WHO IS EMPLOYEE UNDER COMPANIES ACT 2013?
There are various provisions in the CA 2013 where employee word is used so who will be considered as employee under CA 2013.
For example Section 197(12) there we have to give difference between remuneration of Directors and employees and as per decided cases Executive Directors are also employees of the Company. For finding out meaning of any word used in Act, the General rule is: First refer to the definition of the word given in that Act. If it is not defined there, refer to the definition given in General Clauses Act 1897. If it is not defined there also, then refer to the dictionary meaning.
Only Executive Directors Are Employees as there will always be a binding contract between them and the company relating to the terms and conditions of their appointment such as tenure and terms of appointment and on remuneration and other benefits, which is not the case with non-executive directors.
REMUNERATION TO EXECUTIVE DIRECTOR: Private Company also comes within the ambit of these provisions.
197(1): Total Remuneration payable shall not exceed 11% of net profits for a financial year. The company can pay more than 11% if approved by shareholders & central government subject to applicability of schedule v.
Schedule V provides additional conditions under which remuneration can be paid beyond the prescribed limits without central government approval
Additional disclosures are to be made in explanatory statement where remuneration to be paid in schedule V.
Section 197 of the companies Bill 2012 in its sub section (3) and (11) say that in case of no profit or inadequate profit, the company shall pay remuneration to directors, Managing Directors, Whole Time Directors and Managers in accordance with Schedule V or with previous approval of Central Government.
CONDITIONS OF APPOINTMENT (PART I SCHEDULE V):
A person should satisfy following conditions for appointment as managerial person:
Central Government may permit to appoint any person as managerial person not satisfying these two conditions.
REMUNERATION IN CASE OF INADEQUATE OR NO PROFIT (SECTION II PART II SCHEDULE V):
In case of inadequate or no profit, a company may pay to a managerial person without central government approval higher of the following two options (A or B):
EFFECTIVE CAPITAL (EC)
|Negative to Rs. 5 Crore||Rs 30 Lakhs yearly|
|Rs. 5 crore to Rs. 100 Crore||Rs. 42 Lakhs yearly|
|Rs. 100 crore to Rs.250 Crore||Rs. 60 Lakhs yearly|
|Rs. 250 Crore and above||Rs. 60 Lakhs + 0.01% of EC above these Rs. 250 Crore|
In case of managerial person who was not a security holder holding securities of the company of nominal value of rupees five Lakhs or more or an employee or a director of the company or not related to any director or promoter at any time during the two years prior to his appointment as a managerial person, — 2.5% of the current relevant profit.
If, shareholders passes special resolution this limit will be double. This remuneration should be approved by resolution of Board of director and also by Nomination and Remuneration committee (where it is). The company has not made any default in repayment of its debt or debenture or interest thereon for a continuous period of 30 days in preceding financial year. The approval of remuneration by special resolution should be for not more than three years.
Careful reading of Second Proviso, which is applicable as second proviso to both part of This Section, suggests, there must be Special Resolution in all case to safeguard all possible interpretation.
REMUNERATION IN CASE OF INADEQUATE OR NO PROFIT IN CERTAIN CIRCUMSTANCES (SECTION III PART II SCHEDULE V):
In these cases, the company may pay remuneration in excess of Section II:
1. Where remuneration in excess of these limit is paid by other company, which is within permissible limit under Section 197.
2. A company within seven year from its incorporation or a sick company within five years from sanction of scheme of revival may pay up to two times the amount permissible under Section II.
3. Remuneration fixed by BIFR or NCLT
4. An unlisted company in SEZ may pay up to Rs. 240 Lakhs yearly.
The conditions are:
1. An auditor or Company Secretary of the company or company secretary in practice has certifies that
a. All secured creditors and term lenders have stated in writing that they have no objection for the appointment of the managerial person as well as the quantum of remuneration and such certificate is filed along with the return as prescribed.
b. There is no default on payments to any creditors, and all dues to deposit holders are being settled on time.
2. For Para (b) and (c), the managerial person is not receiving remuneration from any other company.
PERQUISITES NOT INCLUDED IN MANAGERIAL REMUNERATION (SECTION IV PART II SCHEDULE V):
1. A managerial person shall be eligible for:
a. Contribution to provident fund, superannuation fund or annuity fund to the extent these either singly or put together are not taxable under the Income-tax Act.
b. gratuity payable at a rate not exceeding half a month’s salary for each completed Year of service; and
2. encashment of leave at the end of the tenure
3. A expatriate managerial person shall be eligible for:
REMUNERATION PAYABLE TO A MANAGERIAL PERSON IN TWO COMPANIES (Section V Part II Schedule V):
A managerial person shall draw remuneration from one or both companies. The total remuneration drawn should not exceed the higher maximum limit admissible from any company of which he is a managerial person.
GENERAL CONDITION (PART III SCHEDULE V):
EXEMPTION BY CENTRAL GOVERNMENT (PART IV SCHEDULE V): The Central Government may, by notification, exempt any class or classes of companies from any of the requirements contained in this Schedule.
The aggregate of the paid-up share capital (excluding share application money or advances against shares); amount, if any, for the time being standing to the credit of share premium account; reserves and surplus (excluding revaluation reserve); long-term loans and deposits repayable after one year (excluding working capital loans, over drafts, interest due on loans unless funded, bank guarantee, etc., and other short-term arrangements) as reduced by the aggregate of any investments (except in case of investment by an investment company whose principal business is acquisition of shares, stock, debentures or other securities), accumulated losses and preliminary expenses not written off.
Where the appointment of the managerial person is made in the year in which company has been incorporated, the effective capital shall be calculated as on the date of such appointment. In any other case the effective capital shall be calculated as on the last date of the financial year preceding the financial year in which the appointment of the managerial person is made.
(Suyog S Kabra is partner with White Collar Legal LLP and can be reached at firstname.lastname@example.org)
Do you think CBDT should extend Tax Audit Report and relevant ITR Due Date? Please Comment, Vote, Retweet and Like.— Tax Guru (@taxguru_in) September 18, 2018