Service tax on Director Sitting Fees

[Ganeshan Kalyani]

Dear Sir,

As per Notification No.30/2012 dated 20th June, 2012 the service provided or agree to be provided by a Director (non-executive, nominee or independent) of a company to a company is liable to service tax under reverse charge. With the amendment in Service Tax Rule, 2004 vide notification no.9/2014 of Service Tax dated 11th July, 2014 the Rule 2(1)(d)(EE) of said rule is substituted namely '―(EE) in relation to service provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate, the recipient of such service;' .

I understand that the change interprets as 'a service provided or agreed to be provided by a director of any other company to the said company are also liable to service tax. For eg. A Director of Company 'A' provides or agree to provide service to company 'B' then service tax is payable as per new amended rule.

Kindly validate my understanding.

regards,

ganesh

[YAGAY andSUN]

Dear Ganesh,

Reverse charge was imposed on services of non-executive and independent director to company w.e.f. 7-8-2012. The provision of reverse charge has been extended to services of director provided to body corporate (which are not companies). (entry added w.e.f. 7-8-2012. The words „body corporate‟ are added w.e.f. 11-7-2014).

This should covers body corporate which are incorporated under some special Acts (like say LIC). It will not cover cooperative societies as cooperative society is not a „body corporate‟. It will also not cover societies.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[Ganeshan Kalyani]

Dear Sir,

To bring into more clarity i would request to share your view that, for eg. whether the Director of Company A is providing service to Company B (being group company) would fall within the ambit of service tax.

regards,

ganesh

[Rajagopalan Ranganathan]

Sir,

If the Director of Company A provides service to Company B then service tax is payable by the Director of Company A. In this case reverse charge mechanism is not applicable. Reverse charge mechanism is applicable only when Director of Company A provides service to Company A.

[YAGAY andSUN]

Dear Ganesh,

We are in agreement with Rajagopalan Sir's reply. Such services may fall either under 'Management or Business consultancy services' or any other services, depending on the very nature of services provided by the director of company A to the director of company B.

No reverse charge is applicable in this scenario and the provider of services would be liable to collect the applicable service tax from the recipient of services and would be under obligation to deposit it within prescribed time limit.

This is for your kind information.

Regards,

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[Ganeshan Kalyani]

Thanks Rajagopalan and Pradeep sir for your valuable view. But i eager to understand why the amendment brought to Notification 30/2012 incorporating 'a body corporate' to existing 'a company'. I have referred The Companies Act 1956 to understand the definition of 'a company' and ' a body corporate'. i understand that a body corporate is a wider concept which includes a company itself. Referring the amended notification again, i thought let me raise this query to clear my understanding. Thanks in advance for your view.

[Rajagopalan Ranganathan]

Sir,

The Companies Act has used an excluding definition for body corporate, defining it as "Body corporate" or "corporation" includes a company incorporated outside India but doesnot include- a. a corporation sole b. a co-operative society registered under any law relating to co-operative societies c. any other body corporate (not being a company company as defined in this Act), which the Central Govt. may, by a notification in the official gazette, specify in this behalf. Now, the concept of Corporation Sole is not defined anywhere in the Act. But concisely, apart from those excluded specifically, a body corporate means any entity that has its separate legal existence apart from the persons forming it. It enjoys a completely different legal status apart from its members. So, a body corporate shall include: a company, a foreign company, a corporation, a statutory company, a statutory body, an LLP, etc. and such bodies that have separate legal existence.

May be in view of the definition incorporated in Companies Act, 2013, Rule 2(1)(d)(EE) should have been amended by Notification No.9/2014 of Service Tax dated 11th July, 2014

AI Summary

Debate on Service Tax for Director Sitting Fees: Reverse Charge Mechanism and Amendments from 2012 and 2014. The discussion revolves around the applicability of service tax on director sitting fees under the reverse charge mechanism. Initially, it was clarified that services provided by non-executive and independent directors to companies are subject to service tax, with the reverse charge mechanism applicable from August 7, 2012. The amendment on July 11, 2014, extended this to services provided to bodies corporate, excluding cooperative societies. It was highlighted that when a director of Company A provides services to Company B, the reverse charge does not apply, and the director must collect and remit the service tax. The discussion also touched on the broader definition of 'body corporate' in the Companies Act.