Deductibility of employee bonus outside the Bonus Act upheld where payment was not shown to be excessive or unreasonable.

Bonus paid to employees outside the Payment of Bonus Act can still qualify as a deductible business expense under the second proviso to section 36(1)(ii) of the Income-tax Act, 1961 if the payment is not shown to be excessive or unreasonable. The assessee had paid bonus to higher-income employees in earlier years as well, and similar payments had been allowed previously. On the facts, the authorities found no material to disallow the claim, and the Tribunal upheld deduction accordingly in favour of the assessee.

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Issues: Whether bonus paid to employees falling outside the scope of the Payment of Bonus Act was allowable as a deduction under the second proviso to section 36(1)(ii) of the Income-tax Act, 1961.

Analysis: The assessee had paid bonus to employees in higher income groups, the payments were made in earlier years also, and similar payments had been allowed in the past. The authorities found no material to show that the bonus was excessive or unreasonable. The applicability of the second proviso depended on the facts, and the Tribunal upheld the allowance on that basis.

Conclusion: The bonus payment was allowable as a deduction under the second proviso to section 36(1)(ii) of the Income-tax Act, 1961, and the question was answered in favour of the assessee.

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