IT SEC. 36(1)II

[HITESH MISTRY]

Dear Sir,

We are having private limited Company. Would like to ask if the management intend to give commission to one of the Director of the Company for her performance during the year. Should Section 36(1)II is applicable for allowing as expenses deductable. Should Company get this commission expense as dedutable?

Please have your opinion on this.

Regards

Hitesh Mistry

[DR.MARIAPPAN GOVINDARAJAN]

In my view it is allowable.

[Yash Jain]

Sir,

1. Please ensure that commission is within the limit of sec 198 of the Co. Act, 2013 (Reason.: It acts as a strong defence in case of appeals.)
2. Ensure that commission is variable in nature (Reason.: It will help the company to contend that raise or fall in commission is purely on performance and commission is not just an ad hoc arrangement) .
3. If your company has given dividends in past years, but director was not paid commission (& director is shareholder), then please arrange for reason that why suddenly need for commission. Officer can state that it may be in lieu of dividend and the entire commission can be disallowed. Hence form a strong basis / reasoning for such commission. Eg. substantiate by documenting that due to efforts of director sales and profit increases and hence he get commission.

Rgds

AI Summary

Deductibility of director commission depends on company law limits, performance linkage, and documentary evidence to avoid disallowance.
Deductibility of director commission requires treating the payment as a genuine business expense: make it performance-based and variable, document the causal link to increased sales or profits, and ensure compliance with corporate-law remuneration limits; otherwise tax authorities may view it as a substitute for dividends and disallow the deduction.