a) Sitting Fee b) Fixed monthly Remuneration, and c) Commission.
The directors do not raise any bill for such remuneration and the remuneration is calculated by the company under permissible limits given as per company law. Is there any service tax liability on the above under the Management or Business Consultants Services / Business Auxiliary Services?
Is the treatment same in case of Nominee / Independent Directors?
Directors and other key managerial personnel are often paid remuneration by way of salary, bonus and commission. Commission is given as a performance incentive, based on the company's sales . It is calculated as a part of overall remuneration is a recognised method of compensation under the Companies Act, 1956. Merely because the compensation is so designed that it is termed as commission, it cannot be said to be an amount that would be subject to service tax. It may be noted that service tax is levied on taxable services and not on the amount as understood by its nomenclature. To be taxable under service tax, commission should have been paid or received for rendering any taxable service. In such a case, there does not appear to be any taxable service involved. For taxability, services should fall under any of the taxable services as stipulated in Section 65(105) of the Finance Act, 1994. Even otherwise, commission agent has been defined by way of an explanation under Section 65(19) and directors by any stretch of interpretation cannot be covered for service tax purposes as commission agent under business auxiliary services.
Actually it may not be as simple as that. A director who is non-executive director is remunerated by companies for services rendered as a year end commission based on percentage of profits. In the strict sense there is no employer employee relationship between the companies and such directors to call that remuneration as salary. In such a situation a question arises what is that remuneration for. The a possibility that it is held as remuneration for professional services is not ruled out in which situation ST liabilty may be pressumed to be there for the payee director!