{"id":296,"date":"2015-09-24T00:00:00","date_gmt":"2015-09-23T18:30:00","guid":{"rendered":""},"modified":"2016-07-28T13:58:01","modified_gmt":"2016-07-28T08:28:01","slug":"service-tax-on-director-s-remuneration-instigating-litigation","status":"publish","type":"post","link":"https:\/\/taxclick.org\/type\/services-tax\/service-tax-on-director-s-remuneration-instigating-litigation\/","title":{"rendered":"Service Tax On Director\u2019s Remuneration-Instigating Litigation!"},"content":{"rendered":"

Introduction:- <\/strong><\/p>\n

The issue regarding leviability of service tax on remuneration paid to the directors has been matter of concern since 07.08.2012 when reverse charge mechanism was introduced vide notification no. 45\/2012-ST dated 07.08.2012 for the service tax liability as regards services provided by a director to a company. \u00a0The question as regards what kind of amount paid to the directors is leviable to service tax has haunted the minds of various company assessees because since then, a number of companies have been slapped service tax demands with interest and equivalent penalties for
\nnon-payment of service tax under reverse charge mechanism for amounts paid to the directors. The amendment made in the Budget 2014 vide Notification no.10\/2014-ST dated 11.07.2014 has further added fuel to the fire of litigation by extending reverse charge mechanism for services provided by directors to company or a body corporate and the defination of body corporate under section 2(11) of the Companies Act, 2013 has a very wide scope. In this article, an attempt is made to untangle the conceptions taken as regards service tax liability with respect to services provided by directors.<\/p>\n

Quick look at relevant statutory provisions:-<\/strong><\/p>\n

Entry no. 5A of the Notification no. 30\/2012-ST dated 20.06.2012 reads as follows:-<\/p>\n\n\n\n\n
Sl. No.<\/em><\/strong><\/td>\nDescription of service<\/em><\/strong><\/td>\n% of service tax payable by service provider<\/em><\/strong><\/td>\n% of service tax payable by service receiver<\/em><\/strong><\/td>\n<\/tr>\n
5A<\/em><\/td>\nIn respect of services provided<\/strong> or agreed to
\nbe provided by a director of a company or a body corporate to the said
\ncompany or the body corporate.<\/em><\/td>\n		–<\/em><\/td>\n100%<\/em><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

\n

The defination of service as given under section 65B (44) of the Finance Act, 1994 is produced as follows:-<\/p>\n

\u201cService\u201d means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include-<\/em><\/p>\n

(a)<\/em>An activity which constitutes merely,-<\/em><\/p>\n

(i)\u00a0\u00a0 <\/em>A transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or<\/em><\/p>\n

(ii)\u00a0 <\/em>Such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause 29(A) of article 366 of the Constitution; or<\/em><\/p>\n

(iii)<\/em>A transaction in money or actionable claim;<\/em><\/p>\n

(b)<\/em><\/strong>A provision of service by an employee to the employer in the course of or in relation to his employment;<\/em><\/strong><\/p>\n

(c)\u00a0 Fees taken in any court or tribunal established under any law for the time being in force.<\/em>\u201d<\/p>\n

Analysis of the statutory provisions:-<\/strong> It is pertinent to note that the whole time directors, managing directors and executive directors are engaged in managing day to day functioning of the company or the body corporate and so can be considered as employees of the company. Furthermore, the fact that the TDS is deducted under section 192 Income Tax Act, 1961 on the salary\/remuneration paid to the whole time directors\/managing directors\/executive directors is conclusive evidence that the amount paid as remuneration is nothing but consideration paid for services rendered by such directors in the capacity of employee of the company.Furthermore, the fact that remuneration received by the whole time directors, managing directors etc. is shown in their Income Tax Returns under the head
\n\u2018Income from Salary\u2019 also fortifies the fact that the amount received is in lieu of their employment with the company. As such, when CBDT, being one of the wing of the government department is accepting the amount paid to the managing directors, whole time directors etc. as salary in lieu of employment, the other wing of the government department, i.e., CBEC cannot take a contrary stand to levy service tax on the same. Therefore, the consideration received by the directors in lieu of managing day to day affairs of the company is infact in the capacity of employee and cannot be considered as \u2018service\u2019 as per the defination of service given under section 65B(44) of the Finance Act. When the activity of managing day to day affairs of the company by a director is treated as in relation to employment, the said activity is outside the purview of the defination of service and consequently no service tax is leviable on the same.
\nFurthermore, when an activity is not within the ambit of \u2018service\u2019, the question of reverse charge mechanism does not arise. However, following pointsare also worth observing in this context:-<\/p>\n