T.K. GINARAJANversusTHE COMMISSIONER OF INCOME TAX,COCHIN, KERA LA

                     (2013) 7 S.C.R. 813


                   T.K. GINARAJAN                                 A
                           v.
    THE COMMISSIONER OF INCOME TAX,COCHIN,
                        KERA LA
           (Civil Appeal No. 5216 of 2002)
                                                                  B
                     AUGUST 1, 2013.
 [SUDHANSU JYOTI MUKHOPADHAYA AND KURIAN
                JOSEPH, JJ.]

    Income Tax Act, 1961:                                         c
     ss.2(24), 15, 16 and 17 - "Income': "salary", "perquisite"
- Connotation of - Deduction of 40% of the incentive bonus
paid to Development Field Officer of UC prior to 1.4.1989
claimed as expenditure incurred for canvassing business -         0
Held: Incentive bonus has to be treated as salary, subject to
permissible deductions u/s 16 - Expenses incurred in the
performance of duty as Development Officer for generating
the business so as to make him eligible for the incentive
bonus is not a permissible deduction and, therefore, the same     E
is exigible to tax.

     The appellant, a Field Officer in Life Insurance
Corporation of India, claimed in the income tax return
deduction of 40% of the incentive bonus paid to him prior
to 1.4.1989 on the ground that he had incurred                    F
expenditure to the extent of 40% of the incentive bonus
for canvassing business. His claim was declined by the
Assistant Income Tax Officer and the Commissioner of
Income-Tax (appeals). The Tribunal held against the
Revenue, but the High Court held in favour of Revenue.            G

    in the instant appeal, the question for consideration
before the Court was: whether the incentive bonus paid
to the Development Officers by the Life Insurance
                             813                                  H
    814      SUPREME COURT REPORTS               [2013) 7 S.C.R.


A Corporation prior to 01.04.1989 would form part of the
  salary and, thus, exigible to income tax.

          Dismissing the appeal, the Court

       HELD: 1.1. The incentive bonus paid to the employee
B by the employer is nothing but salary since such
  payments are covered by the exhaustive defihition of
  'salary' u/s 17(1) of the lncoem Tax Act, 1961. The
  inclusive definition of 'salary', 'perquisite' and 'profits' in
  lieu of salary is given u/s 17 of the Act. It is now trite law
C that the Income-Tax Act is a complete code as far as tax
  on income is concerned. 'Income' is defined u/s 2(24) of
  the Act and the computation of income is provided under
  Chapter-Ill of the Act (starting with s.10). In the case of
  salaried persons, the only permissible deduction is u/s
D 16 of the Act. [para 4] (818-A-D]

       Commissioner of Income-Tax vs. M.D. Patil (1998) 229
  ITR 71 (Karnataka); K.A. Choudary vs. Commissioner of
  Income-Tax and Others (1990) 183 ITR 29 (Andhra
E Pradesh); Commissioner of Income-Tax vs. E. A. Rajendran
  (1999) 235 ITR 514 (Madras); Commissioner of Income-Tax
  vs. P. Arangasamy and Others (2000) 242 ITR 563 (Madras);
  Commissioner of Income-Tax vs. Sri Anil Singh (1995) 215
  ITR 224 (Orissa); Commissioner of Income-Tax vs. Gopal
F Krishna Suri (2001) 248 ITR 819 (Bombay); Commissioner
  of Income- Tax vs. Ram/al Agarwala (2001 )250 ITR 828 -
  approved.

        State of West Bengal and Others vs. Texmaco Limited
    (1999) 1 sec 198 distinguished.
G
       1.2. What is excluded u/s 10(14) as it stood prior to
  01.04.1989 is the expenses incurred in the performance
  of the duty. It is for the employer to certify the actual
  expenses incurred in the performance of duty and in
H which case, as clarified by the CBDT, to that extent, the
  T.K. GINARAJAN v. COMMISSIONER OF INCOME              815
              TAX.COCHIN, KERALA
same shall not be shown as part of salary. There is no         A
claim by the employee either for reimbursement or
exclusion of the actual e~penditure incurred in
performance of the duty. Compartmentalization of income
under various heads and computation of the taxable
portion strictly in accordance with the formula of             B
deductions, rebates and allowances are to be done only
as per the scheme provided under the Act. Kiranbhai's
case decided by the High Court of Gujarat does not lay
down the correct principle of law. [para 8-9] [821-B-D, F-
G, H; 822-A]                                                   C

    Karamchari Union, Agra vs. Union of India and Others
                 =
2000 (2) SCR 33 (2000) 3 sec 335 - relied on.

    Commissioner of Income-Tax vs. Kiranbhai H. She/at
and Another (1999) 235 ITR 635 - disapproved.                  D
     1.3. The appellant being a salaried person, the
incentive bonus received by him prior to 01.04.1989 has
to be treated as salary. and he is entitled only for the
permissible deductions u/s 16 of the Act. The expenses         E
incurred in the performance of duty as Development
Officer for generating the business so as to make him
eligible for the incentive bonus is not a permissible
deduction and, therefore, the same is exigible to tax. [para
11] [822-E-G]
                                                               F
                     Case Law Reference:
. (1998) 229 ITR 71 (Karnataka)       approved      para 6
(1990) 183 ITR 29 (Andhra Pradesh) approved         para 6
                                                               G
(1999) 235 ITR 514 (Madras)           approved      para 6
(2000) 242 ITR 563 (Madras)           approved      para 6
(1995) 215 ITR 224                    approved      para 6
(Orissa) (2001) 248 ITR 819           approved      para 6     H
    816      SUPREME COURT REPORTS                    [2013] 7 S.C.R.


A   (Bombay) (2001 )250 ITR 828           approved           para 6
    (1999) 235 ITR 635                    disapproved        para 6
    2000 (2) SCR 33                       relied on          para 9
    (1999) 1 sec 198                      distinguished      para 10
B
        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    5216 of 2002.

        From the Judgment and Order dated 02.11.2001 of the
c   High Court o Kerala in ITA Nos. 8, 20, 21, 22 of 2000 and 31,
    42 & 49 of 2001.

        Meha Aggarwal, Varun Tandon, Wadud Aman,
    Subramonium Prasad for the Appellant.

D       Amarjit Singh Chandhiok, ASG, Arijit Prasad, Ritesh
    Kumar, S.A. Haseeb, Shweta Gupta, Honey Kumari, Mallika
    Ahluwalia (for B.V. Balaram Das) for the Respondent.

          The Judgment of the Court was delivered by
E        KURIAN, J. 1. Whether the incentive bonus paid to the
    Development Officers by the Life Insurance Corporation
    (hereinafter referred to as 'UC') prior to 01.04.1989 would form
    part of the salary and, thus, exigible to income tax, is the issue
    arising for consideration in this case.
F
    SHORT FACTS

       2. Appellant - T.K. Ginarajan, Development Officer in the.
  LIC claimed deduction of 40% of the incentive bonus paid to
  him in the Return of Income-Tax for the various years prior to
G 01.04.1989 on 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 as 'CBDT') for a
  clarification on deduction explaining that the Development
H
  T.K. GINARAJAN v. COMMISSIONER OF INCOME                       817
        TAX, COCHIN, KERALA [KURIAN, J.]
Officers had actually incurred some expenditure in the                   A
performance of their duty, to the tune of at least 40% of the
incentive bonus paid to them. However, the CBDT affirmed that
the incentive bonus paid by the UC to the Development Officers
formed part of their income towards salary. To quote:
                                                                         B
           " ... Such portion of the incentive bonus which is
    actually spent by the Development Officer for duties of
    office can still be exempted from tax if the UC makes the
    payment against the expenses incurred by the
    Development Officer by way of reimbursement of                       C
    expenses. In that case, such reimbursement will not form
    a part of the 'salary' of the Development Officer and only
    the incentive bonus will appear in their salary certificates.
    UC 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              D
    part is certified and thii!t 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 .... "                              E

     3. However, with effect from 01.04.1989, the UC 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             F
confined only to the period prior to 01.04.1989 and, thereafter,
the Development Officers are entitled to the reimbursement of
actual expenses incurred by them, to the extent of 30%. In other
words, after 01.04.1989, only that part of the incentive bonus
after reimbursing the expenses to the extent of 30% will appear          G
in the salary certificate. What is the fate of the incentive bonus
to the Development Officers in UC prior to 01.04.1989 for the
purpose of income-tax is the question to be considered in this
case.

    4. Income towards salary is explained under Section 15               H
    818       SUPREME COURT REPORTS                     (2013) 7 S.C.R.


A of the Income-Tax Act, 1961 (hereinafter referred to as 'the
  Act'). Permissible deductions are provided under Section 16.
  The inclusive definition of 'salary', 'perquisite' and 'profits' in lieu
  of salary is given under Section 17 of the Act. It is now trite law
  that the Income-Tax Act, 1961 is a complete code as far as tax
B on income is concerned. 'Income' is defined under Section
  2(24) of the Act and the computation of income is provided
  under Chapter-Ill 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
c 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 of 'salary' under Section 17(1). For the
  purpose of ready reference, we shall extract the same:
0
          ""Salary", "perquisite" and ~·profits ir:t lieu of salary"
          defined.

          17. For the purposes of sections 15 and 16 and of this
E         section,-

          (1) "salary'' includes -

                 (i) wages;

F                (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;
G
                 (v) any advance of salary;

                 (vi) any payment received by an employee in
                 respect of any period of leave not availed of by him;

H                {vi) the annual accretion to the balance at the credit
     T.K. GINARAJAN v. COMMISSIONER OF INCOME                   819
            TAX, COCHIN, KERALA [KURIAN, J.]
              of an employee participating i.n a recognised             A
              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       B
               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; and
                                                                        c
               (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 80CCD;"
                                                                        D
     5. In the case of the appellant, the claim for exclusion of
40% of the incentive bonus towards the expenditure was
declined by the Assistant Income-Tax Officer. The
Commissioner of Income-Tax {Appeals) dismissed the appeal.
However, the Income-Tax Appellate Tribunal held in favour of            E
the assessee. But the High Court was in favour of the Revenue
and, thus, the Civil Appeal.

     6. The Full Bench of the High Court of Karnataka in
Commissioner of Income-Tax vs. M.D. Patil' took the view that
incentive bonus earned by the Development Officers of the UC            F
of India is nothing but salary and no deduction over and above
the standard deduction provided under Section 16 is
permissible under the Act. Accordingly, the claim of expenditure
or net income theory put forward by the Development Officers
was rejected by the High Court of Karnataka. Similar is the view        G
taken by the High Court of Andhra Pradesh in K. A. Choudary
vs. Commissioner of Income-Tax and Others2, the Madras

1.    (1998) 229 ITR 71 (Kamataka)
2.    (1990) 183 ITR 29 (Andhra Pradesh)                                H
    820       SUPREME COURT REPORTS                  [2013] 7 S.C.R.

A High .Court in Commissioner of Income-Tax vs. E.A.
  Rajendran 3 and in Commissioner of Income-Tax vs. P.
  Arangasamy and Others4 , the Orissa High Court in the
  deGision in Commissioner of Income- Tax vs. Sri Anil Singh 5 ,
  the High Court of Bombay in Commissioner of Income-Tax vs.
B Gopal Krishna Suri 6 and the Calcutta High Court in
  Commissioner of Income-Tax vs. Ram/al Agarwala 7 , all in
  favour of the Revenue. However, the High Court of Gujarat in
  Commissioner of Income- Tax vs. Kiranbhai H. She/at and
  Another8 has taken a contrary view placing heavy reliance on
c Section 10(14) of the Act as it stood prior to 01.04.1989.
  Section 10(14) of the Act prior to 01.04.1989 reads as follows:-

          "10. In computing the total income of a previous year of
          any person, any income falling within any of the following
          clauses shall not be included-
D
                 xxx                    xxx             xxx
          (14) any special allowance or benefit, not being in the
          nature of an entertainment allowance or other perquisite
          within the meaning of clause (2) of section 17, specifically
E
          granted to meet expenses wholly, necessarily and
          exclusively incurred in the performance of the duties of an
          office or employment of profit, to the extent to which such
          expenses are actually incurred for that purpose."

F       7. "Perquisite" is excluded from the purview of Section
    10(14). 'Perquisite' is defined under Section 17(2) of the Act.
    Explanation 3 under Section 17(2) clearly provides that:


G 3.     (1999) 235 ITR 514 (Madras).
    4.   (2000) 242 ITR 563 (Madras).
    5.   (1995) 215 ITR 224 (Orissa).
    6.   (2001) 248 ITR 819 (Bombay).
    7.   (2001) 250 ITR 828.
H 8. (1999) 235 ITR 635.
     T.K. GINARAJAN v. COMMISSIONER OF INCOME                   821
            TAX, COCHIN, KERALA [KURIAN, J.]
       ""Salary" includes the pay, allowances, bonus or                 A
       commission payable monthly or otherwise or any monetary
       payment, by whatever name called, from one or more
       employers, as the case may be, .... "

      8. That apart, what is excluded under Section 10(14) as it        8
stood prior to 01.04.1989 is the expenses incurred in the
performance of the duty. It is for the employer to certify the actual
expenses incurred in the performance of duty and in which
case, as clarified by the CBDT, to that extent, the same shall
not be shown as part of salary. On facts, as clearly noted in the
Judgment of the High Court of Kerala, there is no claim by the          C
employee either for reimbursement or exclusion of the actual
expenditure incurred in performance of the duty. These two
distinctions unfortunately missed the notice of the High Court
of Gujarat. The Court in fact was swayed by the letter written
by the UC of India to the CBDT for clarification that, to the extent    D
of 40% of the incentive bonus could be exempted as
expenditure incurred for the development of business which
made them eligible for the incentive bonus. The High Court of
Gujarat failed to take note of the reply by the CBDT that it was
for the UC of India to reimburse the actual expenditure involved        E
in the performance of the duty by the Development Officers and
to that extent the same was not to be shown as salary.

     9. Compartmentalization of income under various heads
and computation of the taxable portion strictly in accordance           F
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, Agra vs. Union of
India and Others9, the Income-Tax Act, 1961 is a self contained
code and taxability of the receipt of any amount or allowance           G
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's case


9.    (2000) 3 sec 335.                                                 H -
    822       SUPREME COURT REPORTS                 [2013) 7 S.C.R.


A   (supra). The same does not lay down the correct principle of
    law.

       . 10. Though learned counsel for the appellant made a
  persuasive attempt to place reliance on the decision of this
  Court in State of West Bengal and Others vs. Texmaco
8
  Limited'0 , 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
C Bengal State Tax on Professions, Trades, Callings and
  Employments Act, 1979. This Court held, placing reliance on
  the definition of 'salary' in 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
D 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.

E      11. The appellant being a salaried person, the incentive
  bonus received by him prior to 01.04.1989 has to be treated
  as salary and he is entitled only for the permissible deductions
  under Section 16 of the Act. The expenses incurred in the
  performance of duty as Development Officer for generating the
F business so as to make him eligible for the incentive bonus is
  not a permissible deduction and, hence, .the same is exigible
  to tax. There is no merit in the appeal. The appeal is
  accordingly dismissed. No costs.

    R.P.                                        Appeal dismissed.
G




    10. (1999) 1 sec 198.