
The first step in this regard is to identify the head under which the income is assessable and Deductions and allowances are specific for each head of income.
The definition of “salary” under section 15 of the Income-tax Act, 1961, is so wide and is only an inclusive one taking in all receipts from the employer in the form of wages, commission, bonus, profits in lieu of or into the employee towards consideration for services rendered in the course of employment comes within the description of “salary” which includes perquisites as well. The definition of salary as provided under section 15 is reproduced below:
- The following income shall be chargeable to income-tax under the head “Salaries”—
(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;
(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;
(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.
Explanation 1.—For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due.
Explanation 2.—Any salary, bonus, commission, or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “salary” for the purposes of this section.
- For the purposes of sections 15and 16 and of this section,—
(1) “salary” includes—
(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;
(a) 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 recognized 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 recognized 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;
Meaning of bonus to DO-LIC:
The incentive bonus is a percentage of the premium received by the LIC of India for the business canvassed through the Development Officers,
It is not the reimbursement of any expenditure and is not even linked to expenditure, if any, incurred by the Development Officers.
Further, in cases where the remuneration otherwise receivable by the Development Officers is in excess of 20 percent of the net premium, then the Development Officer is not entitled to any incentive bonus.
It is an additional payment and is nothing but a salary coming within the meaning of section 15 of the Act and the Development Officer is not entitled to any deduction over and above the standard deduction.