Arijit Pasayat, C.J.
1. At the instance of the Revenue, the following question has been referred for opinion of this court, under Section 256(1) of the Income-tax Act, 1961 (in short 'the Act'), by the Income-tax Appellate Tribunal, Cochin Bench (in short 'the Tribunal') :
'Whether, on the facts and in the circumstances of the case, incentive bonus being part of salary, the assessee is entitled to claim any deduction out of incentive bonus received by the assessee over and above standard deduction available to salary income ?'
2. The dispute relates to the question, (a) whether incentive bonus is salary, and (b) whether the assessee is entitled to claim any deduction over and above standard deduction available in respect of salary income.
3. The factual position is as follows: The assessee is a Development Officer of the Life Insurance Corporation of India (in short, 'the LIC'). Different amounts were claimed as expenses in respect of incentive bonus received. The Assessing Officer disallowed such claim on the ground that there was a clear employee-employer relationship between the assessee and the Life Insurance Corporation and, therefore, the only deduction that could be allowed was standard deduction in terms of Section 16 of the Act. The Commissioner of Income-tax (Appeals) (in short 'the CIT(A)') accepted the claim of the assessee. On further appeal by the Revenue, the Tribunal directed the Assessing Officer to look into the reasonableness of the expenditure claimed and allow the same on estimate basis, holding that such expenses beyond standard deduction were allowable. It held that the incentive bonus could not fall within the definition of salary and, therefore, the Assessing Officer erred in relying on the Board's regulation to restrict the amount of deduction under Section 16(i) of the Act. 'Annual remuneration' as purportedly defined in Schedule III to the Life Insurance Corporation Act, 1956 (in short 'the LIC Act'), was referred to. On being moved, the Tribunal has made a reference as referred to above.
4. The Revenue's stand is that Section 15 of the Act lays down that any salary or addition to salary shall be chargeable to tax under the head 'Salary' and incentive bonus is nothing but an addition to salary, Therefore, the only allowable expenditure is standard deduction. Learned counsel for the assessee contended that looking at the terms and conditions of employment, duties and obligations of a Development Officer, procedure for recruitment and training of new recruits, etc., the expenditure was clearly allowable and the Tribunal was justified in its view.
5. At the time of hearing the application, it was clearly accepted by learned counsel for the assessee that the stand taken before the Tribunal to the effect that the incentive bonus is not part of salary is not legally supportable. However, strong reliance has been placed on a decision of the Gujarat High Court in CIT v. Kiranbhai H. Shelat : [1999]235ITR635(Guj) , to support the conclusion of the Tribunal. On the other hand, learned counsel for the Revenue has relied on a decision of the Karnataka High Court in CIT v. M.D. Patil : [1998]229ITR71(KAR) in support of its stand. He submitted that the Revenue's stand is also in line with the decisions rendered by different High Courts, i.e., CIT v. E.A. Rajendran : [1999]235ITR514(Mad) ; B.M. Parmar v. CIT ; CIT v. B. Chinnaiah : [1995]214ITR368(AP) and CIT v. Sri Anil Singh [1995] 215 ITR 224 . It is not in dispute that a contrary view has been expressed by the Gujarat High Court in the decision referred to above.
6. Before we go into the main dispute, certain fallacies committed by the Tribunal may be noted. Throughout its order, the Tribunal has proceeded as if the definition of annual remuneration is given in Schedule III to the LIC Act. But, in reality, it is in relation to a regulation which is not statutory in nature. This position is not disputed by learned counsel for the parties. The Tribunal's order led to a lot of confusion and it is reflected in the following portion of its order :
'Not only that, the definition of 'annual remuneration' as given in Schedule III to the Life Insurance Act does not include incentive bonus and additional conveyance allowance. The definition is as follows :
'annual remuneration' means the basic pay, special pay, personal pay, dearness allowance, and all other allowances and non-profit sharing or ex-gratia bonus due or paid to a Development Officer during the appraisal year and includes the expenses payable or reimbursed to him or incurred by the Corporation during that year in respect of travelling, residential telephone and insurance premium and taxes on motor vehicles, but does not include incentive bonus and additional conveyance allowance paid to him.' Again, Clause (j) of Schedule III which defines 'gross yearly salary' is as follows :
The aggregate of the monthly basic pay, special pay, personal pay, dearness allowance and all other allowances which may be allowed to a Development Officer for any succeeding year if the terms of his appointment are fulfilled, and shall include any non-profit sharing or ex-gratia bonus payable in that year and an estimate of the expenses that may be allowed during that year in respect of travelling, residential telephone, insurance premium and taxes on motor vehicles, but shall not include any incentive bonus or additional conveyance allowance that may accrue to him.'
Here also, incentive bonus and additional conveyance allowance are not included in the definition of the term 'gross yearly salary'. Thus, the Life Insurance Act enacted by Parliament has treated incentive bonus and additional conveyance allowance as not forming part of either remuneration or gross salary and not forming part of the components of cost in the computation of cost ratio used as appraisal norm for the performance of the Development Officer.'
7. The decision of the Andhra Pradesh High Court in CIT v. B. Chinniah : [1995]214ITR368(AP) , and other cases were distinguished on the ground that the provisions of the Life Insurance Corporation Act were not brought to the notice of the said courts and, therefore, they do not have any relevance. The conclusions are confusing and are based on an erroneous assumption about the effect of regulation which was not statutory. The Tribunal appears to have proceeded on the basis that the amount received was not 'addition to salary' as contemplated under Section 15 and, therefore, only the excess of incentive bonus over the expenditure was to be taken note of. This conclusion of the Tribunal, as has been fairly accepted by learned counsel for the assessee, is not factually and legally correct. It is also fairly accepted by him that fact situation necessary to bring in application of the Gujarat High Court's decision was absent in the case at hand and no such finding has been recorded by the Tribunal.
8. The above being the position, we are of the considered opinion that the Tribunal has not examined the factual position correctly and has not even referred to the decisions which throw light on the controversy. We are, therefore, of the view that this is a fit case which needs to be heard afresh by the Tribunal for adjudication of factual aspects keeping in view applicable legal principles. Since, we are remitting the matter back to the Tribunal, we do not think it necessary to give a positive finding as to which of the decisions, referred to above, has application to the case at hand. The Tribunal will consider and apply them to the fact situation to determine its applicability.
9. Reference application is accordingly disposed of.