Whole-time director remuneration in employment is excluded from service tax when paid as salary, commission or perquisites.

Commission and perquisites paid to whole-time directors were treated as remuneration arising from an employer-employee relationship, not consideration for a taxable service. The article notes that where directors are shown as working directors, payments are reflected in salary records and taxed as salary under the Income Tax Act, such variable pay does not lose its character merely because it is not fixed monthly wages. Because service by an employee to an employer in the course of employment is excluded from the definition of service under the Finance Act, 1994, no service tax was leviable on these payments.

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Issues: Whether commission and perquisites paid by a company to its whole-time directors constituted consideration for a taxable service so as to attract service tax.

Analysis: The directors were shown in the company records as whole-time or working directors, and the payments were reflected in Form 16 with tax deducted at source in the salary framework. Section 65B(44)(b) of the Finance Act, 1994 excludes service by an employee to an employer in the course of employment from the definition of service. The remuneration was treated as salary under Section 17(1) of the Income Tax Act, 1961, and the settled view in prior Tribunal decisions was that variable pay, commission, or perquisites paid to whole-time directors in the course of employment do not lose their character as salary merely because they are not fixed monthly wages.

Conclusion: The payments were held to arise from an employer-employee relationship and did not constitute a taxable service; the service tax demand could not be sustained.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief according to law.

Ratio Decidendi: Remuneration paid to a whole-time director in the course of employment, including commission or perquisites treated as salary for income-tax purposes, is excluded from the definition of service and is not liable to service tax.

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