DIRECTOR'S SERVICES TAXABLE ??

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CA Ayush Agarwal

Kolkata-Pune-Mumbai

27349 Points Joined October 2007

Dear All,

As We Know on Director Salary Service Tax Applicability There are Lots of Matters on Which Discussion is Must, Many Experts Have There Own Comments , Own Interpretation of Law, But Still Some Confusion remains till The Goverment Didnt Make it Clear.We have to Wait for Jurisdiction Judgement or Excise Department any Clarification.

In Notofication Dated 06/08/2012, If Employer Employee Relationship Exist, Then Service Tax is not Chargeable.

We Classified it as:

Executive Director,

Non Executive Director.

and Make it Clear That in MCA While filling Form32 director, If We Shown There Exective Then Service Tax is Not Chargeable, if shown Non Executive then Service Tax is Chargeable.

But Question Arises, Then Every One Continue to Show Director as Executive Director. & Will Not Pay service Tax.

But Employer Employee Relationship How to Confirm, I Mean Just If receiving Salary & deducting TDS u/s 192, is Sufficient to Proff That Employer Employee Relationship Exist.

I Think No.....

Even Independent Director Can be Termed as Executive Director, But he should not hold more than 2% of the block of Voting Shares.

What is Your Views.

Your Views are Invited.

Replies (8)

Aditya Maheshwari

CA in Practice

35867 Points Joined June 2009

The difference would also be that executive director would be paid a monthly salary whereas non executive director would be paid not every month. So you can find difference in the same.

T S D

236 Points Joined July 2008

The definition of Sec 2(13) of The Companies Act,1956 refers to Managing directors and Whole-time directors. An Executive Director can be either Managing Director and Whole-time Director while a Non-executive Director could be neither. Independent Director is also a non executive Director, but certain conditions are required as you had mentioned.

1. It has been held in case of News Papers Proprietary Syndicate Ltd,Re, [1990]2Ch349 that a managing director is an employee of the company, but not to the extent so as to be entitled to preferential payments.

2. As per explanation given in Sec 269 of The Companies Act,1956 "Whole Time Director" includes a director in whole time employment of the company.

MCA Filing - Form

It is upto you to decide the classification of Directors in Form 32. Classifying non-excutive directors as executive directors does not absolve you from charge of Service tax. You need to look into the basic nature behind it.

Employer-employee relationship:

Executive directors cannot resign merely by giving a notice because, they occupy two positions -

a) One as a Director and

b) As manager or officer of the company in the sense of whole-time employee.

It should now be clear whether there exist employer-employee relationship. TDS u/s 192 may be an additional ground to say that such relationship exist.

Independent Director:

Considering the definition in the Companies Act, Independent director is not an executive director. (Nominee directors appointed by institution in which the company has invested are also treated as Independent directors)

Source: The CA Journal (Oct 2012 Page 610)

CA Ayush Agarwal

Kolkata-Pune-Mumbai

27349 Points Joined October 2007

Originally posted by : Aditya Maheshwari
	The difference would also be that executive director would be paid a monthly salary whereas non executive director would be paid not every month. So you can find difference in the same.

Dear Sirji, This Reason We Cant Take as Difference Only, One Can Plan Accordingly.

Many Getting Salary Per Month , & If at Once at Last of Year, That Seem Adjustment.

CA PRAMOD SARAOGI

Chartered Accountant

1113 Points Joined December 2007

Besides deducting TDS U/s 192 there must be a stamped agreement in writing between the Company and the concerned Director showing the relationship of Employee and Employer

CA Ayush Agarwal

Kolkata-Pune-Mumbai

27349 Points Joined October 2007

Originally posted by : CA PRAMOD SARAOGI
	Besides deducting TDS U/s 192 there must be a stamped agreement in writing between the Company and the concerned Director showing the relationship of Employee and Employer

Every One Can Make This...Not a Difficult Task.

CA Ayush Agarwal

Kolkata-Pune-Mumbai

27349 Points Joined October 2007

I Think The Best Reason to be Taken is:

Shareholding, Generally Non Exective Director Hold Most of The Equity Shares of company. But Executive Director Not.

& In This Most of Can Stuck & Will be Liable to Service Tax.

Manjunatha M K

Manager - Accounts

318 Points Joined November 2007

Originally posted by : CA AYUSH AGRAWAL
	Originally posted by : CA PRAMOD SARAOGI Besides deducting TDS U/s 192 there must be a stamped agreement in writing between the Company and the concerned Director showing the relationship of Employee and Employer Every One Can Make This...Not a Difficult Task.

I agree with CA PRAMOD SARAOGI there should be a separate agreement.

Whether every one can make it or not is not relevant here.

CA Ayush Agarwal

Kolkata-Pune-Mumbai

27349 Points Joined October 2007

An Executive Director can be either a Whole-time Director of the company or a Managing Director. In contrast, a non-executive Director is a Director who is neither a Whole-time Director nor a Managing Director. Independent Director is also a non executive director, but certain conditions are required to be met e.g. he should not hold more than 2% of the block of voting shares. Nominee directors appointed by institution that he has invested in, or lent money to the company, are also treated as Independent Directors. As per Section 2 (26), a managing director, means a director who is entrusted with substantial powers of management which would not otherwise be exercisable by him. The powers so conferred are alterable by the company. He is also removable the same way as he was appointed irrespective of the fact that his appointment has been approved by the Central Government. But ifhe is prematurely removed from office, he is entitled to compensation. It has been held in case of News Papers Proprietary Syndicate Ltd,Re, [1990]2Ch349 that a managing director is an employee of the company, but not to the extent so as to be entitled to preferential payments.

The Supreme Court observed that a Managing Director can be regarded as a principal employer for the purposes of the ESI Act, 1948. Employees State Insurance Corpn. Vs. Appex Engineering P. Ltd.,(1998) 1 Comp LJ 10: [19981 1 LLJ 274 (SC).

As per explanation given in Section 269 of the Companies Act, “Whole Time Director” includes a director in the whole time employment of the company.

Further, a managing director or whole time director cannot resign merely by giving a notice, as formal acceptance of the same is essential to make it complete and effective. This is because, they occupy two positions or possess two capacities, viz (i) one, that of director, and (ii) the other, that of a manager or officer of the company in the sense of wholetime employee. The notice or letter of resignation is therefore required to be approved or accepted by the company and the officer concerned has to be relieved of his duties and responsibilities attached to the office which he has resigned from (Achutha Pal Vs. Registrar of Companies (1956) 36 Comp. Cas 598). However, in case of ordinary director, formal acceptance of resignation is not needed. (Abdul Hug Vs. Katpadi Industries Ltd. A.I.R 1960 mad. 483).

Accordingly, in view of the above discussion, the managing director and whole time directors would

normally be employees of the company. This view is also corroborated from the fact that the remuneration paid to whole time directors and Managing Director are regarded as income from salary and is subjected to TDS under Section 192 of the Income-tax Act, 1961 as amended.