Simplify Tax Administration: Provide specific TDS exemption (section 194 J) from meeting fees paid to directors, before courts apply rule of CASUS OMISSUS / adhyahara.

[CA DEV KUMAR KOTHARI]

Directors fees:

In this writ-up the expression ‘ directors fees’ is intended to include fees paid by companies to its directors for attending board meeting or general meeting of company.

Directors who are in employment in company get salary or remuneration, when a director work in professional capacity, he may be paid professional fees. Tax deduction from salary and professional or technical fees are covered by provisions of S.192 and 194J respectively.

Directors fees – whether professional fees?

Earlier there was dispute as to whether fees paid to directors is professional fees or not and whether tax is deductible u/s 194J or not. Practice by and large was not to deduct tax at source for the reasons that :

1. Board meeting fees is not professional fees or technical fees,
2. Total board meeting fees paid did not exceed exemption limit of Rs. 30000/- Earlier Rs.20000/-(up to 30.06.2010).
3. Director will pay his tax if he has taxable income.

However, many companies used to deduct tax at source by treating board meeting fees or general meeting attendance fees as professional fees and used to deposit tax. They used to follow the exemption limit also. And only when payment in a year exceeded the limit, they were liable to deduct tax at source.

Amendment w.e.f. 01.07.2012  

The Finance Act, 2012, inserted a new clause w.e.f. 01-07-2012 in section 194J. The clause reads as follows:

(ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company, “

Therefore, w.e.f. 01.07.2012 any remuneration paid by a company to a director will be covered by this clause except payment of salary for which tax is deductible under section192 of the Act.

Even fees paid to a director in his professional capacity for professional or technical services shall now be covered by this clause instead of clause (a) and (b) related to professional fees and technical fees.

Exemption limit has not been provided:

In Clause (B) to the proviso, exemption limits of Rs.30000/- in a previous year are provided for items covered by clauses (a), (b), (c) and (d). The new clause (ba) has not been inserted in any of clauses or any new exception has not been provided.

No justification for not providing exemption:

Therefore, now we find that there is worst condition for the director and the company both. Earlier when there was no separate clause, directors fees could be considered as ‘professional fees’ and exemption limit of Rs.30000/- was available for not deducting tax at source. That limit was available for professional fees , technical fees and meeting fees taken together. Therefore, many small and medium sized companies who paid meeting fees of around Rs.5000/- per meeting were not liable to deduct tax. Because generally number of meetings attended did not exceed six.

However, after amendment, even if Rs.500/- is paid to a director for attending board meeting, tax is required to be deducted.

Therefore, there will be tax deduction on numerous small payments to directors for attending board meeting. This will increase work of companies, directors and the tax department for petty amount of tax deductions.

In case of failure to deduct tax, there can be many proceedings in relation to failure to deduct and deposit tax, then disallowance for non deduction / non deposit of TDS.

Exemption limit is desirable As noted earlier, prior to amendment by way of insertion of clause (ba), w.e.f. 01.07.2012 the meeting fees, was subject to TDS u/s 194J vide clause (a) of sub-section (1). W.E.F. 01.07.2012 the amount earlier covered by clause (a) is now covered by clause (ba). When this clause was inserted, a suitable clause to exempt TDS up to Rs.30000/- from payment made to any director should have been provided. This has not been done and there is no reason for not providing such exemption considering the overall scheme of exemptions from TDS.

There seems a case to be governed by rule of CASUS OMISSUS.

CASUS OMISSUS also “adhyahara” in the Mimamsa school of interpretation which permits courts to add words to a legal text.

The doctrine of casus omissus outlines the circumstances where a court can supply a clearly unintended omission by the legislature in drafting a particular provision.

-  Thus an apparent omission can be filled in by courts.

There have been several decisions on the point. The subject it quite lengthy and controversial as to up to which limit Courts can supply words to fill in omissions.

In the context of TDS from meeting fees, it can be said that the amounts of meeting fees are generally small. If all payments are subjected to TDS, there will be lot of work even for IT Department. It will also increase load on websites of IT Department by way of information about TDS from small sums.

Director in a company need to have PAN and DIN. So his credentials are known to the IT Departmetn and MCA. In such cases, it is better to leave directors to pay their own tax on income instead of asking companies to deduct tax.

As the amount is not very large, and omission to provide exemption from TDS is apparent.Therefore, casus omissus can be applied by courts.

However, before courts do so it is desirable that there should be suitable amendment and payments covered by sub clause (ba) may also be exempted up to Rs.30000/-

For example an amendment can be made by inserting a suitable clause in para B of the proviso to S. 194J.