Director's Remuneration declared as Salaries and subjected to TDS are not Taxable: AAAR

Director's Remuneration declared as Salaries and subjected to TDS are not Taxable: AAAR

The Appellate Authority of Advance Ruling (AAAR), Rajasthan Bench, ruled that the Director's remuneration declared as Salaries and subjected to TDS are not taxable

The Coram consisting of Pramod Kumar Singh and Dr. Preetan B. Yashwant ruled that if any, paid by M/s. Clay Craft (India) Pvt. Ltd. (appellant) to the independent directors or those directors who are not the employee of the appellant is taxable in hands of the appellant, on a reverse charge basis.

The appellant has been engaged in the manufacture of bone China Crockery, Transfer Sheet Decalcomania, other Utensils Item, molds, and Die. There is presently 6 Board of Directors in the appellant company and it has been submitted that all of them are performing all the duties and responsibilities as required under the laws. They are also working in the company at different levels of management and they also hold a charge of procurement of raw material, production, quality checks, dispatch, and accounting.

Hence, these Directors also work as an employee of the company for which they are being compensated through payment of regular salary and other allowances based on the company policy and their employment contract. They are treated at par with any other employee with regard to their employment. The company has been deducting Tax Deducted at Source (TDS) on the salaries of the Directors and PF laws are also applicable to their service.

The advance ruling was sought by the company on the issue, whether GST is payable under Reverse Charge Mechanism (RCM); the salary paid to the Director of the company who is paid a salary as per employment contract, after deduction of TDS as well as PF.

The AAR held that the salary paid to the Directors by the applicant company will attract GST under reverse charge mechanism as it is covered under entry No. 6 of Notification No. 13/2017 Central Tax (Rate) dated 28 June 2017 issued under Section 9(3) of the Central Goods and Services Tax Act, 2017, (CGST Act).

An appeal was filed by the company against the ruling of the AAR before the AAAR, Rajasthan Bench.

The AAAR stated that the part of Director's remuneration which are declared as Salaries in the books of the appellant and subjected to TDS under Section 192 of the Income Tax Act are not taxable being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule III of the CGST Act, 2017.

It said "The part of employee Director's remuneration which is declared separately other than "salaries" in the appellant's accounts and subjected to TDS as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, taxable and in terms of notification No. 13/2017 – Central Tax (Rate) dated 28 June 2017, the recipient of the said services i.e. the appellant, is liable to discharge the applicable GST on it on reverse charge basis."