No GST on Profit Sharing Agreement between Star Health and Shareholders: AAR

The Tamil Nadu bench of the Authority of Advance Rulings ( AAR ) in an application filed by Venkatasamy Jagannathan ruled that, the Profit Sharing Agreement between the applicant ad various shareholders of Star Health and Allied Insurance Ltd is an actionable claim and is as neither a supply of goods nor a supply of services covered under Schedule III to CGST Act and SGST Act and hence is not taxable to CGST or SGST.

The Applicant has entered into a Profit Sharing Agreement (PSA) and is entitled to a strategic sale of equity shares over and above a specified sale price per equity share by a set of shareholders of SHA and seeks a ruling on whether the PSA between the applicant as an employee and the shareholders, attract GST in his hands.

The applicant contended that the PSA is only due to his contribution as Managing Director and hence is under employer/employee activities which are exempt under GST.

The Bench constituting of members Ms MG Kata and TK Selvaan ruled that the PSA between the applicant and various shareholders of Company is an actionable claim and is neither a supply of goods nor a supply of services and hence is not taxable to CGST or SGST Act.

The Bench elaborated that in the instant case, the parties to PSA have agreed to pay a certain sum in the event of strategic sale where at least 51% of paid-up equity share capital of the company is sold at a price of Rs 75 per equity share. The applicant has a claim to specified amounts in event of the occurrence of the strategic sale making his claim contingent on happening of an event. Hence, the PSA was ruled to be an actionable claim.

Source: Tax scan