Cliffhanger situation when commission or bonus paid to shareholder employees


Section 36(1)(ii) of the Income-tax Act, 1961 relating to the deduction of Bonus or Commission paid to employees for computing business income has been the subject of regular legislative changes. In recent times due to excessive departmental interest leading to protracted and sometimes unnecessary litigation. The said section presently provides that “any sum paid to an employee as bonus or commission for services rendered is allowed as deduction  provided such sum would not have been payable to him as profits or dividend if it has not been paid as bonus or commission while computing income from Profits and Gains of Business/Profession”.