VALUE OF DIRECTOR'S SERVICES

[Dr. Sanjiv Agarwal]

 

The services provided by the company directors is now liable to service tax and the tax is payable under reverse charge by the companies. So far as payment to directors towards their services is concerned, value of services shall include -

• director's fee, by whatever name called
• commission based on profits or otherwise
• bonus
• value of service for company car provided
• share in profit
• benefit in form of ESOPs etc.
• travel reimbursements.

 However, reimbursement of expenses in terms of contractual obligations may not be taxable if they fall within the scope of 'reimbursements' and 'pure agents' as per service Tax (Determination of Value) Rules, 2006.

The following amounts received by the directors from the company will not attract Service Tax as such amounts does not represent service provided by directors-

i)      interest on loan by director to company

ii)     dividend on shares

iii)     other professional charges on account of services not rendered as a director (in professional capacity)

On reimbursement of expenses incurred by the director being liable to Service Tax, it may be noted that directors are considered to be agent of the company and as such expenses are reimbursed to them as an agent.Moreover, taxability shall be subject to the valuation rules and criteria of 'pure agency' shall have to be satisfied.                   

On whether sitting fee paid to directors for attending board meetings only are taxable or any amount paid as fees whether for board meetings or committee meetings will be taxable, it may be noted that all amounts paid as remuneration except salary to directors shall be liable to Service Tax, whether for attending board meetings or committee meetings or for any other service rendered in the capacity of a director. If an employed director gets sitting fee for attending the meeting, it may be liable to Service Tax as Department is likely to view it that way. There is need for clarification on this issue.

Since there is a monetary limit on payment of remuneration to directors beyond which it requires approval of the Central Government u/s 309 or 310 of the Companies Act, 1956, there is doubt that whether Service Tax paid by the company under reverse charge shall be deemed to be a part of such remuneration.  Under the scheme of Service Tax, though taxable services are rendered by the directors, the burden of payment of Service Tax has been shifted on the companies on whose board, such directors serve. In certain cases which are already at the top of the ceiling, payment of Service Tax by company will result in exceeding the monetary limit of 1 percent or 3 percent of net profit, as the case may be. Ministry of Corporate Affairs (MCA) has vide General Circular No. 24/2012 dated 9.8.2012 clarified that for the financial year 2012-13, any increase in remuneration solely as a result of application of Service Tax on commission shall not require Central Government's approval (though deemed to be a part of remuneration as per Income Tax) u/s 309 or 310 of the Companies Act, 1956.. It may be noted that this relaxation is only for the financial year 2012-13 and only applies to non-whole time director's remuneration. taxmanagementindia.com

In case of any remuneration, by whatever name called, accruing to persons employed by the company as managing director or whole time directors, entire gross amount shall not be taxable as it is earned in the course of employment and is not covered within the scope of service at all. If the service itself is not taxable, there is no question of Service Tax being payable on the remuneration which is a part of contract of employment. On the other hand, even if the remuneration is termed as salary for a part-time / non-official/ independent director, it shall be subject to levy of Service Tax.

= = = = = = = = = = =