Contractual employee bonus beyond statutory minimum held deductible under income-tax disallowance rules.

Bonus paid to employees under an agreement, and over and above the minimum bonus under the Payment of Bonus Act, 1965, was treated as contractual bonus rather than bonus within the statutory ceiling contemplated by section 36(1)(ii) of the Income-tax Act, 1961. The deduction restriction applies only to bonus falling within the amount payable under the Bonus Act, so the agreed payment was outside the disallowance provision. On that basis, the payment was allowable as a deduction and the disallowance was not justified.

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Issues: Whether bonus paid to employees under an agreement, and beyond the minimum bonus under the Payment of Bonus Act, 1965, was allowable as a deduction under section 36(1)(ii) of the Income-tax Act, 1961.

Analysis: The bonus was paid pursuant to an agreement with the employees and was not confined to the minimum statutory bonus. The restriction under section 36(1)(ii) applies to bonus that falls within the amount payable under the Payment of Bonus Act. The payment in question was treated as contractual bonus outside that statutory ceiling, and therefore outside the mischief of the disallowance. The reasoning accepted that such agreed bonus was not hit by the limitation in the deduction provision.

Conclusion: The bonus payment was allowable as a deduction and the disallowance was not justified.

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