CA Final
618 Points
Joined August 2012
It can be concluded that service tax is payable only on the amounts paid to the directors other than in lieu of their capacity as employee of the company. Furthermore, the non-executive directors of the company are not paid salary as they are not involved in executing/managing day to day affairs of the company. Therefore, the sitting fees/commission etc. payable to non-executive directors and the executive/whole time directors/managing directors is leviable to service tax. However, amount paid as salary for which TDS is deducted under section 192 of the Income Tax Act, 1961 is not leviable to service tax as the said amount is received by the directors in lieu of their employment with the company. It is practically observed that various companies are being raised demand for service tax on the total amount paid to the directors but one is required to examine the amounts for which service tax is leviable. Furthermore, the companies should pay service tax on the sitting fees/commission and other amounts paid to the directors which do not form part of salary because the company is entitled to take cenvat credit of the amount paid as service tax under reverse charge mechanism on the strength of challan. As such, there is no loss to the company in paying service tax and instead, non payment of service tax may attract interest and penal consequences