Law:

Section:

section 36(1)(ii) of the income-tax act, 1961 - Bonus - Allowability of - Whether in view of first and second provisos to section 36(1)(ii) assessee can claim deduction of bonus paid to employees in excess of bonus payable under the bonus act and assessee's claim has to be considered specifically in terms of second proviso to section 36(1)(ii) - Held, yes Facts In the accounting year relevant to the assessment year 1976-77, the assessee claimed deduction under section 36(1)(ii) in respect of the bonus paid to his employees. The ITO allowed the deduction only to the extent of amount that was payable under the Payment of Bonus Act, 1955, and disallowed the amount paid in excess. The AAC, on appeal, held that what was paid in excess of what was payable under the Bonus Act was customary bonus and was, therefore, allowable deduction. The Tribunal held that if what was paid was in fact customary bonus, such amount would be an allowable deduction under section 36, even if it was in excess of what was payable under the Bonus Act. The Tribunal, however, found that there was paucity of material to ascertain whether what was paid as customary bonus did in fact qualify as customary bonus. To ascertain the facts, the Tribunal remitted the matter to the ITG with a direction to allow the claim in the event of his finding that the facts so warranted. On reference: Held Section 36 was amended with effect from 25-9-1975 as a result of which, the present proviso was added and the original proviso was retained as the second proviso with the addition of words 'not being bonus referred to in the first proviso' in bracket. As a result of this amendment the position is that where bonus has been paid in accordance with the requirement of the Bonus Act to an employee covered by that Act, the amount so paid is without doubt an allowable deduction. On the other hand, if bonus or commission is paid to such an employee is in excess of, or otherwise than, what is required to be paid under the Bonus Act, or, if bonus or commission is paid to any employee not covered by the Bonus Act, the amount so paid is not automatically allowable as a deduction but it will be allowed only upon the…

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