• SME Doctor

Dear Sir,
How do I register for income tax e-filing?
— Asked on vakilsearch.com

Select the appropriate type of Return form, download return preparation software for the selected Return form, fill your return offline and generate an XML file.  After this, register and create a user ID and password. Login and click on relevant form on the left panel and select “submit return”. Once you have done this, browse to select the XML file and click the “upload” button. On successfully uploading the files, acknowledgement details would be displayed. Click on “print” to generate a printout of the acknowledgement/ITR-V Form.

Dear Sir,
A company X employs 10 people in its office and another 250 people through agents and contractors. What creates an employer-employee relationship for the company?
— Asked on vakilsearch.com

The employment relationship is the legal link between employers and employees. It exists when a person performs work or services under certain conditions in return for remuneration. It is through the employment relationship, however, defined that reciprocal rights and obligations are created between the employee and the employer.
In the case of company X, it seems that there may not be an employer employee relationship. Company X is a private limited company which is relying on agents and contractors. The employer employee relationship will be between the agent and the worker, not between the company X and the worker.
The employer-employee relationship has been and continues to be the main vehicle through which workers gain access to the rights and benefits associated with employment in the areas of labor law and social security. The existence of an employment relationship is the condition that determines the application of
the labor and social security law provisions addressed to employees.
Because of the weak position of workers in this country, there have been many decisions where Courts have found the company responsible for the welfare of the worker even
if he was not directly employed by
the company.
Therefore, to answer your question, there may not be an employer–employee relationship. However, if the worker gets injured or suffers some harm while working for company X, company X may have to compensate him (and not just the agent or contractor).

Dear Sir,
Can any company issue bonus shares?
—Asked on vakilsearch.com

No, all companies cannot issue bonus shares, there are certain conditions.
Those are as follows:
1) Bonus shares can be issued by a company only if the Articles of Association of the company authorize a bonus issue. Where there is no provision in this regard in the Articles, they must be amended by passing special resolution act at the general meeting of the company.
2) It must be sanctioned by shareholders in the general meeting on the recommendation of the board of directors of the company.
3) The guidelines issue by the SEBI must be complied with. For instance, care must be taken that the issue of bonus shares does not lead to total share capital in excess of the authorized share capital. Otherwise, the authorized capital must be increased by amending the capital clause of the Memorandum of Association.
4) If the company has availed of any loan from the financial institutions, prior permission is to be obtained from the institutions for the issue of bonus shares. If the company is listed on the stock exchange, the stock exchange must be informed of the decision of the board to issue bonus shares immediately after the board meeting. Where the bonus shares are to be issued to the non-resident members, prior consent of the Reserve Bank should be obtained.

Dear Sir,
I run a manufacturing unit. What are the changes made to the Central Excise Law in the Budget 2011?
— Asked on vakilsearch.com

It is unclear what industry your manufacturing unit falls under, but the changes made by the Budget 2011 to the Central Excise law
are as follows:
Central Excise Duty to be maintained at standard rate of 10 percent.
There is a reduction in number of exemptions in the Central Excise rate structure.
Nominal Central Excise Duty of one percent imposed on 130 items entering the tax net.
Lower rate of Central Excise Duty enhanced from 4 percent to five percent.
Full exemption from basic Customs Duty and a concessional rate of Central Excise Duty extended to ‘batteries’ imported by manufacturers of electrical vehicles.
Concessional Excise Duty of 10 percent to vehicles based on fuel cell technology.
Reduction in Excise Duty on kits used for conversion of fossil fuel vehicles into Hybrid vehicles.
Excise Duty on LEDs reduced to five percent
Full exemption from basic Excise Duty granted to enzyme based preparation for pre-tanning.
Parallel Excise Duty exemption for domestic suppliers producing capital goods needed for expansion of existing mega or ultra mega power projects.
Jumbo rolls of cinematographic film fully exempted from Countervailing Duty by providing full exemption from Excise Duty.
Out right concession to factory-built ambulances from Excise Duty.
Therefore, if you are a manufacturer of LEDs, the excise duty you have to pay is only 5 percent. Similarly, if your company is involved in the fabrication of ambulances, you will get a massive concession in the excise duty.  You can contact a legal expert to understand how the changes affect your business specifically. A study of your business, what product you are manufacturing and whether that product will qualify for a reduction or exemption from excise duty will have to be calculated.

Dear Sir,
I am entering into a commercial relationship for which the opposite side wants me to enter into a Service Level Agreement. What is a Service Level Agreement and what has to be done to enter into one?
— Asked on vakilsearch.com

There are many reasons why the other side wants you to enter into a Service Level Agreement, also called an SLA. It is a tool for creating a more empowering business relationship between consumers and providers. The Service Level Agreement will serve as a communication builder, opening up ideas before the establishment of the final
commercial relationship.
A Service Level Agreement should typically contain the following, at least:
a. Information about the two parties to the Agreement.
b. A clear indication of what the expectations of the parties to the Agreement are and what the goal of the relationship is.
c. An indication of the way forward, i.e. what happens next, what is the immediate next step that has to be taken, what will be the future steps the parties will have to take in the course of building their relationship.
The reason for most disputes are misunderstandings and not meeting each others’ expectations in contract.
So prepare the service level agreement with care, and keep in mind the above three points as a guideline. The clearer you are in preparing your agreement, the more successful your relationship is likely to be.

Dear Sir,
How do I decide the basis on which to pay bonus for my sales and marketing employees? Is the procedure different for employees in the manufacturing operations?
— Asked on vakilsearch.com

In sales and marketing, most often, the
basis used is the growth in revenue brought in by the employee. For instance, if an employee has generated business for a company worth Rs.2 lakh (in a financial year), a bonus could go a long way in ensuring that the numbers are repeated even the next year.
Please note that this is not without danger. In the employment contract, you have to very clearly state the numbers you are looking at.
For instance, you could set the target at Rs.2 lakh, but also specify how the amount is going to be calculated. If there is no clarity on this aspect, you could face serious challenges and even the risk of an employer-employee dispute.

Manufacturing
On the manufacturing side, bonus is typically given based on the productivity of the employee, as opposed to the production of the employee. So for instance, if a particular employee is able to produce 1,000 units of a product in six hours, while another employee takes 10 hours for the same work, the first employee is actually doing the work of two employees. So to lower your costs and incentivize him to retain his high productivity, you can offer a special incentive bonus.
As with measuring success based on revenues earned for the company, this method comes with the risk that if you do not devise a mechanism to accurately calculate the number of units produced, you will have an employer-employee dispute to deal with.

IT & ITES
The trickiest situation arises in the IT sector where the priorities of business differ tremendously.  If the priority of your business is timely delivery, include that kind
of bonus structure in the employment contracts you sign with your employees. If an employee completes the tasks assigned to him within the milestone set for the task, it counts as an on-time performance,
and so on. In the case of product focused companies, the priority is the completion of the product with all the required / planned features. In this case, the
bonus can be structured such that if an employee adds the features (within the time frame), he/she gets an additional bonus.
The clause in the employment contract in that case can be modified to read:
“<Name of the employee> shall get an amount of Rs.12,000 per month as a bonus in the event that he is able to program additional features as required by the company in that month. The additional features for every month shall be outlined in a monthly annexure, which shall be added to this contract.”

Dear Sir,
My staff is threatening to take legal action on the ground that ‘bonus’ was not paid to them. Does the law make it mandatory for me to pay bonus? Does this have to be mentioned in the employment contract?
— Asked on vakilsearch.com

i. Your staff may be right. While it is optional for a small company to pay a bonus, the payment of bonus for a large company (having more than 20 employees) is mandatory.
This is as per the Payment of Bonus Act, 1965, which reads:
“An Act to provide for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith.”
It states that for any company having more than 20 employees, bonus which is equal to at least one month’s minimum wages has to be paid to the employee.
Usually, businesses pay the bonus during the month of Diwali; the bonus can also be divided into 12 equal parts and added to the employee’s salary every month.
ii. If you do not pay this bonus, your employees are entitled to take legal action against you. The Court will then compel you to pay back-dated bonus, along with interest. Therefore, in the interest of your organization, we recommend that you immediately pay the bonus as desired by the staff.
iii. The bonus need not be mentioned in the employment contract, but it is definitely better if you do. By mentioning it in the employment contract, there is absolute clarity on the amount and frequency with which the employee will get his / her bonus.
iv. We recommend that the employment contract be drafted with as much detail as possible. The cost incurred is more than offset by the peace of mind you have later on.

For your legal queries, write to vakilsearch.com.

Tags:
SME, SME Doctor, Vakilsearch