9911796707
TMI Blog2024 (1) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Appellant Shri Prabhat K. Rameshwaram, Addl. Commissioner for the Respondent ORDER C. L. MAHAR : The common issue involved in both the appeals is whether the remuneration paid by the appellant to directors should be charged to service tax on the reverse charge basis or not. 2. It has been the contention of the appellant that the department has misinterpreted the provision of the Company‟s Act, 1956 in its favour by ignoring the fact that remuneration paid to its Directors is a salary and there is clear-cut relationship of Appellant and its Directors that of employer and employee. The Directors of the appellant are declaring their remuneration under the Income Tax Act, 1961 as Salaries . 3. The department has erred in interpreting the word remuneration‟ which is paid by the appellant to its Directors in a literally meaning. The amount being paid by the appellant to its Directors is nothing but a salary for all practical purposes. It has also been contended that it is pertinent to note that TDS on such salaries received by various employees including its Directors has duly been deducted and the same is being regularly deposited with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Supreme Court is scanned below : 4.1 From the above status we find that the matter is coming up for final disposal. The Adjudicating Authority may take cognizance of Hon ble Supreme Court judgment in the above case while passing a de-novo order depending on the facts of the case. All the other issues are kept open. 5. The appeals are allowed by way of remand to the adjudicating authority for passing a fresh de-novo order by following the principles of natural justice. 5. The appellant have approached Hon‟ble Gujarat High Court against the above mentioned order of the CESTAT by filing Special Civil Application No. 14552 of 2021 in case of M/s. Supreme Treves Pvt. Limited vs. UOI wherein the following directions have been given by the Hon‟ble High Court:- In the instant case also, we notice that the approach of the Tribunal is to abdicate its duty of deciding the matter on the merits or to retain the matter till the outcome of the pending matter before the apex court. This approach of tribunal is not proper. We deem it appropriate to direct the tribunal to decide the matter on merits. We further reserve liberty to the parties to raise all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee company. 9. Further, the judgment of this Tribunal in the case of Maithan Alloys Limited vs. Commissioner of C.Ex. ST., Bolpur (supra) is squarely applicable to the facts of the case. Further, the Ld. Adjudicating authority has also allowed part of the demand on the ground that there exists an employer-employee relationship between the whole time Directors and the appellant assessee, then the ground of confirming the balance demand that the directors have provided service to the company becomes infructuous and hence cannot survive before the eyes of the law. Since demand of service tax is set aside, penalty and interest are also not sustainable. Similarly in the case of Allied Blenders and Distillers Pvt. Limited vs. CCE ST, Aurangabad reported at 2019 (24) GSTL 207 (Tri. Mumbai), the Mumbai Bench of this Tribunal passed the following order:- 5. The short issue involved in the present appeal for determination is whether remuneration paid to the Directors by the appellant is chargeable to Service Tax and the appellants are required to discharge Service Tax under reverse charge mechanism in accordance with Notifications No. 45/2012-S.T., dated 7-8-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and as per resolutions of the Board of Directors (BOD). Under various provisions of the Companies Act, these directors are treated as employees of the company, consequently all the conditions that are applicable to an employee of the company, even though, they participate in the management of the affairs of the company as part of Board of Directors, but also are employees of the company. To appreciate the said argument it is necessary to read the definition of the Director, Managing Director, whole time Director under the Companies Act. Director means a director appointed Sec.2(34) to the Board of a company. Managing Director means a director who, 2(54) by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of the managing director, by whatever name called. whole-time Director includes a Director 2(94) in the whole time employment of the company; Executive Director means a whole time director as defined in clause (94) of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wife owned a large number of shares in a private limited company engaged in the business of running hotels. By an agreement with the company, the assessee was to receive Rs. 2,000/- per month, fixed sum of Rs. 500/- per month as car allowance, 10% of. gross profit of the company. For assessment year 1956-57 for which the accounting year is the year ending 30-9-1955, the assessee was assessed in respect of Rs. 53,913/- payable to him as 10% of tire gross profit which he gave up soon after the accounts were finalized but before they were passed by the General meeting of the shareholders. The question before the Hon ble Supreme Court was whether the 10% gross profit payable to the assessee under the terms of the agreement appointing him as the managing director is liable to be assessed as salary or under the head income from business . The contention of the assessee in that case was that in order to assess the income as salary it must be held that there was a relation of master and servant between the company and the assessee. It was pleaded that for such a relationship to exist, it must be shown that the employee must be subject to the supervision and control of the employer in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant or an agent. In each case the principle for ascertainment remains the same. Analyzing the facts in issue and applying the said tests their Lordships further observed as : 14. A perusal of the articles and terms and conditions of the agreement definitely indicate that the assessee was appointed to manage the business of the company in terms of the articles of association and within the powers prescribed therein. Reference may particularly be made to Arts. 139 and 142 to ascertain the nature of the control imposed by the company upon the Managing Director. Under the former the additional work which he can do as an agent or manager of the company can be done on terms and conditions and on such remuneration as can be agreed upon between him and the Directors of the Company and under the latter he had to execute the decisions that may be arrived at by the Board from time to time. 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. Several of the clauses of Article 140 as pointed out by the High Court specifically empower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Director, but the employment of the Directors continue till the Board of Directors desired to do so. It is his contention that the officer of a company as per Sec. 2(60) of the Companies Act, who defaults in compliance with the provisions of the Act is liable for punishment, which includes whole time Directors. Thus, the whole time Directors are amenable to criminal action like an officer of the company. 14. The Revenue, on the other hand, referring to the judgment of Hon ble Allahabad High Court in the case of Sardar Harpreet Singh v. Commissioner of Income Tax - 1990 SCC Online All 929, submitted that merely on deduction of Income Tax at source cannot be considered that the Director and the Company has employer and employee relationship. It is the agreement between the employer i.e. company and the Director would reveal the exact relationship between them. In the present case, no such agreement exists between the employer and the Directors, hence there exists no employer-employee relationship. 15. We do not find merit in the argument of the Revenue inasmuch as during the course of investigation, the statement of Shri Atit Dalai, Vice President (Finance Accou ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
