AI Drafter 
TaxTMI 
TaxTMI 
2024 (11) TMI 1185
X X X X Extracts X X X X
X X X X Extracts X X X X
....muneration paid to the Director being a salary is not liable for service tax as per negative list under Section 65 B (44) (b) of the Finance Act,1994. He further submits that demand is for the period of 01.08.2012 to September 2014 and the show cause notice was issued invoking extended period on 29.10.2015. He submits that there is no suppression of fact as the appellant have been informing the department regarding payment of Director's remuneration. Therefore, the demand for the extended period is not sustainable also on the ground of limitation. He placed reliance on the following judgments and board circulars:- * Rent Works India Pvt Ltd V/s. Commissioner of C. Ex.. Mumbai V 2016(43) S.T.R 634 Tri-Mumbai * Allied Blenders and Distillers Pvt Ltd. V/s. C.C.E & ST., Aurangabad2019(24) G.S.T.L 2017 (Tri-Mumbai) * Maithan Alloys Ltd. V/s. Commissioner of C Ex & S.T., Bolpur 2020(33) G.S.TL (Tri-Kolkata) * Circular No. 140/102020-GST Dated 10.06.2020 * Circular No 115/9/2009-GST Dated 31.07.2009 * PCM Cement Concert Pvt Ltd. V/s. C.C.E Siliguri 2018(9) G.S.T.L 391 (Tri-Kolkata) * PCM Cement Concert Pvt Ltd. V/s. C.CE 2018(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ration and the statutory records such as form 16 certificate of Income Tax clearly show that the appellant are paying the Director's remuneration as salary. Therefore, on this point the contention of the revenue is absurd and without any legal backing. Moreover, this issue has been considered in a catena of judgments by this Tribunal, some of the judgments are cited below:- a) In the case of Allied Blenders and Distillers Pvt Ltd (supra), Mumbai bench of this Tribunal decide the identical issue as under:- "5. The short issue involved in the present appeal for determination is whether remuneration paid to the Directors by the appellant is chargeable to Service Tax and the appellants are required to discharge Service Tax under reverse charge mechanism in accordance with Notifications No. 45/2012-S.T., dated 7-8-2012 and 46/2012-S.T., dated 7-8-2012. Revenue's allegation is that the Directors namely, Shri K.R. Chhabria, Shri U.K. Ganguli, Shri Deepak Roy and Shri Jitendra Hemdev, who were paid remuneration during the period July, 2012 to March, 2015 amounting to Rs. 1,01,02,55,057/- by the appellant, Service Tax of Rs. 12,48,67,525/- was required to be discharged by the ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as part of Board of Directors, but also are employees of the company. To appreciate the said argument it is necessary to read the definition of the Director, Managing Director, whole time Director under the Companies Act. Sec.2(34) "Director" means a director appointed to the Board of a company. 2(54) "Managing Director" means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of the managing director, by whatever name called. 2(94) "whole-time Director" includes a Director in the whole time employment of the company;" "Executive Director" means a whole time director as defined in clause (94) of Section 2 of the Act. In the present case, the Board of Directors (BOD) are empowered to appoint under clause 93 of the Articles of Association, Managing Director and Whole-time Director with such conditions as may deem fit. It reads as follows : - 93. Managing Director/Whole-time Director/Manager. -....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t year 1956-57 for which the accounting year is the year ending 30-9-1955, the assessee was assessed in respect of Rs. 53,913/- payable to him as 10% of tire gross profit which he gave up soon after the accounts were finalized but before they were passed by the General meeting of the shareholders. The question before the Hon'ble Supreme Court was whether the 10% gross profit payable to the assessee under the terms of the agreement appointing him as the managing director is liable to be assessed as 'salary' or under the head 'income from business'. The contention of the assessee in that case was that in order to assess the income as salary it must be held that there was a relation of master and servant between the company and the assessee. It was pleaded that for such a relationship to exist, it must be shown that the employee must be subject to the supervision and control of the employer in respect of the work the employee has to do. Where, however, there is no such supervision or control it will be a relationship of principal and agent or an independent contractor. Their Lordships analyzing the characteristics of master-servant relationship observed as : "6. There is no d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee was appointed to manage the business of the company in terms of the articles of association and within the powers prescribed therein. Reference may particularly be made to Arts. 139 and 142 to ascertain the nature of the control imposed by the company upon the Managing Director. Under the former the additional work which he can do as an agent or manager of the company can be done on terms and conditions and on such remuneration as can be agreed upon between him and the Directors of the Company and under the latter he had to execute the decisions that may be arrived at by the Board from time to time. The very fact that apart from his being a Managing Director he is given the liberty to work for the company as an agent is indicative of his employment as a Managing Director not 'being that of an agent. Several of the clauses of Article 140 as pointed out by the High Court specifically empower the Board of Directors to exercise control over the Managing Director, such, for instance to accept the title of the property to be sold by the company, providing for the welfare of the employees, the power to appoint attorneys as the Directors think fit, etc. As pointed out earlier ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unishment, which includes whole time Directors. Thus, the whole time Directors are amenable to criminal action like an officer of the company. 14. The Revenue, on the other hand, referring to the judgment of Hon'ble Allahabad High Court in the case of Sardar Harpreet Singh v. Commissioner of Income Tax - 1990 SCC Online All 929, submitted that merely on deduction of Income Tax at source cannot be considered that the Director and the Company has employer and employee relationship. It is the agreement between the employer i.e. company and the Director would reveal the exact relationship between them. In the present case, no such agreement exists between the employer and the Directors, hence there exists no employer-employee relationship. 15. We do not find merit in the argument of the Revenue inasmuch as during the course of investigation, the statement of Shri Atit Dalai, Vice President (Finance & Accounts) of the appellant company was recorded by the investigating officers on 4-6-2015. Answering the question No. 3. Mr. Dalal informed that there were four directors in the company and they were appointed in accordance with the provisions of Companies Act and Regulat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in Section 2(94), duly defines 'whole-time director' to include a director in the whole-time employment of the company. A whole-time director refers to a director who has been in employment of the company on a full-time basis and is also entitled to receive remuneration. We further find that the position of a whole-time director is a position of significance under the Companies Act. Moreover, a whole-time director is considered and recognized as a 'key managerial personnel' under Section 2(51) of the Companies Act. Further, he is an officer in default [as defined in clause (60) of Section 2] for any violation or non-compliance of the provisions of Companies Act. Thus, in our view, the whole-time director is essentially an employee of the Company and accordingly, whatever remuneration is being paid in conformity with the provisions of the Companies Act, is pursuant to employer-employee relationship and the mere fact that the whole-time director is compensated by way of variable pay will not in any manner alter or dilute the position of employer-employee status between the company assessee and the whole-time director. We are thoroughly convinced that when the very provisions of the ....