Commission Paid to Directors of Companies – No Service Tax – Board Clarifies
Some over-enterprising Service Tax officers have sought Service Tax from Company Directors who get a Commission from their Companies. In fact an Assistant Commissioner in Pune had in adjudication, held that the Directors have deliberately not discharged service tax liability which clearly indicates their intention to evade service tax. And he imposed all kinds of penalties that could be thought of.
Thankfully the Board has now come out with a clarification.
The Board is of the view that some companies make payment to their officials, such as Managing Directors/Directors, terming the same as ‘Commissions'. This payment may be over and above the salary and other remunerations. Such commissions may be either performance linked or linked to the financial results of the company, but the fact is that it is nothing but remuneration paid to an employee by the employer. The relationship between an employee and the employer is distinct from the relationship between a service receiver and service provider. Thus action taken by an employee for the benefit of the employer cannot be in the nature of service. Therefore, so long as the activities performed are duties within the framework of the terms of employment, the amount paid by an employer to an employee, even if it is termed as commission, would not be treated as ‘commission' mentioned under the definition of business auxiliary service and service tax would not be leviable on such amount.
Board wants pending issues to be resolved in line with the above.
Wonderful! Board deserves all praise for this apt and clear clarification, but BUT this is again contained in a private letter to a Commissioner. And Board has marked a copy to the DGST to circulate this clarification to the field formations.
Pray, why can't this be made public? Why can't the Board issue a Public Circular, so that such vital clarifications are known to the Public for whose benefit they are actually given?