TMI Blog2019 (1) TMI 433X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors, hence there exists no employer-employee relationship. All the necessary deductions on account of Provident Fund, Professional Tax and TDS under Section 192 of the Income Tax Act are made as applicable; also they were issuing Form-16 like it is issued to all other employees. Even in the salary return filed by the appellant company before the Income Tax authorities, the director s names have been included. The company does not pay the director s sitting fee to any of the directors. To discredit the said statement, no contrary evidence was produced by the Revenue to establish that the directors are not involved in the day to day function of the Company, but participate only in Board Meetings and consequently paid remuneration. Also, from the documents produced by the Appellant it is crystal clear that the Directors who are concerned with the management of the company, were declared to all statutory authorities as employees of the company and complied with the provisions of the respective Acts, Rules and Regulations indicating the Director as an employee of the company - No contrary evidence has been brought on record by the Revenue to show that the Directors, who were emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognizes that a director can be in whole time employment of the company which is clear from the definition of whole time director laid down at section 2(94) of the Companies Act. It is his contention that from the definition of Board of Directors (BOD) it is also clear that the board of directors is a body totally different and distinct from the individual directors and should not be confused with the director per se in any circumstances. Referring to the definition and meaning of director , laid down at Section 2(34) of the Indian Companies Act, learned advocate has submitted that the director means a director appointed by the Board of the company, which clearly implies that a director acts as the director and is to be treated as a director in relation to his roles and responsibilities as part of the board of the director. 2.2. Further referring to section 2(60) of the companies act, learned advocate has submitted that the whole time director, is an officer of the company which means that he is an employee of the company. The said provision does not include part-time directors. In the present case, all the directors in question are whole time directors of the company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors. Further, the directors while filing their income tax returns, have shown their income earned from the company under the head salaries only. Similarly, under Employees Provident Fund Act, every company which employs more than 20 employees and an establishment, which is effectively engaged in any industry specified in schedule-I, which includes a distillery, is subject to the provisions of the said Act; and as per section 6 of the said Act an employer shall contribute to the fund, an amount equal to 10% of the basic wages, dearness allowance and retaining allowance. In the present case, the appellant in accordance with the provisions of the said Act, contributed a specified amount to the provident fund of the employee-directors and have also deducted employee s contribution from their salaries. In support of his submission, the learned advocate placed sample copies of the returns filed with the provident fund authority evidencing contribution to the fund as also deduction from the employees salaries of their share of the provident fund. Also, it is pleaded that under the Unlisted Companies Equity Share Rules, 2003, employee has been defined thereunder which means a director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned order the learned advocate for the appellant has submitted that the adjudicating authority has misunderstood the use of word Malik to address the directors of a company. This observation is too pedantic as to have any legal significance. The directors are never the Malik of the company. The overall management/superintendence of the company is always in the hands of Board of Directors which is different from individual directors. It is also a complete wrong notion that the directors are Malik (owner) of the company; the owners are the said holders. It is this fundamental misconception that the directors (not the share holders) are the owner of the company which has misled the Department into believing that directors cannot be employees. Further, the learned advocate has submitted that the Commissioner has erroneously observed that there are no I wouldn t is to establish that the directors are the employees of the company. It is his contention that there is plethora of documentary evidences which leaves no doubt that the directors in question are not only the employees of the appellant but they were also treated as employees and declared to be so in all the statutory reports ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.1 He has contended that the plea of the appellant that the Directors are being paid salary, HRA, PF and Form-16 issued after deduction of TDS, hence be treated as an employee, is not correct, as the employer- employee relation is not supported by the Article of Association/Memorandum of Association nor any separate agreement between the company and these Directors. He has submitted that from the Form-32, nothing is clear about the terms, scope, duties and responsibilities of employment and degree of supervisions and control. Further, as per the EPF contribution, statutory provident fund (PF) is being deducted from the salary of Chairman s remuneration, 15% PPF for Mr. Deepak Roy, whereas no PF for Mr. Ganguli Utpal was deducted, which show that PF contribution cannot be considered as one criteria to decide the relationship of employer and employee. He has further submitted that Form-16 cannot be considered as conclusive proof of employer-employee relationship. It is his contention that in the negative list of Service Tax regime, w.e.f 01.7.2012, the appellants are eligible to exemption only if they prove with the documents and substance that the persons in fact are employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice Tax and the appellants are required to discharge Service Tax under reverse charge mechanism in accordance with Notifications No. 45/2012-ST dated 7.8.2012 and 46/2012-ST 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 JitendraHemdev, who were paid remuneration during the period July, 2012 to March, 2015 amounting to ₹ 1,01,02,55,057/- by the Appellant, Service Tax of ₹ 12,48,67,525/- was required to be discharged by the Appellant. Opposing the said contention of the Revenue, the appellant has argued that the amount paid to the said Directors are in the nature of the salary paid to them, since the said Directors are whole time directors and employees of the company, accordingly, it is not a service with in the definition of service prescribed under Section 65B(44) of the Finance Act, 1994. 6. In the negative list service tax regime brought into effect from 01.7.2012, service has been defined under Section 65B(44) read as follows: - SECTION 65B. Interpretations. - In this Chapter, unless the context otherwise requires,- 44) service means any activity carried out by a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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- Subject to provisions of the Act, the Rules framed thereunder and the approval of the Promoter(s), the Board may from time to time, appoint Managing Director/Whole-time Director/Manager for one or more of the divisions of the business carried on by the Company and to enter into agreement with him in such terms and conditions as they may deem fit. Also, the appointed Directors could be removed from their post by the Appellant company as per clause 94 of the Articles of Association which is mentioned as below: 94. Removal of Director - The Company may by an ordinary resolution remove any Director (not being a Director appointed by the Tribunal in pursuance of Section 242 of the Act) in accordance with the provisions of Section 169 of the Act. A Director so removed sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust 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 doubt that for ascertaining whether a person is a servant or an agent, a rough and ready test is, whether, under the terms of his employment, the employer exercises a supervisory control in respect of the work entrusted to him. A servant acts under the direct control and supervision of his master. An agent, on the other hand, in the exercise of his work is not subject to the direct control or supervision of the principal, though he is bound to exercise his authority in accordance with all lawful orders and instructions which may be given to him from time to time by his principal. But this test is not universal in its application and does not determine in every case, having regard to the nature of employment, that he is a servant. A doctor may be employed as a medical officer and though no control is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;being that of an agent. Several of the clauses of Art. 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 under the terms of the agreement he can be removed within the period of 20 years for not discharging the work diligently or if he is found not to be acting in the interest of the company as Managing Director. These terms are inconsistent with the plea that he is an agent of the company and not a servant. The control which the company exercises over the assessee need not necessarily be one which tells him what to do from day to day. That would be a too narrow view of the test to determine the character of the employment. Nor does supervision imply that it should be a continuous exercise of the power to oversee or superintend the work to be crone. The control and supervision is exercised and is exercisable in terms of the articles of association by the Board of Directors and the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument of the Revenue in as much as during the course of investigation, the statement of Shri Atit Dalal, Vice President (Finance Accounts) of the appellant company was recorded by the investigating officers on 04.06.2015. 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 Regulation of Article of Association of Company for managing day-to-day affairs of the company. Further answering to question No. 4, he has stated that the company are paying them remuneration which is nothing but salary. All the necessary deductions on account of Provident Fund, Professional Tax and TDS under Section 192 of the Income Tax Act are made as applicable; also they were issuing Form-16 like it is issued to all other employees. Even in the salary return filed by the appellant company before the Income Tax authorities, the director s names have been included. The company does not pay the director s sitting fee to any of the directors. To discredit the said statement, no contrary evidence was produced by the Revenue to establish that the directors are not involved in the day to day ..... X X X X Extracts X X X X X X X X Extracts X X X X
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