TaxTMI 
TaxTMI 
2019 (7) TMI 1000
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.... Jagannathan, No.32/69, CEEBROS Apartments, Ragaveera Avenue, Poes Garden, Chennai-600086 (hereinafter called the Applicant) is employed in Star Health and Allied Insurance Company Limited (hereinafter referred to as SHA) as Chairman and Managing Director and also a Stake holder in the said company. The applicant has preferred an application seeking Advance Ruling on the following: Will the Profit Sharing Agreement between the applicant as an employee and the shareholders, attract GST in his hands? The Applicant has submitted the copy of application in Form GST ARA 01 and also submitted the copy of Challan evidencing payment of application fees of Rs.5,000/-each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017. 2. The Applicant has stated that is not rendering any services to any outsider nor is a registered dealer. The Applicant has entered into a Profit Sharing Agreement (hereinafter referred to as PSA) on 25th day of May 2017 in which the applicant will get a profit for a strategic sale of equity shares over and above a specified sale price per equity share by a set of sharehoders of SHA. The value of shares has increased since and a strategic....
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....ated 25^th day of May 2017 that if not less than 51% of the equity shares are transferred in a strategic sale or on listing of the Shares after an IPO at a price of not less than Rs. 75/- per share, then the economic benefit arising of such sale or an IPO (the difference between the sale price and the base price of Rs.47 per share) will be passed on to him by the shareholders to the extent of the number of shares mentioned in the agreement (that is 93,45,151 and 23,36,288 in toto 1,16,81,439. [Some text are missing in original PDF]. CMD by each party shall be the percentage of the holding of the parties on the total shareholding of SHA. The PSA has also been duly approved by the Board of the Company on 25th May 2017. The approval of the Shareholders was sought vide Twelfth Annual General Meeting held on 26th day of July 2017. SHA vide their letter dated 21/09/2017 have intimated him regarding the approvals of the Board, shareholders in the twelfth Annual General Meeting and IRDAI's acknowledgement vide their mail dated 28/08/2017. IRDAI in the said letter has mentioned that he will be entitled for additiona....
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....vices by employee to employer in the course of or in relation to his employment is considered as neither a supply of goods nor a supply of services. In light of the above, the applicant has requested a ruling about the confirmation of non-applicability of GST to the Profit Sharing Agreement. 5. The submissions of the applicant were examined. The applicant is employed in Star Health and Allied Insurance Company Limited (SHA), a general insurance company with focus on health insurance, as Chairman and Managing Director. It is seen from the Memorandum of Association dt 03.06.2005 of the company that it is a company limited by shares and that the applicant is one of the 7 subscribers of such shares with 0.4% share. The applicant was appointed as the first Managing Director of the company appointed on 03.08.2006. Subsequently, the applicant was also allotted sweat equity shares in 2007 with the approval of IRDA. His appointment as Chairman cum Managing Director was also extended, with the current term upto two years from 17.06.2018. The applicant has entered into a 'Profit Sharing Agreement agreement dated 25th day of May 2017. It is seen that • The agreement is betwe....
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....ll go to his beneficiary, if the Fair Market Value on the relevant date is more than Rs 75 per equity share. • In the event of termination with cause (fraud, crime wilful failure etc.), the applicant will forfeit his rights and the other parties may nominate other employees to receive such benefits. • In the event any of the party transfers any equity shares held by it the prospective buyer should also adhere to this agreement. The applicant has preferred this application seeking ruling on the applicability of GST on the Profit Sharing arrangement. 6.1 The applicant has contended that that this Profit Sharing Agreement is a remuneration to the applicant who is Chairman cum Managing Director, for the efforts by the applicant and that there can be no GST on efforts for performance [Some text are missing in original PDF] Schedule III to CGST Act states:- Activities or transactions which shall be treated neither as a supply of goods Nor a supply of services 1. Services by an employee to the employer in the course of or in relation to his employmen....
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.... Act, 1882 states: "actionable claim" means a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent In this case, the Profit Sharing Agreement gives the applicant a claim to the beneficial interest in the profits on the event of a strategic sale where at least 51% of paid-up Equity Share capital of the Company is sold at a price not less than Rs. 75 or an initial public offering where the mid-point of the price band as per the red herring prospectus is not less than Rs 75 per equity share and subsequent listing on Stock Exchange. Either of these events may not occur or both may not. In that case the claim is only contingent. However, actionable claims as defined in Transfer of Property Act can be contingent. The moveable property which is the amount of profit on such contingent event occurring are currently not in posses....