THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.44 of 1997 Dated:26.12.2011 Between: Commissioner of Income Tax, A.P.II, Hyderabad. …Applicant and Sri Y.Venkata Reddy, Giddalur. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.44 of 1997 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) The Commissioner of Income Tax got the following two questions referred to the opinion of this Court under Section 256(2) of the Income Tax Act, 1961 (the Act). 1. Whether on the facts and in the circumstances of the case the Appellate Tribunal is correct in holding that 40% of such incentive u/s.10(14) and exempting the same under that provision? 2. Whether on the facts and in the circumstances of the case, the finding of the Appellate Tribunal that the incentive bonus includes an allowance either to the extent provided, or reasonable at 40% of the incentive bonus, which is exempt u/s.10(14), is based on any material available on record? The brief fact of the matter is as follows. The respondent/assessee at the relevant time was Development Officer. For the relevant assessment year, he claimed deduction of 40% of incentive bonus received by him, which was rejected by the Income Tax Officer. The assessee was successful in his appeal before the first appellate authority. The Revenue carried the matter by way of further appeal before the Tribunal. The Appellate Tribunal upheld the findings of the first appellate authority. Aggrieved by the same, the Revenue sought reference under Section 256(2) of the Act. The questions referred to hereinabove are squarely covered by a judgment of 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. … Following the above, both the questions are answered in the negative in favour of the Revenue and against the assessee. The Referred Case is accordingly disposed of without any order as to costs. _______________ (V.V.S.RAO, J) ____________________ (B.N.RAO NALLA, J) 26.12.2011 vs [1] (1995) 214 ITR 368