Section 36 l Other Deductions
Circular No. 206 was issued by the Central Board of Direct Taxes on 9 August 1976. Its subject is Section 36 l Other Deductions.
Marks off which proviso to section 36(1)(ii) governs bonus to a highly paid employee. Section 29 of the Payment of Bonus (Amendment) Act, 1976 inserted a new first proviso to section 36(1)(ii) and amended the existing proviso with effect from 25-9-1975. The Board holds that the new first proviso applies only to bonus paid to an 'employee' as defined in section 2(13) of the Payment of Bonus Act, 1965, that is, a person on a salary or wage not exceeding Rs. 1,600 a month in a factory or establishment to which that Act applies. A person drawing more than Rs. 1,600 a month is outside the compulsory bonus provisions of that Act, so the restriction in the first proviso does not touch bonus paid to him; his bonus falls under the second proviso to section 36(1)(ii) and its allowability is governed by the conditions there. The amended provisions apply from assessment year 1976-77 onwards.
The amendment raised the question whether the new restriction on bonus deduction reached employees who are not covered by the Payment of Bonus Act at all.
SECTION 36 l OTHER DEDUCTIONS
306. Bonus - Employees not covered by Payment of Bonus Act - Whether restriction laid down in the first proviso1 to clause (ii) of sub-section (1) applies to such persons - Bonus paid to such persons whether falls under the second proviso to the said clause
1. Section 29 of the Payment of Bonus (Amendment) Act, 1976 has inserted a new proviso to clause (ii) of sub-section (1) of section 36 and has made an amendment to the existing proviso to the said clause with effect from September 25, 1975. The newly inserted first proviso to clause (ii) of section 36(1) will apply in relation to bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 apply. The term "employee" has been defined in section 2(13) of the Payment of Bonus Act to mean "any person (other than an apprentice) employed on a salary or wage not exceeding Rs. 1,600 per month in any industry to do any skilled or unskilled, manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied". Under this definition, persons drawing a salary or wage exceeding Rs. 1,600 per month and employed in a factory or establishment to which the provisions of the Payment of Bonus Act apply, are not covered by the provisions of that Act relating to compulsory payment of bonus. In view thereof the restriction laid down in the aforesaid first proviso regarding deduction in respect of bonus paid to employees covered by the Payment of Bonus Act will not apply in relation to such persons. Bonus paid to such persons will, therefore, fall under the second proviso to section 36(1)(ii) and its admissibility will be governed by the conditions spelt out in the said proviso.
2. Since the amendment made in section 36(1)(ii) by the Payment of Bonus (Amendment) Act has come into force with effect from September 25,1975, the amended provisions will apply in relation to the assessment year 1976-77 and subsequent years.
Circular : No. 206 [F. No. 204/64/75-IT(A-II)], dated 9-8-1976.
On a disallowance of bonus paid to senior staff, argued under the first proviso to section 36(1)(ii).
Source: the Income Tax Department’s own published text — its page for this instrument.