25 May 2010
Mr. X (Technical person) appointed in a pvt. ltd company as CEO in 2008 and was paid Rs X as professional fees. In jan.2010 he become director in that company. He wants to receive the payment as professional fees and not as director's remunaration.Whether the company can pay professional fees to such directors? Openion required with reference to company law as well as Intome tax act.
26 May 2010
I would like to know if he is CEO, why he is getting Professional fee but not Salary? Leaving it apart, ur current question is whether he can get professional fees as a director rather directors remuneration - YES, a company can pay professional fees to a director. But it will attract Section 314 - Place of Profit - of the Companies Act, 1956. The company need to take necessary approvals as per Section 314. But if the professional services falls under any category like engineering, CA, lawyer, etc., then Section 314 wont be applicable. However it is recommended to comply with Section 314. In Income tax act, the same will fall under section 40A(2) - Payments to related parties - If the assessing officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the services so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. Practically there would not be any problem in Income tax
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