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TMI Blog2024 (11) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... ist and not amount to any service. Appeal allowed. - HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR And HON'BLE MEMBER (TECHNICAL), MR. C L MAHAR Shri Ashwani K Prabhakar, Advocate, Appeared for the Appellant Shri Anand Kumar, Superintendent (AR) Appeared for the Respondent ORDER RAMESH NAIR The issue involved in the present case is that whether the appellant is liable to pay service tax on reverse charge basis in respect of monthly remuneration paid to its Director or otherwise. 2. Shri Ashwani K Prabhakar, Learned Counsel appearing on behalf of the appellant at the outset submits that the monthly remuneration paid to the Director is nothing but salary for performance of his job as a Director in the day to day affair of the company. The remuneration paid to the Director is accounted for as Salary and the TDS under the Income Tax Act, is also deducted under the head of Salary in form-16. Therefore, the remuneration paid to the Director being a salary is not liable for service tax as per negative list under Section 65 B (44) (b) of the Finance Act,1994. He further submits that demand is for the period of 01.08.2012 to September 2014 and the show cause notice was issued invokin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued which is meant for TDS deducted on salary income of the employee. We find that as per this fact the Director remuneration being in the form of salary is not liable to service tax as per the negative list post 01.07.2012 under Section 65 B (44) (b). The lower authorities have confirmed the demand only on the ground that in normal course the employees take direction from the seniors for performing their job whereas in the present case, Director is not taking any instruction from any seniors, therefore, he cannot be treated as an employee. This contention of the authorities is absolutely baseless as in view of the fact the Director is an employee of the company and he is drawing the salary as Director s remuneration and the statutory records such as form 16 certificate of Income Tax clearly show that the appellant are paying the Director s remuneration as salary. Therefore, on this point the contention of the revenue is absurd and without any legal backing. Moreover, this issue has been considered in a catena of judgments by this Tribunal, some of the judgments are cited below:- a) In the case of Allied Blenders and Distillers Pvt Ltd (supra), Mumbai bench of this Tribunal deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary being paid to an employee. 8. The Ld. Advocate for the appellant referring to various provisions of the Companies Act vehemently argued that these four directors were appointed as full-time/whole time directors of the company, in accordance with the Articles of association 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. Sec.2(34) Director means a director appointed to the Board of a company. 2(54) Managing Director means a director who, 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 occ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the Hon ble Supreme Court in the case of Ram Pershad v. CIT, New Delhi - (1972) 2 SCC 696 delivered under the Income Tax Act. In the said case, the assessee and his 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the nature of the duties of the employee will require to be considered in each case in order to arrive at a conclusion as to whether the person employed is a servant 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Directors exercises control which includes removal of the Director from the post and there may not be a strict day to day supervision of the work 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 arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Maithan Alloy Ltd. (supra) held as under:- 6. In the instant case, it is not in dispute that service tax has been duly paid on remuneration paid to directors who are not whole-time employee directors. The only dispute herein is for payment of remuneration to whole time directors, which is a fact on record. The provisions of Companies Act, 2013, contained in Section 2(94), duly defines whole-time director to include a director in the whole-time employment of the company. A whole-time director refers to a director who has been in employment of the company on a full-time basis and is also entitled to receive remuneration. We further find that the position of a whole-time director is a position of significance under the Companies Act. Moreover, a whole-time director is considered and recognized as a key managerial personnel under Section 2(51) of the Companies Act. Further, he is an officer in default [as defined in clause (60) of Section 2] for any violation or non-compliance of the provisions of Companies Act. Thus, in our view, the whole-time director is essentially an employee of the Company and accordingly, whatever remuneration is being paid in conformity with the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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