My answer is a bit different.....
A director of a company as such is not a servant of the company and the fees he receives are by way of gratuity. As director simpliciter, he is not a servant. But he may enter into a contract of employment to serve as a managing director or as a manager or to enter any special service to company apart from his duty as a director. In such as event he will also be an employee.
How ever mere passing a resolution allotting work and payment of remuneration is not sufficient without providing and establishing on record that services were rendered by the director as an employee. In any case, where the person holds the office of a director of a company, remuneration by virtue of that office does not bring about the relationship of master and servant. [ CIT V Shanti Devi (1993) 199 ITR 800 (Ori)]
Hence the fees paid to a director, independent of the contract of service would be taxable under the head " Income from other sources".
As per Q. No. 2 of circular 8/2005 dated 29/08/2005 :-
Whether employer - employee relationship is a pre-requisite for the levy of FBT?
THe answer is Yes.
So it can be concluded that the mere presence of a director in a company will not make the company liable for FBT. Other conditions as mentioned above are also necessary. You will have to prove that the director has entered into contract for employment with the company by entering into a service agreement or the aricles of association of the company authorizes the same.
Nikunj Rathi
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