Deduction claim against LIC Incentive bonus admissible up to 30% from 01.04.1989 -ITAT

Deduction claim against LIC Incentive admissible up to 30 percent. From 01.04.1989  Development Officers entitled for reimbursement to the extent of 30% of the incentive bonus-ITAT

ABCAUS Case Law Citation:
ABCAUS 1286 (2017) (07) ITAT

The Grievance:
The present appeal by the assessee was directed against the order passed by the CIT(A). The only issue raised was against the confirmation of disallowance out of incentive bonus

Assessment Year : 2008-09

Important Case Laws Cited/relied upon:
Chimanbhai H. Patel (1998) 99 Taxman 63 (Guj)
T.K. Ginarajan vs. CIT (2013) 9 SCC 270
CIT vs. Ganesh Chand Saxena (2006) 280 ITR 372 (All)

Brief Facts of the Case:
The assessee was a Development Officer with LIC of India. A sum of Rs.7,93,498/- was given as incentive bonus to the assessee against he claimed a deduction of Rs. 2,61,854/- relying on the judgment of the Hon’ble Gujarat High Court. However, The Assessing Officer (‘AO’) refused to allow such deduction and disallowed the same. The CIT(A), relying on judgment of the Hon’ble Supreme Court upheld the disallowance.

Observations made by the Tribunal:
The ITAT observed that the CIT(A) had relied on the judgment of the Hon’ble Supreme Court in which it was held that the incentive bonus received by a Government officer of LIC of India is chargeable to tax as salary and no deduction other than that permissible u/s 16 can be allowed.

However, the ITAT noted that the Hon’ble Supreme Court in the same judgment had noticed as under:

`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.’

The ITAT opined that it was apparent that the Supreme Court judgment was applicable to the period prior to 01.04.1989. Similarly, the reliance placed by the Revenue on the judgment of Allahabad High Court was again misconceived as that case having assessment years 1980-81 to 1982-83 also pertained to the period prior to 01.04.1989

It was noted that the Assessing Officer in the instant case had referred to the CBDT letter No.149/25/96/tpl dated 13.03.1997 addressed to the Chairman of LIC of India admitting that `such portion of the incentive bonus which is actually spent by the Development Officer for duty of office can still be exempted from tax if the LIC makes the payment against which expenses incurred by the Development Officer by way of reimbursement of expenses.’

The ITAT found that there was a certificate from Branch Manager, LIC of India, certifying incurring of Rs.2,61,854/- by the assessee for meeting expenses of conveyance, being incurred wholly, necessarily and exclusively in the performance of duties as a Development Officer of a Corporation. However, there was no mention about the reimbursement of expenses by the LIC of India. Also, there was no discussion in the order as to whether the claim of the assessee for deduction of expenses was actually reimbursed by the LIC or not which was a relevant factor as the deduction is permissible only to the extent of expenses actually reimbursed.

Held:
The order of CIT(A) was set aside and matter was remitted to the AO for examining the aspect of reimbursement of expenses by LIC of India and then reduce the chargeable income accordingly.