Page 40 - GSTL_ 28th May 2020_Vol 36_Part 4

J100 GST LAW TIMES [ Vol. 36
“TDS on remuneration to a director
Under the existing provisions of the Income-tax Act, a company, being an
employer, is required to deduct tax at the time of payment to its employees
including Managing Director/whole-time director. However, there is no spe-
cific provision for deduction of tax on the remuneration paid to a director
which is not in the nature of salary.
It is proposed to amend section 194J to provide that tax is required to be de-
ducted on the remuneration paid to a director, which is not in the nature of
salary, at the rate of 10% of such remuneration. This amendment will take ef-
fect from 1st July, 2012.”
In the light of the above judgments and the above provisions, it is safe to conclude
that even under Income-tax Act, the remuneration paid to whole-time direc-
tor/Managing Director, being an employee of the company, is in the nature of
“salary” and TDS is to be deduced under Section 192 of the IT Act. The Mumbai
Bench of Tribunal in the case of Rent Works India Pvt. Ltd. v. CCE, Mumbai - 2016
(43) S.T.R. 634 (Tri. - Mum.), held that there is a difference between salary and con-
sultancy fee inasmuch as when the Income Tax Department considers payment in
the nomenclature ‘consultancy fee’ as salaries, on which TDS is also made, the said
payments cannot be said towards rendition of taxable service for levy of service
tax. In the opinion of the author, the analogy can be applied in GST regime also.
Position under erstwhile Service Tax regime
A similar entry was also covered under reverse charge in the erstwhile
Service Tax regime. The C.B.E. & C. vide Letter No. F. No 354/127/2012-TRU,
dated 27-7-2012 in para 7 clarified as follows in this regard :
“Services of a director on the board of a company have now become taxable.
A director may be appointed either in an individual capacity or to represent
an entity (including Government) who has either invested in the company or
is otherwise authorized to nominate a director. When a director receives
payment in his personal capacity, the same is liable to be taxed in the hands
of the director. However, where the fee is charged by the entity appointing
the director and is paid to such entity, the services shall be deemed to be sup-
plied by such an entity and not by the individual director. Thus, in the case of
Govt. nominees, the services shall be deemed to be provided by the Govt. and
liable to be taxed under the exclusion sub-clause (iv) of clause (a) of section
66D of the Finance Act, 1994 i.e. support services by Government to business.
Such services are liable to be taxed on reverse charge basis.”
Even then, services rendered by an employee to an employer in the course of or in
relation to his employment were leviable to Service Tax. Thus, Service Tax was not
leviable on remuneration paid to director-employee. The C.B.I. & C. in Circular
No. 115/09/2009-S.T., dated 31-7-2009 clarified that the amount paid by the com-
panies to managing director/directors (whole-time or independent) even if termed
as commission, is not ‘commission’ within the scope of Business Auxiliary Service
and, hence, Service Tax would not be leviable on such amount. It was further clari-
fied that managing director/directors (whole-time or independent) being part of
the board of directors, performed management function and not a consultancy or
advisory function. Thus, the payments made by companies to directors could not
be termed as payments made for providing the management consultancy service.
The Ministry of Corporate Affairs also issued a General Circular No.
24/2012, dated 9-8-2012 regarding the applicability of Service Tax on commission
payable to non-whole-time directors of a company under Section 309(4) of the
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