3.21 Query
Disclosure in profit & Loss Account Regarding Computation of Net Profit in Accordance withSection 349, and Clauses 4 & 4-A of Part II of Schedule VI to the Companies Act, 1956. It appears that the disclosure mentioned above is not necessary in cases where remuneration to the Directors, Managing Director of Manager is Paid on a fixed time scale and not as a percentage of net profits as commission, since in the former case necessary disclosure is made as per clause 4 of the part II of Schedule VI to the Companies Act, 1956.
As per clause 4 of part II of Schedule VI to the Companies Act, 1956, the Profit and Loss Account shall contain or give by way of a note detailed information showing the payment of managerial remuneration under Section 198 of the Act paid or payable during the year to the Directors including the Managing Director or Manager. Whereas as per clause 4-A, the Profit & Loss Account shall contain or give by way of a note a statement showing the computation of profits in accordance with Section 349 of the Act with relevant details of the calculation of the commission payable by way of percentage of such profits to the Directors including Managing Director or Manager. This appears to confirm the contention that were managerial remuneration is paid on fixed time-scale and not as percentage of net profits, disclosure under clause 4 suffices and further disclosure under clause 4-A is redundant and not necessary.
Opinion June 19, 1972
The said two clauses 4 and 4-A are reproduced below for ready reference: “4. The Profit and Loss Account shall also contain or give by way of a note detailed information showing separately, the following payments provided or made during the financial year to the directors, (including managing director), the managing agent, secretaries and treasurers or manager, if any, by the Company, the subsidiaries of the company and any other person:-
(i) managerial remuneration under Section 198 of the Act paid or payable during the financial year to the directors (including managing directors), the managing agent, secretaries and treasures or manager, if any ;
(ii) expenses reimbursed to the managing agent under section 354 ;
(iii) commission or other remuneration payable separately to a managing agent or his associate under Section 356, 357 and 358 ;
(iv) commission received or receivable under Section 359 of the Act by the managing agent or his associate as selling or buying agent of other concern in respect of contracts entered into by such concerns with the company ;
(v) the money value of the contracts for the sale or purchase of goods and materials or supply of services entered into by the company with the managing agent or his associate under Section 360 during the financial year ;
(vi) other allowances and commission including guarantee commission (details to be given);
(vii) any other perquisites or benefits in cash or in kind (stating approximate money value where practicable) ;
(viii) pension, etc.,-
(a) pensions,
(b) gratuities,
(c) payments from provident funds in excess of own subscriptions and interest thereon,
(d) compensation for loss of office,
(e) consideration in connection with retirement from office.
4-A. The Profit & Loos Account shall contain or give by way of a note a statement showing the computation of net profits in accordance with Section 349 of the Act with relevant details of the calculation of the commissions payable by way of percentage of such profits to the directors (including managing directors), the managing agents, secretaries and treasures or manager (if any).”
In substance, the query is: whether a statement showing the computation of net profits in accordance with Section 349 of the Act is necessary to be given as a note to the Profit and Loss Account, in a case where no commission by way of percentage of profits is payable to the Directors,(including managing directors), or manager (if any). On a plain reading of clauses 4 and 4-A it would appear that whereas clause 4 deals with information to be given in the Profit and Loss Account under various heads including ‘managerial remuneration under Section 198 of the Act paid or payable during the financial year to the directors (including managing directors), or manager, Clause 4-A deals only with cases in which the commission by way of percentage of profit is payable to the Directors (including managing directors) or manager. The said clause 4-A prescribes additional disclosure necessary under certain circumstances viz., when commission by way of percentage of profit is paid or payable. In view of this, when no such commission by way of percentage of profits is payable, in the opinion of the committee clause 4-A does not apply and no statement showing the computation of profits in accordance with the Section 349 of the Companies Act, 1956 need be given by way of a note to the Profit and Loss Account. In such a case, only clause 4 would apply. Under clause 4 , the only information that has to be given is the information regarding the amount paid or payable by way Managerial remuneration under Section 198 of the Act to directors (including Managing Director ) or to a Manager.
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