Incentive bonus deduction under Income-tax law allowed where payment fell outside the Payment of Bonus Act ceiling.

Incentive bonus paid under an industrial settlement, and not as bonus governed by the Payment of Bonus Act, was treated as deductible under section 37 of the Income-tax Act, 1961. The court noted that once the payment fell outside the statutory bonus framework, its allowability was not confined by the bonus ceiling under section 36(1)(ii). The earlier view that incentive bonus is not subject to the statutory ceiling was followed, and the deduction was allowed in favour of the assessee.

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Issues: Whether incentive bonus paid to employees in excess of the ceiling under the Payment of Bonus Act was allowable as a deduction under section 37 of the Income-tax Act, 1961, instead of being restricted by section 36(1)(ii).

Analysis: The payment was treated as incentive bonus arising from an industrial settlement and not as bonus governed by the Payment of Bonus Act. Once the amount was outside the Payment of Bonus Act framework, its deductibility had to be tested under section 37 of the Income-tax Act, 1961. The prior view that incentive bonus is not subject to the statutory bonus ceiling was followed.

Conclusion: The incentive bonus was deductible under section 37 of the Income-tax Act, 1961. The question was answered in the affirmative and against the Revenue.

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