2016 (4) TMI 247 - AT - Income Tax

Tribunal rules non-executive Directors' payments not subject to tax deduction under section 194H

The Tribunal dismissed the Revenue's appeals and upheld the Commissioner's decision that no tax deduction was required on payments to non-executive ... TDS liability u/s 194J - payment made to the non-executive Directors of the assessee company - sitting fee payment - Held that:- As per the explanation to provisions of section 194J professional service means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board. We, therefore, find force in the submission of the learned counsel for the assessee that sitting fees paid to the directors does not amount to fees paid for any professional services as has been mentioned in the explanation to section 194J(1). We further find from the memorandum explaining to provisions of the Finance Bill 2012 that as per clause No.71 it was specifically mentioned that there was no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary. We find the provisions of section 194J(1)(ba) speaks of any remuneration or fees or commission by whatever name called other than those on which tax is deductible u/s.192 to a director of a company on which tax has to be deducted at the applicable rate and the above provision has been inserted by the Finance Act, 2012 w.e.f., 01- 07-2012. We, therefore, find force in the submission of the learned counsel for the assessee that no tax is required to be deducted u/s.194J out of such director’s sitting fees. See Bharat Forge Ltd. Vs. Additional Commissioner of Income Tax [2013 (11) TMI 1263 - ITAT PUNE] Issues:Appeals by Revenue against orders of Commissioner of Income Tax (Appeals) regarding tax deduction on payments to non-executive Directors.Analysis:The Revenue challenged the Commissioner's findings that no tax should be deducted on payments to non-executive Directors. The Assessing Officer held the payments fell under 'commission or brokerage' as per section 194H, thus requiring tax deduction. The Commissioner relied on a Tribunal decision in a similar case and directed not to treat the assessee as in default.The Department contended that the non-executive Directors' payments were akin to commission, falling under section 194H, and the assessee should be considered in default. Conversely, the assessee argued that the payments did not align with the definition of 'commission' under section 194H, citing a Tribunal decision in a similar context.The Tribunal examined the definitions of 'commission or brokerage' under section 194H and 'professional or technical services' under section 194J. It noted that non-executive Directors do not provide services falling under 'commission or brokerage.' The amendment in section 194J, effective from July 2012, did not apply to the assessment years in question. Referring to a precedent involving sitting fees paid to directors, the Tribunal upheld the Commissioner's decision, stating no tax deduction was necessary on the payments to non-executive Directors.In conclusion, the Tribunal dismissed the Revenue's appeals, upholding the Commissioner's decision. The Tribunal affirmed that the payments to non-executive Directors did not qualify as 'commission or brokerage' under section 194H, as per the Tribunal's previous ruling.