THE COMMISSIONER OF INCOME TAX.HYD. V. K.VISVESHWARA RAO

RC/38/1996

AI Insights

The case involves the Commissioner of Income Tax, Andhra Pradesh-II, Hyderabad as the applicant and Sri K. Vishweshwar Rao, a salaried employee of LIC, as the respondent. The core issues pertained to the deductions and exemptions claimed by the respondent on the incentive bonus and additional conveyance allowance received from his employer, LIC, for the financial year relevant to the assessment year 1986-1987. The Income Tax Officer initially disallowed these claims, but the Commissioner of Income Tax (Appeals) reversed this decision, which was upheld by the Tribunal. The Revenue, aggrieved by this outcome, sought a reference under Section 256(1) of the Income Tax Act, leading to the present judgment.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 734755 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 20-12-2011
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v B. Chinnaiah, Commissioner of Income Tax, Visakhapatnam v P.V.Narasimaha Rao, Visakhapatnam
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Keywords: Conveyance Allowance; Deduction; Exemption; Incentive bonus; Income Tax
• Section: 10(14); 16; 256(1)

Judgement Text

"THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.38 of 1996 Dated:20.12.2011 Between: Commissioner of Income Tax, Andhra Pradesh-II, Hyderabad. …Applicant and Sri K.Vishweshwar Rao. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.38 of 1996 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) The following two questions are referred to this Court under Section 256(1) of the Income Tax Act, 1961 (the Act), at the instance of the Revenue. 1. Whether on the facts and in the circumstances of the case, the ITAT was justified in law in holding that the assessee, a salaried employee of LIC, was entitled to deduction of 40% on the incentive bonus received from his employer? 2. Whether on the facts and in the circumstances of the case, the ITAT was right in holding that the additional conveyance allowance received by the assessee from his employer was entitled to exemption u/s.10(14) of the Income- Tax Act? To appreciate the questions, the brief facts may be noticed. The respondent/assessee at the relevant time was Development Officer. For the financial year relevant to the assessment year 1986-1987, he received incentive bonus from the Life Insurance Corporation of India. He was also paid additional conveyance allowance. In his return of income he claimed deduction of 40% of the incentive bonus under Section 10(14) of the Act. Insofar as the additional conveyance is concerned, he claimed the entire amount as deduction. The Income Tax Officer disallowed the deductions. The assessee was successful before the Commissioner of Income Tax (Appeals). Aggrieved, the Revenue went in further appeal, and the Tribunal upheld the order of the first appellate authority. Feeling aggrieved, the Revenue sought reference under Section 256(1) of the Act. Insofar as the first question is concerned, the same is squarely covered by the judgment of the Division Bench of this Court in Commissioner of Income Tax v B. Chinnaiah[1], wherein it was held as under. … In view of the above judgments, it cannot but be held that “incentive bonus”, whether treated as part of the salary or perquisite, is taxable under the head “Salary” and the permissible deductions under the said head are as specified under Section 16 of the Act. It is nobody’s contention that 40 percent of the bonus, deducted by the assessee as expenditure and upheld by the Tribunal, falls under any of the items under section 16. Thus the expenditure is other than permissible deduction under section 16 of the Act. It has already been observed above that the only permissible deductions under the head “Salary” are those mentioned in section 16 and if any expenditure does not fall within the meaning of section 16, it cannot be allowed. … Insofar as the second question is concerned, it is also covered by an unreported decision of this Court in Commissioner of Income Tax, Visakhapatnam v P.V.Narasimaha Rao, Visakhapatnam (Referred Case No.117 of 1992, dated 10.10.1996). Considering the similar question, this Court held as under. … In our view where amounts are paid to the employees by an employer to meet expenses wholly, necessarily and exclusively for the performance of the duties, such amounts can be exempted to the extent it is shown that it has been incurred for the purpose for which it was granted. In the case of employees of the State or Corporations, whether statutory or otherwise, where the employer after having surveyed the actual expenditure necessary for performance of the duty, grants monthly allowance generally to all the employees, it is to be presumed that the entire expenditure has been incurred for the purpose for which it has been granted, for it is not incurred for which it has been given, it would entail disciplinary action against the employee. Unless such a case has been initiated against an employee by an employer, the said presumption that the employee has incurred the expenditure for which it is granted, will apply and it will not be necessary for the employees to submit accounts every month to the employer and along with return to the assessing authority. If, in such matters, filing of the accounts and vouchers/receipts are insisted upon to claim exemption under Section 10(14) of the Act by the Income-tax authorities, it will lead to voidable waste of time and expenditure and would serve no useful purpose but on the contrary it would be counter productive. In this view of the matter, we hold that the additional conveyance allowance is exempt under Section 10(14) of the Act. … Following the above, the first question is answered in the negative in favour of the Revenue and against the assessee. The second question is answered in the affirmative in favour of the assessee and against the Revenue. The Referred Case is accordingly disposed of without any order as to costs. _______________ (V.V.S.RAO, J) ____________________ (R.KANTHA RAO, J) 20.12.2011 vs [1] (1995) 214 ITR 368 "