Director remuneration under a genuine contract of service remains salary, excluding it from reverse-charge Service Tax.

Remuneration paid to Managing Directors and Whole-time Directors under an employer-employee relationship is excluded from the definition of service when paid in the course of employment. Corporate appointment, shareholder approval, salary and employment benefits, tax deduction as salary, Form-16 issuance and provident-fund contributions support a contract of service. The separate treatment of an independent director as a professional further distinguishes employee-directors from independent service providers. Promoter or shareholder status does not negate employment where the director is engaged under a contract of service. Accordingly, such salary is not liable to Service Tax under reverse charge.

---

---

Issues: Whether remuneration paid to the Managing Director and Whole-time Directors constituted taxable director services liable to Service Tax under reverse charge or salary paid in the course of employment.

Analysis: Services rendered by an employee to an employer in the course of employment are excluded from the definition of service under Section 65B(44)(b) of the Finance Act, 1994. The directors were appointed through corporate resolutions and shareholder approval, received salary and employment-related benefits, and their remuneration was subjected to tax deduction under Section 192 with Form-16 issuance and provident-fund contributions. The distinct treatment of an independent director as a professional supported the existence of an employer-employee relationship for the Managing Director and Whole-time Directors. The applicable departmental circulars and precedents recognise that a managing or whole-time director may be an employee notwithstanding promoter or shareholder status, where the engagement is under a contract of service. No contrary evidence established that the directors acted as independent professionals.

Conclusion: The remuneration was salary paid in the course of an employer-employee relationship and was excluded from taxable service; no Service Tax was payable under the reverse charge mechanism. The issue was decided in favour of the assessee.

---