Tds applicability on commission to non-wholetime directors

the designation of a person is not important. The activity should involve outflow of money/expense. In this case commission is covered under sec.194C and such commission was paid for furtherance of business and therefore relevant tax has to be deducted irrespective of the designation of the payee.

The commission referred in section 194 H has  defined  as under

(i)   “commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;

In simple terms . for the purpose of commission liable to TDS u/s 194 means

payment received or receivable for

1. services rendered (not being professional services ) or
2. or any services in the course of buying or selling of goods or connected services.

Therefore, if the payment of commission to a director satisfies any of aforesaid consition, in that case, tds is required.

Regards

Ashok

thanks Ahok & Dhawal for your prompt reply ...

but please consider this as i need to prove ITO that TDS is not applicable for such payment. My view is Directorship is a vocation and in particular case of a director he may be considered as a professional director. Such directors are not employees of company, therefore commission cannot be regarded as salary u/192.Such director cannot be regarded as contractor, so 194 C will not apply. Such director are not rendering services for earning commission or brokerage within meaning 194 H vide Explanation (i) thereto, therefore 194 H shall not apply. Such commission is not in nature of professional or technical fees or royalty or any sum u/s 28a, further more it is not negotiates d as fees so 194 J is not applicable. Therefore, in case payment is made to a resident, there appears no provision of TDS. In case of payment is made to a non resident, and then 195 shall apply because such commission falls under category 'any other sum'.

As per sec 309 of companies act 1956 commission to non-whole time directors (i.e.,ordinary directors) is considered as managerial remuneration unless-:

1) the services are rendered in professional capacity and

2) CG has expressed the opinion that the director concerned possesses requisite professional qualification,

Relating the above logic to income tax act, in my opinion the above commission would be chargeable u/s 192..

Please do confirm the accuracy of my opinion.

Thank you.

all said and done. substance over form would be looked for in these kind of matters. and by the very nature it is commission paid. be it anyone. i really hope your arguement is taken though, in that case we would have a new case law :)

(correction to my earlier, post i had mentioned 194C instead of 194H)

Dear Nilesh, I would like to just add that if you are trying to avoid TDS on commission then it will be a matter of litigation and now a days litigation takes a long time.

Till the final order is received which might be in your favour or not, you will face mental tention on such cases which are debateable

So be carefull, on what course you take.

As far as laws is concerned you will be liable to deduct TDS on commission either u/s 194H or 194J or even 192. All this section may be applied depending on your substance. So be clear of the nature of payment of commission for WHAT?

This WHAT will decide your case.