Incentive wages, not bonus, were deductible as business expenditure and escaped the bonus ceiling.

Amounts described as production bonus and maintenance bonus were held to be incentive wages on the facts, because the agreements and settlements showed recurring month-to-month payments linked to production and maintenance rather than a substitute for profit-based bonus. As the payments were not "bonus" within section 36(1)(ii) of the Income-tax Act, 1961, the ceiling under the Payment of Bonus Act, 1965 did not apply. The payments were therefore allowable as business expenditure under section 37, being laid out wholly and exclusively for business purposes, and the Revenue's objection based on the bonus ceiling failed.

---

---

Issues: Whether amounts described as production bonus and maintenance bonus were deductible as business expenditure, and whether they were hit by the ceiling applicable to bonus under section 36(1)(ii) of the Income-tax Act, 1961.

Analysis: The payments were found, on the agreements and settlements between the employer and the workers' union, to be recurring incentive-linked payments made month to month and not a substitute for profit-based bonus. The character of the payment depended on its real nature, and not on the label attached to it. Since the amounts were held not to be bonus within the meaning of section 36(1)(ii), the restriction under the Payment of Bonus Act, 1965 did not govern the claim. The Court accepted the concurrent factual finding that the payments were incentive wages allowable as business expenditure under section 37.

Conclusion: The amounts were deductible under section 37 of the Income-tax Act, 1961, and the Revenue's objection based on the bonus ceiling failed.

Ratio Decidendi: Where a payment, though described as bonus, is found on facts to be incentive wages and not bonus within section 36(1)(ii), it is not restricted by the bonus ceiling and may be allowed as business expenditure under section 37 if laid out wholly and exclusively for business purposes.

---