Case: T.K. Ginarajan Vs. Commnr. Of Income Tax, Cochin

Short facts2. Appellant, T.K. Ginarajan, Development Officer in LIC claimed deduction of 40% of the incentive bonus paid to him in the return of income tax for the various years prior toon the ground that he had incurred expenditure to the extent of 40% of the incentive bonus for canvassing business, LIC of India had requested the Central Board of Direct Taxes (hereinafter referred to asfor a clarification on deduction explaining that the Development Officers had actually incurred some expenditure in the performance of their duty, to the tune of at least 40% of the incentive bonus paid to them. However, CBDT affirmed that the incentive bonus paid by LIC to the Development Officers formed part of their income towards salary. ToSuch portion of the incentive bonus which is actually spent by the Development Officer for duties of office can still be exempted from tax if LIC makes the payment against the expenses incurred by the Development Officer by way of reimbursement of expenses. In that case, such reimbursement will not form a part of theof the Development Officer and only the incentive bonus which is not certified will appear in the salary certificates. LIC has not certified that a part of the incentive bonus is against the expenses incurred by the Development Officers by way of reimbursement of expenses. If such a part is certified that part will not form part of the salary and that part of the incentive bonus which is not certified will appear in the salary certificate. Hence, no deduction is contemplated from the incentive bonus, which finds a place in the salary certificates….However, with effect fromLIC 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 toand, thereafter, the Development Officers are entitled to the reimbursement of actual expenses incurred by them, to the extent of 30%. In other words, afteronly 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 tofor the purpose of income tax is the question to be considered in this case.4. Income towards salary is explained under Section 15 of the Income Tax Act, 1961 (hereinafter referred to as. Permissible deductions are provided under Section 16. The inclusive definition ofin lieu of salary is given under Section 17 of the Act.5. It is now trite law that the Income Tax Act, 1961 is a complete code as far as tax on income is concerned.is defined under Section 2(24) of the Act and the computation of income is provided under Chapter III of the Act (starting with Section 10). In the case of salaried persons, the only permissible deduction is under Section 16 of the Act. Section 17 has clearly provided for the details of income by way of salary. There is no serious dispute in this case that the incentive bonus paid to the employee by the employer is nothing but salary and there cannot be any dispute either since such payments are covered by the exhaustive definition ofunder Section 17(1). For the purpose of ready reference, we shall extract theand ‘profits in lieu ofdefined. – For the purposes of Section 15 and 16 and of this section –(1)) wages;(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 ofany 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(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(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

Reasoning:
11. Compartmentalisation of income under various heads and computation of the taxable portion strictly in accordance with the formula of deductions, rebates and allowances are to be done only as per the scheme provided under the Act. As held by this Court in Karamchari Union v. Union of India ((2000) 3 SCC 335 ), the Income Tax Act, 1961 is acode and taxability of the receipt of any amount or allowance has to be determined on the basis of the meaning given to the words or phrases given in the Act. Thus, we do not agree with the view taken by the High Court of Gujarat in Kiranbhai case ((CIT v. Kiranbhai H. Shelat, (1999) 235 ITR 635 (Guj). The same does not lay down the correct principle of law.12. Though the learned counsel for the appellant made a persuasive attempt to place reliance on the decision of this Court in State of W.B. v. Texmaco Ltd. ((1999) 1 SCC 198 : 1999 SCC (L&S) 285), we are afraid the same is of no assistance to the appellant. The incentive bonus referred to in the said decision is the special scheme of the company. The question considered in the said decision was as to whether the said bonus would form part of salary as defined under the West Bengal State Tax on Professions, Trades, Callings and Employments Act, 1979. This Court held, placing reliance on the definition ofin the said Act that only in case there was remuneration on a regular basis, the same was exigible to tax under the said Act. On facts, it was found that there was no regular payment of incentive bonus. That is not the factual or legal position in the case of the appellant under the Act and, therefore, the said decision is not relevant at all for the purpose of this case.