Page 55 - GSTL_18th June 2020_Vol 37_Part 3

2020 ] DEPARTMENTAL CLARIFICATIONS C11
Leviability of GST on remuneration paid by companies to the independent
directors or those directors who are not the employee of the said company
4.1 The primary issue to be decided is whether or not a ‘Director’ is an
employee of the company. In this regard, from the perusal of the relevant
provisions of the Companies Act, 2013, it can be inferred that :
(a) the definition of a whole time-director under section 2(94) of the
Companies Act, 2013 is an inclusive definition, and thus he may be a
person who is not an employee of the company.
(b) the definition of ‘independent directors’ under section 149(6) of the
Companies Act, 2013, read with Rule 12 of Companies (Share Capital
and Debentures) Rules, 2014 makes it amply clear that such director
should not have been an employee or proprietor or a partner of the said
company, in any of the three financial years immediately preceding
the financial year in which he is proposed to be appointed in the said
company.
4.2 Therefore, in respect of such directors who are not the employees of
the said company, the services provided by them to the Company, in lieu of
remuneration as the consideration for the said services, are clearly outside the
scope of Schedule III of the CGST Act and are therefore taxable. In terms of entry
at Sl. No. 6 of the Table annexed to notification No. 13/2017-Central Tax (Rate),
dated 28-6-2017, the recipient of the said services i.e. the Company, is liable to
discharge the applicable GST on it on reverse charge basis.
4.3 Accordingly, it is hereby clarified that the remuneration paid to
such independent directors, or those directors, by whatever name called, who are
not employees of the said company, is taxable in hands of the company, on
reverse charge basis.
Leviability of GST on remuneration paid by companies to the directors, who are
also an employee of the said company
5.1 Once, it has been ascertained whether a director, irrespective of
name and designation, is an employee, it would be pertinent to examine whether
all the activities performed by the director are in the course of employer-
employee relation (i.e. a “contract of service”) or is there any element of “contract
for service”. The issue has been deliberated by various courts and it has been held
that a director who has also taken an employment in the company may be
functioning in dual capacities, namely, one as a director of the company and the
other on the basis of the contractual relationship of master and servant with the
company, i.e. under a contract of service (employment) entered into with the
company.
5.2 It is also pertinent to note that similar identification (to that in Para
5.1 above) and treatment of the Director’s remuneration is also present in the
Income Tax Act, 1961 wherein the salaries paid to directors are subject to Tax
Deducted at Source (‘TDS’) under Section 192 of the Income Tax Act, 1961 (‘IT
Act’). However, in cases where the remuneration is in the nature of professional
fees and not salary, the same is liable for deduction under Section 194J of the IT
Act.
5.3 Accordingly, it is clarified that the part of Director’s remuneration
which are declared as ‘Salaries’ in the books of a company and subjected to TDS
under Section 192 of the IT Act, are not taxable being consideration for services

GST LAW TIMES  18th June 2020  55