Query on managerial remuneration

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Querist : Anonymous

Querist : Anonymous (Querist)

24 September 2013 If a listed Company is reimbursing expenses to a non executive director,and there is no resolution passed to that effect by the Company nor any CG approval has been obtained, would it get covered by provisions of Explanation (c) of S. 198. The director is not a professional.The Company is not deducting income tax thereon. Would this violate provisions of The Companies and Income Tax Acts. The auditor has only disclosed it as an item under AS 18.
Thanks in advance

Ajay Mishra

Ajay Mishra (Expert)

24 September 2013 Please check what your company's article says there on.

The Articles shall contain a provision for payment of traveling, boarding and lodging expenses to directors in connection with the business of a company. In this context the clarification vide Circular No. 5/75, dated 1-2-1975 given by the DCA have been reproduced as under:
"Whether the condition restricting traveling and daily allowances, which may be paid to the directors of the company for performing journeys on the business of the company to the limits laid down in rule 6D of the Income-tax Rules, 1962 should be imposed, has been considered in consultation with the Company Law Advisory Committee. Having regard to the various practical difficulties faced by the companies in complying with the aforesaid condition, the Central Government have decided that no such condition could be imposed. The companies may, however, be advised to ensure that the payment will be on the basis of actual expenditure and expenditure kept to the minimum."

Querist : Anonymous

Querist : Anonymous (Querist)

24 September 2013 Dear Mr. Ajay,
Articles do provide for reimbursement of travelling and other expenses besides the sitting fees for attending to business matters of the Company. In the instant case, the reimbursement of expenses includes EMI of car loan of approx. Rs. 1,00,000 p.m. Would this be allowed under Ss. 198 or 309.The car is not on Company's books. Debit note clearly indicates the fact of reimbursement of car loan EMI. The auditors are aware of this fact but have failed to report about it. According to me this seems to be a clear violation of The Companies' Act.Please guide.

Ajay Mishra

Ajay Mishra (Expert)

24 September 2013 A director who are getting sitting fee will not be eligible to take other benefit as you mentioned.

He can take reimbursement of expenses which he has incurred in respect of attending the meeting.

So as per my under standing such director is not allowed to tale such EMI reimbursement.

Querist : Anonymous

Querist : Anonymous (Querist)

24 September 2013 Dear Mr. Ajay,
Any case law supporting this view? Any circular/notification prohibiting the claim?
Thanks.

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