Explaination to section 36 (1) (ii)

As per Section 36(ii) any amounts paid to employees in the form of Bonus & Commission can be claimed as deduction. However it also provide that if Bonus/Commission is payable in lieu of Profit/Dividend then such Bonus commission is not allowed as deduction. Suppose any employee of a company is authorized to get 10% of profits of company. then such 10% would not be allowed as deduction to the company. In such a case company do tax planning. Instead of paying the amt in the form of share of profit company declared an equivalent amt of bonus for the employee. since bonus is paid by the company in lieu of Profit/Dividend hence same cant be allowed as deduction by virtue of section 36(ii)