Page 39 - GSTL_ 28th May 2020_Vol 36_Part 4

2020 ] GST ON DIRECTOR’S REMUNERATION — A CRITICAL ANALYSIS J99
(3) Whether a person employed by a company is a servant or an agent
is not solely dependent on the extent of supervision and control ex-
ercised on him. The control which the company exercises over the
assessee need not necessarily be one which tells him what to do
from day-to-day. Nor does supervision imply that it should be a
continuous exercise of the power to oversee or superintend the
work to be done.
(4) A perusal of the articles and terms and conditions of the agreement
which would indicate whether the director was appointed to man-
age the business of the company in terms of the articles of associa-
tion and within the powers prescribed therein. The control and su-
pervision exercised by the company is exercisable in terms of the ar-
ticles of association by the Board of Directors and the company in its
general meeting.
(5) Under Section 17(2) of the Indian Companies Act, 1913, Regulation
No. 71 of table A, which enjoins that the business of the company
shall be managed by the Directors is deemed to be contained in the
articles of association of the company in identical terms or to the
same effect. Since the Board of Directors are to manage the business
of the company they have every right to control and supervise the
managing director’s work whenever they deem it necessary. A
managing director also function as a member of the Board of Direc-
tors whose collective decision he has to carry out in terms of the ar-
ticles of association and he can do nothing which he is not permit-
ted to do.
(6) The very fact that apart from his being a managing director, he is
given the liberty to work for the company as an agent is indicative
of his employment as a managing director not being that of an
agent.
(7) If the company is itself carrying on the business and the managing
director is employed to manage its affairs in terms of its articles and
the agreement and if he could be dismissed or his employment can
be terminated by the company if his work is not satisfactory, it
could not be said that he is not a servant of the company.
In CIT v. L. Armstrong Smith, 1946 14 ITR 606 Bom, it was held that remuneration of
the assessee, as a chairman and managing director, is to be taxed under the head
‘income from salary’ and not under ‘business income’.
In CIT v. M.S.P. Rajes, (1993) 77 Com Cases 402, the Hon’ble Karnataka
High Court also, relying on decision in Dharangadhara Chemical Works Ltd. v. State
of Saurashtra - 1957 AIR 264 wherein test of master-servant relationship was used
by the Apex Court, held that remuneration received by managing director is tax-
able under the head income from salary.
In this context, it is relevant to examine clause (ba) inserted into Section
194J(1) by the Finance Act, 2012 which reads as under :
“(ba) any remuneration or fees or commission by whatever name called,
other than those on which tax is deductible under section 192, to a director of
a company, or”
The memorandum explaining the amendment brought in by the Finance Bill, 2012
is as under :
GST LAW TIMES  28th May 2020  39