The Companies Act, 1956
200. Prohibition of tax-free payments.
(1) No company shall pay to any officer or employee thereof, whether in his capacity as such or otherwise, remuneration free of any tax, or otherwise calculated by reference to, or varying with, any tax payable by him, or the rate of standard rate of any such tax, or the amount thereof.
Explanation.In this sub-section, the expression “tax” comprises any kind of income-tax including super-tax.
(2) Where by virtue of any provision in force immediately before the commencement of this Act, whether contained in the company’s articles, or in any contract made with the company, or in any resolution passed by the company in general meeting or by the company’s Board of directors, any officer or employee of the company holding any office at the commencement of this Act is entitled to remuneration in any of the modes prohibited by sub-section (1), such provision shall have effect during the residue of the term for which he is entitled to hold such office at such commencement, as if it provided instead for the payment of a gross sum subject to the tax in question, which, after deducting such tax, would yield the net sum actually specified in such provision.
(3) This section shall not apply to any remuneration
(a)which fell due before the commencement of this Act, or
(b)which may fall due after the commencement of this Act, in respect of any period before such commencement.