Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
Circular No. 115/09/2009 – ST
New Delhi, 31st July 2009
Subject: Service tax on commission paid to Managing Director / Directors by the
company -reg
- Below mentioned issues have been referred to the Board seeking clarifications,-
- applicability of service tax under ‘Business Auxiliary service’ on
commission paid to Managing Director / Directors (whole time, or Independent) by
the company,
- applicability of service tax on Independent Directors who are part of the
Board of Directors under ‘Management Consultant service’.
- Both the matters have been examined by the Board and the clarifications are
as under, -
- Some Companies make payments to Managing Director/Directors (Whole-time or
Independent), terming the same as ‘Commissions’. The said amount paid by a
company to their Managing Director/Directors (Whole-time or Independent) even if
termed as commission, is not the ‘commission’ that is within the scope of
business auxiliary service and hence service tax would not be leviable on such
amount.
- The Managing Director / Directors (Whole-time or Independent) being part of
Board of Directors perform management function and they do not perform
consultancy or advisory function. The definition of management consultant
service makes it clear that what is envisaged from a consultant is advisory
service and not the actual performance of the management function. The payments
made by Companies, to Directors cannot be termed as payments for providing
management consultancy service. Therefore, it is clarified that the amount paid
to Directors (Whole-time or Independent) is not chargeable to service tax under
the category ‘Management Consultancy service’. However, in case such directors
provide any advice or consultancy to the company, for which they are being
compensated separately, such service would become chargeable to service tax.
- In view of the above, it is clarified that remunerations paid to Managing
Director / Directors of companies whether whole-time or independent when being
compensated for their performance as Managing Director/Directors would not be
liable to service tax.
Pending issues may be resolved in line with the above.
Yours faithfully
(Himanshu Gupta)
Commissioner (Service Tax)
CBEC, New Delhi
Dy. No. 324/Comm (ST)/2008