Incentive bonus deduction under section 37 confirmed, while section 36(1)(ii) was held inapplicable to such bonus payments.

Incentive bonus paid over and above regular bonus under the Payment of Bonus Act was treated as deductible business expenditure under section 37 of the Income-tax Act, while section 36(1)(ii) was held inapplicable because it governs bonus paid under the Bonus Act. The payment was viewed as laid out wholly and exclusively for the purposes of business, consistent with an earlier view on similar bonus payments. No subsisting question of law remained on the reference.

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Issues: Whether incentive bonus paid in addition to regular bonus under the Payment of Bonus Act was allowable as a deduction under section 37 of the Income-tax Act, 1961, and whether section 36(1)(ii) of the Income-tax Act, 1961 applied to such payment.

Analysis: Section 36(1)(ii) applies to bonus paid under the Bonus Act, whereas incentive bonus, attendance bonus, or customary bonus does not fall within that provision. The claim therefore fell to be examined under the general deduction provision in section 37. The payment of incentive bonus was treated as expenditure laid out wholly and exclusively for the purposes of the business, and a similar view had already been taken in an earlier matter.

Conclusion: The reference was declined because no subsisting question of law arose; the incentive bonus was treated as deductible under section 37 and section 36(1)(ii) was held inapplicable.

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