IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN WEDNESDAY, THE 28TH OCTOBER 2009 / 6TH KARTHIKA 1931 ITA.No. 27 of 2003() -------------------- ITA.238/2002 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT: ----------------------------------------- THE COMMISSIONER OF INCOME TAX, KOTTAYAM. BY ADV. SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENT(S): APPELLANT: ------------------------- SHRI JOHN VARGHESE, DEVELOPMENT OFFICER, LIC OF INDIA, KADAMMANITTA. ADV. SRI.A.KUMAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 28/10/2009 ALONG WITH ITA NO.513/09, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. --------------------------------------------- I.T.A.Nos. 27 of 2003 & 513 of 2009 --------------------------------------------- Dated this the 28th day of October, 2009 J U D G M E N T Ramachandran Nair,J: The question raised in the connected cases pertaining to assessment of L.I.C.Development Officers is whether the Tribunal was justified in holding that 35% of the Incentive Bonus paid by the L.I.C. to the development officers is exempted from income tax based on the Incentive Bonus Scheme, 1997 and Reimbursement of Expenses Scheme, 1997 framed by the L.I.C. of India. The issue came up before this Court on an earlier occasion and in the decision reported in C.I.T v. T.K.Ginarajan, Development Officer, L.I.C. of India (253 ITR 463), this Court held that incentive bonus constitutes salary and the deduction admissible to salaried employees is only standard deduction provided under Section 16(1) of the Income Tax Act, 1961. I.T.A. Nos.27 of 2003 and 513 of 2009 :-2-: However, it was left open to the LIC to provide reimbursement of actual expenditure incurred in the carrying on the activities of the Development Officers. The L.I.C. has framed the above schemes wherein without providing for reimbursement of actual expenditure, they have provided that 35% of the incentive bonus paid is treated as actual expenditure. Even though originally the assessing officers allowed the claim, it was later re- opened by the Commissioner under Section 263. The Tribunal, however, set aside the orders of the Commissioner and held that the LIC Scheme should be followed for the purpose of the assessment of incentive bonus given to the Development Officers. We sought a clarification from the Central Board which has conveyed its opinion that the LIC Scheme on incentive bonus is not consistent with the provisions of the Income Tax Act and Rules. In other words, there is conflict between the two Departments of the very same ministry viz., the Finance I.T.A. Nos.27 of 2003 and 513 of 2009 :-3-: Ministry. In our view, this is not a matter which should be left to the court for decision or before departmental authorities and it should be sorted out by the Ministry itself. We are further of the view that it would not be fair to reopen the assessments completed granting tax benefits in terms of the scheme framed by the LIC. We, therefore, dismiss the appeals giving freedom to the Central Board to take up the matter with the LIC so that the scheme is suitably amended consistent with the provisions of the Income Tax Act and Rules. C.N.Ramachandran Nair, Judge. V.K.Mohanan, Judge. MBS/ I.T.A. Nos.27 of 2003 and 513 of 2009 :-4-: C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. --------------------------------------------------- I.T.A.NO. OF 200 -------------------------------------------- I.T.A. Nos.27 of 2003 and 513 of 2009 :-5-: J U D G M E N T DATED: -9-2009 I.T.A. Nos.27 of 2003 and 513 of 2009 :-6-: