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2016 (4) TMI 1055 - SC - Income TaxTDS u/s 192 - short/non deduction of tax at source on account of banquet and restaurant tips collected and paid by it to its employees - assessee in default - Held that - Payments of collected tips made in the manner would not be payments made by or on behalf of an employer. We agree with the statement of law that there is no ground for saying that these tips ever became the property of the employers. Even if the box were kept in the actual custody of the employer he would have no title to the money as he would hold such money in a fiduciary capacity for and on behalf of his employees. In the said circumstances, it is clear that such payments would be outside the purview of Section 15(b) of the Act. It is well settled that a case is an authority, for what it decides, and not for what logically follows from it. This case in no manner supports Shri Kaul s submission on Section 17(3) (ii) that the moment any amount is received from an employer by an employee, without more, such amount becomes a profit in lieu of salary. In the Karamchari Union judgment 2000 (2) TMI 11 - SUPREME Court CCA and HRA arose directly from the employer employee relationship. The question the Court had to answer was whether a pecuniary advantage in the form of CCA and HRA would be covered by Section 17, which the Court answered in the affirmative. This Court s decision cannot be understood to mean that even de hors the employer employee relationship, any amount received from the employer by an employee would become salary under Section 17. We are, therefore, unable to subscribe to the High Court s view in understanding this decision to mean that so long as the employer pays an amount to an employee, even in a fiduciary capacity and de hors the employer employee relationship, the amount so paid would come within the head salary . A great deal of argument was made by both sides on the nature of interest contained in Section 201(1A) of the Act. We find it unnecessary to go into this question for the simple reason that as held in Commissioner of Income Tax, New Delhi v. Eli Lilly and Company (India) Private Limited, (2009 (3) TMI 33 - SUPREME COURT) interest under section 201(1A) can only be levied when a person is declared as an assessee-in-default. Having found that the appellants in the present cases are outside Section 192 of the Act, the appellants cannot be stated to be assessees-in-default and hence no question of interest therefore arises.
Issues Involved:
1. Whether the assessees were "assessees in default" for not deducting tax at source on tips collected and paid to employees. 2. Whether the payment of tips to employees constitutes "profits in lieu of salary" under Section 17(3)(ii) of the Income Tax Act, 1961. 3. The applicability of Section 192 of the Income Tax Act to the tips collected and distributed by the employer. 4. The liability of the assessees to pay interest under Section 201(1A) of the Income Tax Act for non-deduction of tax on tips. Detailed Analysis: 1. Assessees in Default for Non-Deduction of Tax on Tips: The High Court held that tips collected by the employer and paid to employees should be treated as income under the head "salary" and thus, the employer was liable to deduct tax at source under Section 192. The Supreme Court, however, found that tips received from customers do not constitute salary as they are not paid by the employer but by third parties (customers). The Court emphasized that the employer acts merely as a conduit in transferring tips from customers to employees, and thus, the employer cannot be considered responsible for paying salary in this context. Consequently, the assessees cannot be treated as "assessees in default" under Section 201(1). 2. Tips as "Profits in Lieu of Salary": The High Court interpreted tips as "profits in lieu of salary" under Section 17(3)(ii), arguing that since tips collected via credit cards are first received by the employer and then paid to employees, they fall under the definition of salary. The Supreme Court disagreed, clarifying that Section 17(3)(ii) uses the term "employer" in the same context as Section 15, implying a direct employer-employee relationship. Since tips are not paid by the employer but are voluntary payments from customers, they do not fit within the definition of "profits in lieu of salary." 3. Applicability of Section 192: Section 192 mandates tax deduction at source on income chargeable under the head "salaries." The Supreme Court held that since tips are received from customers and not from the employer, they do not fall under the head "salaries" but rather "income from other sources." Therefore, Section 192 does not apply to tips, and the employer is not liable to deduct tax at source on such payments. 4. Liability to Pay Interest under Section 201(1A): The High Court had ruled that interest under Section 201(1A) is mandatory for non-deduction of tax, regardless of the employer's bona fide belief. The Supreme Court, however, stated that interest under Section 201(1A) can only be levied if the employer is declared an "assessee-in-default." Since the assessees were found not to be "assessees in default" under Section 192, no interest liability arises under Section 201(1A). Conclusion: The Supreme Court allowed the appeals filed by the assessees, setting aside the High Court's judgment. It concluded that tips received by employees from customers do not constitute salary and are not subject to tax deduction at source under Section 192. Consequently, the assessees were not "assessees in default" and were not liable to pay interest under Section 201(1A). The appeals filed by the Revenue were dismissed.
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