TDS on Sitting Fees
This query is : Resolved
22 March 2010
Plz. clear, me Whether TDS is required to be deducted on sitting fees paid , if amount of sitting fees is Rs. 20,000/- or more
22 March 2010
Decision of the Delhi High Court
The Delhi Tribunal in CIT v. Orissa Cement Ltd. [2001] 250 ITR 846/118 Taxman 449 held that sitting fees paid to the director for attending board meetings could not be said to be remuneration and it was in the nature of daily allowance.
Reversing such decision, the Delhi High Court held that the fees, which were paid as directors’ fees, or board meetings fees were in respect of the services rendered by the directors in their capacity as directors and such fees would fall within the meaning of the word ‘remuneration’.
In the case of a non-working director often a question arises whether any payments made to them either as meeting/sitting fee including reimbursements, etc., are to be made subject to tax. The answer to such question will be in affirmative on the basis of the following scrutiny of the provisions of law.
Position under Income-tax Act
2. Section 194J requires deduction of tax at source with reference to any sum paid by way of fees for professional or technical services. In case such director is a professional under either of the specified categories under section 44AA, then the provisions of section 194J have straight application. On the other hand, if such director is not a professional as well as a non-technical person in ordinary parlance, then one has to refer to the position of such director as is understood in the normal phraseology under the Companies Act, 1956.
As per clause (13) of section 2 of the Companies Act, 1956, a director includes any person occupying the position of director, by whatever name called. Further, clause (24) to section 2 of the said Act refers to the term ‘manager’ ‘meaning an individual (not being the managing agency), who, subject to the superintendence, control and direction of the board of directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract of service or not. In other words, a non-working director with a contract of service would come under the definition of ‘managerial personnel’.
Clause (b) to Explanation in section 194J draws reference to the term ‘fees for professional or technical services’ to have the meaning assigned as per Explanation 2 to clause (vii) of sub-section (1) of section
9. Such Explanation 2 reads as follows:
“Explanation 2.—For the purposes of this clause, ‘fees for technical services’ means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘Salaries’.”
As a director is also a manager under the provisions of the Companies Act, 1956 he is, therefore, a technical personnel and any payment made to such director be it a sitting fee or any other sum shall be required to be taken into consideration for the purposes of deduction of tax at source under section 194J of the Income tax Act, 1961 at the rate of 5 per cent.
The Delhi Tribunal in CIT v. Orissa Cement Ltd. [2001] 250 ITR 846/118 Taxman 449 held that sitting fees paid to the director for attending board meetings could not be said to be remuneration and it was in the nature of daily allowance.
Reversing such decision, the Delhi High Court held that the fees, which were paid as directors’ fees, or board meetings fees were in respect of the services rendered by the directors in their capacity as directors and such fees would fall within the meaning of the word ‘remuneration’.
In the case of a non-working director often a question arises whether any payments made to them either as meeting/sitting fee including reimbursements, etc., are to be made subject to tax. The answer to such question will be in affirmative on the basis of the following scrutiny of the provisions of law.
Position under Income-tax Act
2. Section 194J requires deduction of tax at source with reference to any sum paid by way of fees for professional or technical services. In case such director is a professional under either of the specified categories under section 44AA, then the provisions of section 194J have straight application. On the other hand, if such director is not a professional as well as a non-technical person in ordinary parlance, then one has to refer to the position of such director as is understood in the normal phraseology under the Companies Act, 1956.
As per clause (13) of section 2 of the Companies Act, 1956, a director includes any person occupying the position of director, by whatever name called. Further, clause (24) to section 2 of the said Act refers to the term ‘manager’ ‘meaning an individual (not being the managing agency), who, subject to the superintendence, control and direction of the board of directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract of service or not. In other words, a non-working director with a contract of service would come under the definition of ‘managerial personnel’.
Clause (b) to Explanation in section 194J draws reference to the term ‘fees for professional or technical services’ to have the meaning assigned as per Explanation 2 to clause (vii) of sub-section (1) of section
9. Such Explanation 2 reads as follows:
“Explanation 2.—For the purposes of this clause, ‘fees for technical services’ means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘Salaries’.”
As a director is also a manager under the provisions of the Companies Act, 1956 he is, therefore, a technical personnel and any payment made to such director be it a sitting fee or any other sum shall be required to be taken into consideration for the purposes of deduction of tax at source under section 194J of the Income tax Act, 1961 at the rate of 5 per cent.
22 March 2010
The sitting fees can be taken considered in two ways, firstly as part of salary if director is considered as an employee, then it would get merged with salary and other perks and would be treated as the salary does..
If the director is not an employee, but a visiting facutly, then this payment takes the nature of professional payment, so the conditions mentioned under TDS provisions would apply.
If the director is not an employee, but a visiting facutly, then this payment takes the nature of professional payment, so the conditions mentioned under TDS provisions would apply.
22 March 2010
Nice reply
22 March 2010
very good reply by ankurji, but wrongly mention rate of TDS u/s 194J is 5% instead of 10%.
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