Taxability of commission - director

[Purshottam Agarwal]

I wish to know if any TDS is applicable for the payment made by a company to its independent (non executive) director in form of commission calculated in terms of percentage of profits as per the provisions of sectoin 309 of the Companies Act?. Further under which head the said commission will be taxable in the hands of such director ?

[Surender Gupta]

The term "commission" used in section 309 is creating some ambiguity for the purpose of TDS. But, this ambiguity remains only if you see the provisions of section 309 in isolation. The provisions of section 309 must be read with section 198. Section 198 deals with managerial remuneration. Therefore, even if the amount of commission is paid to independent (non-executive directors) the same would not constitute as an amount towards professional services or brokerage under the provisions of TDS. This amount would remain in the nature of remuneration which is paid to the management (i.e. employee) of the company. Therefore, if the provisions of TDS are needed to be applied than only provisions of section 192 shall be applied.

[DEV KUMAR KOTHARI]

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/s 192.Such director cannot be regarded as contractor, so S. 194C will not apply.Such directora are not rendering services for earning commission or brokerage within meaning u/s 194H vide Explanation (i) thereto, thereefore S. 194H shall not apply. Such commission is not in nature of professional or technical fees or royalty or any sum u/s 28(va), further more it is not negotiates d as fees so S. 194J 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, then S. 195 shall apply becasue such commission falls under catagory 'any other sum'.

AI Summary

Debate on TDS Applicability for Independent Directors' Commission under Sections 192, 194C, 194H, 194J, and 195. A query was raised regarding the applicability of Tax Deducted at Source (TDS) on commission paid to an independent director, calculated as a percentage of profits under section 309 of the Companies Act. One response highlighted that such commission, when considered alongside section 198, is managerial remuneration and subject to TDS under section 192. Another response argued that since directors are not employees, the commission is not salary under section 192, nor does it fall under sections 194C, 194H, or 194J. For non-resident directors, section 195 would apply as the commission is categorized as 'any other sum.'