2012 (7) TMI 771 - HC - Income Tax

Admissibility of TDS on tip to the employees - Held that - The issue is decided in favour of Revenue relying on CIT v. ITC Ltd 2011 (5) TMI 310 - DELHI HIGH COURT - as the assessee acted in a bona fide manner therefore no penalty can be imposed on the assessee u/s 221 - as the exact quantum of the default needs to be computed it would, therefore, be necessary to remand the matter to the AO computing the exact quantum of default and the interest payable.

Summary

Issues:
1. Whether the amount paid as tip to employees is subject to TDS under Section 192 of the Income Tax Act.
2. Whether the assessee can be treated as a defaulter for failing to deduct tax.
3. Whether interest under Section 201(1A) is applicable in case of tax deduction default.

Issue 1:
The appeal raised the question of whether tips paid to employees are subject to TDS under Section 192 of the Income Tax Act. Citing previous judgments in CIT v. ITC Ltd. and CIT v. C.J. International Hotels Ltd., it was established that Section 192 applies, and tax should have been deducted by the employer-hotel. The position was not disputed by the appellant's counsel. Consequently, the appeal was dismissed based on the precedent set by previous judgments.

Issue 2:
The appellant's counsel argued that the assessee should not be considered a defaulter. However, the revenue's counsel referred to the judgment in Commissioner of Income Tax (TDS) v. M/s American Express Bank Ltd., which clarified that failing to deduct tax results in being treated as a defaulter. The court emphasized that good and sufficient reasons only apply to the imposition of penalties, not to absolve the assessee from being considered a defaulter under Section 201(1) of the Act. The court set aside the tribunal's finding and decided in favor of the revenue, highlighting the need to compute the exact quantum of default and interest payable under Section 201(1A).

Issue 3:
The judgment in M/s American Express Bank Ltd. reiterated that even if the assessee acted in a bona fide manner, they could still be considered an assessee in default for short deduction of tax. The court emphasized that no penalty could be imposed under Section 221 due to the proviso in Section 201(1) but noted the necessity to compute the exact default amount and interest payable. The assessing officer was directed to calculate the interest payable under Section 201(1A) from the date the tax was deductible to the date it was paid, considering individual tax payments by employees. The court allowed the appeals based on the above considerations, concluding that no substantial question of law arose for further consideration.