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

Director commission taxability: may be treated as managerial remuneration with payroll withholding, or no withholding for resident directors.
Treatment of profit based commission to an independent director hinges on classification: one analysis treats it as managerial remuneration when section 309 is read with section 198, making payroll withholding provisions applicable; an alternate analysis treats directorship as a non employee vocation so payments to residents may not attract TDS, while payments to nonresidents are subject to withholding as other sums under nonresident rules.