1. These appeals by the revenue and cross-objections by the assessee relate to the consolidated order of the AAC dated 21-1-1981 pertaining to the assessment years 1977-78 and 1978-79.
2. The cross-objections have been filed late by 183 days. The registry of the Tribunal required the assessee to explain the delay and it has been explained in the application dated 5-11-1981 that the delay occurred due to the demise of late Shri Hem Raj, Advocate, who prepared the memorandum of cross-objections to be filed before the Appellate Tribunal but could not do so as he expired on 4-5-1981. Shri Raj Kumar Sethi who is an employee of the Life Insurance Corporation of India has filed an affidavit that he was transferred to Karnal in June 1980 and he had taken leave to go to Ludhiana to get prepared and file the cross objections but thereafter he came to know that cross-objections had not been filed because of the death of the advocate. We have very carefully looked into the circumstances and condone the delay in filing the cross-objections. In our opinion, the delay was due to a reasonable cause.
3. In order to appreciate the respective grievances of the parties before us in appeal and cross-objections, it is necessary to record the facts which are necessary to determine the issues involved and from which, in fact, the issue emanate.
4. Shri Raj Kumar Sethi is an employee of the LIC of India. During the accounting period relevant to the assessment years under appeal, he was employed as development officer of Life Insurance Corporation of Inxlia, Ludhiana. According to the managing director of the LIC, Central Office, Yogakshema, Jeevan Bima Marg, Bombay 20, the norms of working of development officer, as also explained by the Morarka Committee, essentially are that they are field workers. They have to contact agents as well as prospective policy holders in the field. The remuneration and prospects of development officers, therefore, are related to the results of the efforts they put in (page 5 of the paper book). Though the development officers are regular employees of the LIC, yet it is recognised that according to the nature of their duties and conditions of work they are different from other regular employees of the Corporation.
5. In Government of India's decision dated 16-2-1969 on the joint reference made by the LIC and the Federation of Class II employees, it has been clarified that duties of development officers differ fundamentally from those of others. In fact, they have no parallel either in Government or in public sector. They have neither any office nor regular hours of office. They are remunerated partly on the basis of results and partly by payment of a fixed salary (pages 6 and? of the assessee's paper book).
6. The LIC had introduced a scheme of incentive bonus. The incentive bonus was linked as a percentage of business secured in excess of certain stipulated premium income. For example, for appraisal year ending on or after 31-3-1970, incentive bonus shall be paid to the development officers on the following basis : (ii) For appraisal year ending on or after 31st March, 1970, incentive bonus shall be paid to the Development Officers on the following basis :Stipulation Basic incentive bonus(a) Scheduled first year's premium income in excess 6 per cent of such excess plusof 5 times the total expenses incurred on the Deve-lopment Officers.(b) Scheduled first year's premium income in excess 4 per cent of such excess plusof 7 times the total expenses incurred on the Deve-lopment Officers.(c) Scheduled first year's premium income in excess 2 per cent of such excessof 9 times the total expenses incurred on the Deve-lopment Officers.
7. For the assessment year 1977-78, relating to the financial year 1976-77, the assessee was paid an amount of Rs. 27,918.68 as incentive bonus. For the assessment year 1978-79, the incentive bonus paid to the assessee was Rs. 34,534.25. During the course of assessment proceedings, the assessee made a claim that out of the incentive bonus received for each of the assessment years under appeal mentioned supra, he should be allowed deduction for expenses incurred to the extent of 40 per cent. However, the ITO rejected this claim of the assessee on the ground that standard deduction provided under Section 16(1) of the Income-tax Act, 1961 ("the Act"), could only be allowed to the assessee because "the assessee is first and foremost a salaried person and all the relevant perks attached to his post are provided by virtue of his employment". The assessee has pointed out to the ITO that he had expended money for securing record business of Rs. 74,17,000 on 513 lives during the year ending 31-3-1976 and had maintained, inter alia, an employee for earning the incentive bonus, etc. The ITO, however, rejected the entire claim on the ground that he was not supposed to keep any employee for earning salary/allowance.
8. For the assessment year 1978-79, the above decision arrived at by the ITO was applied and the claim of the assessee for deduction of 40 per cent expenses against the incentive bonus was rejected. When these assessments were taken up in appeal, the AAC accepted in part the claim of the assessee and allowed expenses of 20 per cent of the gross incentive bonus during the accounting period relevant to each of the assessment year under appeal. While allowing this quantum of expenses, he gave a finding as under : 5. I have considered the submissions made on behalf of the appellant. I have also perused the relevant assessment orders. I am inclined to agree with the learned counsel for the appellant. The Income-tax Officer has not disputed that the appellant has incurred expenses, deduction for which is being claimed. He has also not disputed that these expenses were incurred for securing business with reference to which the incentive bonus has been received. It is also a fact that the incentive bonus depends on the volume of business secured by the appellant. It is also a fact that by incurring these expenses, he could obtain record business in Chandigarh Division. Considering all the material facts, it is held that the claim of the appellant for deduction on account of expenses is justified. Taking into account all the material facts, it is further held that it would be reasonable to allow these expenses at 20 per cent of the gross incentive bonus received by the appellant in these two years. The Income-tax Officer is directed to allow consequential relief to the appellant for the two years.
The revenue is aggrieved with the directions of the AAC to allow the assessee expenses at 20 per cent of the gross incentive bonus received in a particular year. In the cross-objections, the grievance projected is that the AAC erred in holding that expenses at 20 per cent of the gross incentive bonus received by the assessee only were allowable. The expenses should have been allowed at 40 per cent as claimed.
9. It was contended on behalf of the revenue that assessee is an employee of the LIC and, therefore, there exists the relationship of employer and employee. The incentive bonus is, therefore, a part of the salary because whatever the employee receives from the employer cannot but be salary. Relying upon the ratio of the Madras High Court judgment in the case of CIT v. India Radiators Ltd.  105 ITR 680 it was argued that bonus is a part of salary and, therefore, any deduction which is permissible from salary under Section 15 of the Act could only be allowed to the assessee. The assessments have been framed by the ITO keeping this principle in view and, therefore, when the AAC issued directions to the ITO to allow 20 per cent of the gross incentive bonus as expenses, he erred both on the facts and in law. In the alternative, without concession, it was argued that there is no basis for which the expenses have been allowed at 20 per cent by the AAC. It was contended that the expenditure had not been shown to have been incurred. The order of the AAC is, therefore, erroneous and may be set aside and that of the ITO for each of the assessment years restored.
10. Opposing these submissions, the learned counsel for the assessee submitted that no doubt the assessee holding the rank of development officer of LIC is an employee of the Corporation, yet all the payments that he receives from the Corporation cannot be termed as salary because his salary is minimum fixed and thereafter certain payments like the incentive bonus are entirely, depending upon the personal efforts, made in the field to secure additional insurance business for his employer. The incentive bonus, therefore, cannot form part of the salary and, therefore, the deductions statutorily provided under Section 16 are not the only deductions to which the assessee is entitled to adjust his income. It was submitted that the judgment of the Madras High Court referred to by the revenue is not applicable to the facts of the case. On the other hand, the learned counsel for the assessee submitted that the judgment of the Appellate Tribunal in the case of ITO v. Dr. C. Parkash 1977 Tax. 49 (VI)-1 (Chd.) is relevant for consideration and application to the facts of the case here because in that case also the doctor was though a regular employee of the State Government yet in the clinics established by the State Government he was allowed to practise and the entire professional receipts from practice first went to the coffers of the Government and therefrom a part was paid to the doctor against which the Tribunal allowed reasonable expenses, treating that income to be not salary income but income from profession. Therefore, in the case of the assessee, it was argued, the terminology used for the amount received by the assessee as incentive bonus would not per se make it a part of his salary. The AAC, therefore, erred in not allowing entire expenses at 40 per cent claimed by the assessee.
11. We have given very careful consideration to the rival submissions and the facts on record. Chapter IV of the Act deals with the computation of total income and in Section 14 the heads of income are enumerated, salaries being the first. The connotation of salaries is provided in Section 15 which is as under : 15. Salaries.-The following income shall be chargeable to income-tax under the head 'Salaries'- (a) any salary, due from an employer or a former employer to an assessee in the previous year, whether paid or not ; (b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due to before it became due to him ; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.
Explanation : For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due.
It would be seen from a plain reading of Section 15 that there is no mention of bonus in this section. Section 17 of the Act gives definition of salary for the purposes of Sections 15 and 16 of the Act.
As noted above, Section 15 connotes as to what is chargeable to income-tax under the head "Salaries". Section 16 gives deductions from salaries and it is Section 17 which, for the purpose of" Sections 15 and 16, defines "salaries". The definition of salary is inclusive and is contained in Section 17(7) which is as under : (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages : (vi) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under Rule 6 of Part A of the Fourth Schedule ; and (vii) the aggregate of all sums that are comprised in the transferred balance as referred to in Sub-rule (2) of Rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under Sub-rule (4) thereof.
A careful perusal of the definition of salary given in Section 11(1) shows that the Legislature has carefully avoided the use of the word bonus in it. This appears to be quite in accordance with the scheme of the Act because there is a special provision relating to the deduction of bonus while computing the total income of an assessee in accordance with the provisions of the Act. Section 36(1)(ii) of the Act provides that any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission, may be deductible in computing the total income. This Clause (H) has a proviso which stipulates that the deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 apply shall not exceed the amount of bonus payable under that Act. Then there are certain conditions provided in the second proviso as to the reasonableness of such payment. It is thus clear that even for purpose of allowance of bonus as an expense in computing the total income, separate provisions have been made in the Act. It has not been considered by the Legislature advisable to keep it as part of the salaries specifically.
Section 36 does not apply to salaries as was held in the case of 5.
Veeriah Reddiar v. CIT  38 ITR 152 (Ker.) and Laxmandas Sejram v.CIT  54 ITR 763 (Guj.).
12. In the authorities cited by the revenue for its support, the Hon'ble Madras High Court had to consider a question whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the term "salary" for purposes of Section 40(c)(117) of the Act would include bonus also. Though that decision is in favour of the revenue yet it is noteworthy that in that case, the revenue raised two main contentions. The first was that the definition of "salary" and "wages" in the Payment of Bonus Act, 1965, excluded bonus from the salary and wages. The second contention raised by the revenue in that case was that the word "salary" in Section 40(c), read with Rule 2(h) of Part A of the Fourth Schedule of the Act, would have to be understood as only covering a periodical payment excluding all types of allowances and perquisites and that bonus is in the nature of an allowance and, therefore, for the purpose of Section 40(c) salary would not include bonus. In that case, according to the revenue bonus did not form even an integral part of salary.
13. In the case before us, incentive bonus was earned by the assessee by performance of field duties in securing insurance policies for the corporation. For the year ending 31-3-1976, he introduced record business of Rs. 74,17,000 on 513 lives and emerged as the leader of Chandigarh Division. This is in recognition of the efforts put in beyond the call of duty to earn as a recompense for such efforts. In fact the assessee acts in a duel capacity. He is an employee of the Corporation for earning the basic salary which he has himself shown as salary income but for earning the incentive bonus, which is neither covered by the Payment of Bonus Act nor otherwise a part of salary as per conditions of employment, he has to put in efforts in propagating the virtues of insuring lives and securing business which forms the base for earning the incentive bonus. He is thus an agent of the corporation insofar as this sector of his activity is concerned and the incentive bonus is income from profession.
14. The incentive bonus was received by him on the premium paid in the primary business obtained during the accounting period relevant to each of the assessment years under appeal. We were told that there are guidelines laid down by the CBDT ("Board") in a circular issued to the field officers that where insurance agents claim expenses against the income from insurance policies and they are unable to prove the expenses for lack of record, 40 per cent of the expenses be allowed for the first year when the insurance policies are secured. However, this circular of the Board has not specifically been brought to our notice and we have to decide ourselves as to the reasonableness of the expenses against the incentive bonus received by the assessee. There is no challenge by any specific evidence on record as to the findings of facts given by the AAC that the assessee had in fact incurred the expenses. Since the expenses at 40 per cent are reasonable and fair, in our opinion, the entire expenses should have been allowed. Therefore, the learned AAC erred in restricting the allowance to 20 per cent of the gross incentive bonus. We direct that 40 per cent expenses be allowed.
15. We have also carefully perused the judgment of the Appellate Tribunal in the case of Dr. C. Parkash (supra). In that case also the assessee was an employee of the Government having fixed salary. The income earned by him as a doctor in the pay-in-clinics was treated as professional income and not part of the salary received from the Government. The Tribunal allowed expenses against the professional income in the computation for purposes of taxation. The ratio of that judgment is clearly applicable to the facts of the case in question.
16. In the result, appeals of the revenue are dismissed and cross-objections of the assessee allowed.