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2019 (4) TMI 1595 - AT - Service TaxReverse charge mechanism (RCM) - Remuneration paid to Directors - the assessee company pays remuneration to its whole time directors which has fixed as well as variable components - It is the case of the department that the said remuneration paid to the directors would constitute ‘service’ liable to service tax in the hands of assessee under reverse charge mechanism - HELD THAT:- 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 - when the very provisions of the Companies Act makes whole time director (as also in capacity of key managerial personnel) responsible for any default / offences, it leads to the conclusion that those directors are employees of the assessee company. In the present case, the appellant has duly deducted tax under section 192 of the Income Tax which is the applicable provisions for TDS on payments to employees. This factual and legal position also fortifies the submission made by the appellant that the whole time directors who are entitled to variable pay in the form of commission are ‘employees’ and payments actually made to them are in the nature of salaries. This factual position cannot be faulted in absence of any evidence to the contrary. Demand of service tax on remuneration paid to whole time directors cannot be sustained - appeal allowed - decided in favor of appellant.
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