Section 36(1)(ii) of the Income Tax Act
Income-tax Act, 2025: ss.29, 30, 31, 32
Section 36(1)(ii) falls under section 36 of the Income-tax Act, 1961, which corresponds to section 29 (Deductions related to employee welfare), section 30 (Deduction on certain premium), section 31 (Deduction for bad debt and provision for bad and doubtful debt) and section 32 (Other deductions) of the Income-tax Act, 2025.
Read section 29 of the 2025 ActRead section 30 of the 2025 ActRead section 31 of the 2025 ActRead section 32 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 36(1)(ii) is Loyal Motor Service Co. Ltd. v. CIT (14 ITR 647), cited in 48 of the 220 judgments on BharatTax that turn on this section.
Leading authorities on Section 36(1)(ii)
A payment of bonus or commission is allowable as a business deduction under Section 36(1)(ii) unless it constitutes a distribution of profits or dividends, thereby distinguishing payments genuinely for services from those merely intended to escape taxation.
Bonus or commission paid to directors for services rendered as part of their terms of employment is allowable as a deduction, and Section 36(1)(ii) of the Income Tax Act does not apply in such cases.
Commission paid to a Managing Director for services rendered is eligible for deduction under section 36(1)(ii) of the Income-tax Act, 1961, provided it is paid as per the terms of employment and not merely to avoid Dividend Distribution Tax (DDT).
