Page 39 - GSTL_14th May 2020_Vol 36_Part 2

2020 ] REMUNERATION PAID TO DIRECTORS — APPLICABILITY OF GST PROVISIONS J39
Relevant provisions of the Companies Act, 2013 and Income-tax Act, 1961
The Director of the Company is a person appointed by the Board within
the meaning of Section 2(34) of the Act.
Section 149 of the Act mandates that every company shall have Board of
Directors consisting of individuals as director. Section 166 of the Act defines the
duties of the directors.
Section 2(94) of the Act defines whole time director. The definition is in-
clusive definition and includes a director in whole time employment of the
Company.
Section 2(54) of the Act defines the ”Managing Director” to mean a direc-
tor who, by virtue of the articles of a company or an agreement with the compa-
ny or a resolution passed in its general meeting, or by its Board of Directors, is
entrusted with substantial powers of management of the affairs of the company
and includes a director occupying the position of the managing director, by
whatever name called.
It is very common for a Company to appoint whole time directors to
look after day-to-day management and affairs of the Company. They are called
Managing Director, Whole Time Director or Executive Director and their overall
remuneration is governed by Section 197 of the Companies Act read with Sched-
ule V. Their duties are set out either in the resolution appointing them or in the
contract between the Company and whole time director.
The remuneration to whole time directors who are employees of the
company is broadly comprised of salary (including perquisites), and commis-
sion. In most cases, sitting fees are not paid to whole time directors.
Section 197(4) of the Companies Act, 2013, provides for determination of
the remuneration payable to the directors and includes the remuneration payable
for the services rendered by them in any other capacity except where the services
rendered are professional in nature.
It is evident from the scheme of the Companies Act, 2013 that whole time
director appointed by the Company are in whole time employment of the Com-
pany and are paid remunerations within overall limits prescribed under Section
197 of the Companies Act, 2013 read with Schedule V of the Act.
Section 192 of the Income-tax Act, 1961 obliges every employer to deduct
and deposit income tax at source on the specified percentage of the remuneration
paid to the employees and issue declaration in Form 16 to the each of the em-
ployees. It is now well settled that the remuneration paid to the whole time di-
rectors is subject to deduction of tax at source under Section 192 of the Income-
tax Act, 1961.
The remuneration to whole time directors is accounted for in accounts of
the Company under the head as ‘Salary’. Further, the remuneration paid to the
whole time directors is subject to contribution under the Employees Provident
Funds and Miscellaneous Provisions Act, 1952.
The Learned Authority for Advance Ruling appears to have, without
considering any of the provisions of the Companies Act, Income-tax Act and oth-
er statutory provisions, held that directors are not employees and provisions of
Schedule III to the CGST Act, 2017 are not applicable.
[Continued on page J48]

GST LAW TIMES  14th May 2020  39