Page 38 - GSTL_ 28th May 2020_Vol 36_Part 4

J98 GST LAW TIMES [ Vol. 36
ation, is generally not entitled to sitting fee. Even if the sitting fee is paid, it will
be treated as ‘other allowance’ and the overall salary will be subject to the limit
of managerial remuneration specified in Schedule-V of the Companies Act, 2013.
An “independent director”, in relation to a company, means a director
other than a managing director or a whole-time director or a nominee director.
The selection of independent director shall be done by the board, independent of
the company management. Moreover, they have to satisfy some eligibility crite-
ria as specified by the Ministry of Corporate Affairs. An independent director
shall possess appropriate skills, experience and knowledge in one or more fields
of finance, law, management, sales, marketing, administration, research, corpo-
rate governance, technical operations or other disciplines related to the compa-
ny’s business. Such directors are non-executive directors of the company. Simi-
larly, nominee directors are those directors, who are nominated by a bank or fi-
nancial institutions or foreign collaborators/investors to form part of the board
of directors. Such directors are also non-executive directors of the company.
Test of employer-employee relationship
The term “employee” is not defined under the GST law. In such circum-
stances, the ordinary and natural meaning of the term “employee” has to be ex-
amined. It is trite law that if a word is not defined in a statute itself, it is permis-
sible to refer to the dictionary meaning. Cambridge Dictionary defines “employ-
ee” as a person who is paid to work for someone else. In other words, there has
to be master and servant relationship subsiding between the employer and the
employee. Under the income-tax law also, master-servant relationship is a sine
qua non for the purpose of - (a) treating an income under the head “salary”; and
(b) Deducting Tax at Source (TDS) under Section 192 of the Income-tax Act, 1961.
The issue as to whether a director is an employee or not has been considered by
the Courts in many occasions.
In Ram Pershad v. Commissioner of Income Tax - 1973 AIR 637, the Hon’ble
Supreme Court held that the assessee, a managing director of a company, had to
exercise his powers under the agreement within the terms and limitations pre-
scribed under the articles of association and subject to the control and supervi-
sion of the directors. This is indicative of his being employed as a servant of the
company, and therefore, the remuneration payable to him was salary within the
meaning of Section 7 of the Income-tax Act. The Court following test for deter-
mining whether a director is employee or not -
(1) The nature of the particular business and the nature of the duties of
the employee should be considered in each case in order to arrive at
a conclusion as to whether the person employed is a servant or an
agent, and, it is not possible to lay down any precise rule of law to
distinguish one kind of employment from the other.
(2) A managing director has the dual capacity of a director as well as an
employee, and whether he is the one or the other depends upon the
articles of association and the terms of his employment. (See : An-
derson v. James Sutherland (Peterhead) Limited, [1941] SC 203, para 218
where Lord Normand at para 218 said “the managing director has
two functions and two capacities. Qua Managing Director, he is a
party to a contract with the company and this contract is a contract
of employment; more specifically I am of the opinion that it is a con-
tract of service and not a contract for service”.)

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