Sitting fees

Position under Income-tax Act

Section 194J requires deduction of tax at source with reference to any sum paid by way of fees for professional or technical services. In case such director is a professional under either of the specified categories under section 44AA, then the provisions of section 194J have straight application.

On the other hand, if such director is not a professional as well as a non-technical person in ordinary parlance, then one has to refer to the position of such director as is understood in the normal phraseology under the Companies Act, 1956.

As per clause (13) of section 2 of the Companies Act, 1956, a director includes any person occupying the position of director, by whatever name called. Further, clause (24) to section 2 of the said Act refers to the term ‘manager’ ‘meaning an individual (not being the managing agency), who, subject to the superintendence, control and direction of the board of directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract of service or not. In other words, a non-working director with a contract of service would come under the definition of ‘managerial personnel’.

Clause (b) to Explanation in section 194J draws reference to the term ‘fees for professional or technical services’ to have the meaning assigned as per Explanation 2 to clause (vii) of sub-section (1) of section

Such Explanation 2 reads as follows:

“Explanation 2.—For the purposes of this clause, ‘fees for technical services’ means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘Salaries’.”

Conclusion: As a director is also a manager under the provisions of the Companies Act, 1956 he is, therefore, a technical personnel and any payment made to such director be it a sitting fee or any other sum shall be required to be taken into consideration for the purposes of deduction of tax at source under section 194J of the Income tax Act, 1961.

fully agreed wid above two reply

I disagree with the above views. Sitting fees do not fall under Sec 194J. We pay sitting fees @ 20K per meeting and do not deduct tax at source. None of our auditors - internal or statutory have ever required us to deduct TDS on sitting fees.

Any member has any case law which negates my opinion, please share the same.

Decision of the Delhi High Court

The Delhi Tribunal in CIT v. Orissa Cement Ltd. [2001] 250 ITR 846/118 Taxman 449 held that sitting fees paid to the director for attending board meetings could not be said to be remuneration and it was in the nature of daily allowance.

Reversing such decision, the Delhi High Court held that the fees, which were paid as directors’ fees, or board meetings fees were in respect of the services rendered by the directors in their capacity as directors and such fees would fall within the meaning of the word ‘remuneration’. Kindly excuse me as I have no clue about Delhi High Court case name.

I will try to do some research and if I find something worth discussing, will post it.