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2017 (2) TMI 913 - AT - Income TaxTDS u/s 192 - short deduction of tax on account of credit tips recovered from the hotel guest to the employees - Held that - As decided in case of ITC Ltd. vs CIT (TDS), Delhi 2016 (4) TMI 1055 - SUPREME COURT since TIPS were received from the customers and not from the employer these would be chargeable in the hands of the employee as income from other sources and section 192 would not get attracted on the facts of the case. Assessee cannot be said to be in default of the provisions of Section 192 of the income Tax Act, 1961 as there was no liability of the assessee to deduct TDS under the said provision on the tips recovered from the hotel guests. Thus, it cannot be held to be an assessee in default. Since interest u/s 201(1A) can only be levied only a person who is declared as in assessee is default the question of interest does not arise. Accordingly in the face of the clear statement of law as settled by the Apex Court, the impugned order cannot be upheld. Accordingly, the orders of the AO u/s 201(1)/201(1A) in the respective years are quashed. - Decided in favour of assessee
Issues Involved:
1. Short deduction of tax on account of credit tips recovered from hotel guests and distributed to employees. 2. Applicability of Section 192 of the Income Tax Act, 1961, regarding tax deduction at source (TDS) on tips. 3. Interpretation of Sections 15, 16, and 17 of the Income Tax Act, 1961, concerning the definition of salary. 4. Liability of the assessee to deduct TDS on tips and the consequent interest under Section 201(1A). Detailed Analysis: 1. Short Deduction of Tax on Credit Tips: The assessee was held in default for short deduction of tax on credit tips collected from hotel guests and distributed to employees. The CIT(A) dismissed the appeal of the assessee, relying on the Jurisdictional High Court's decision in CIT vs. ITC Ltd. and C.J. International Hotel Ltd., which was later overturned by the Apex Court in ITC Ltd. vs. CIT. 2. Applicability of Section 192 - TDS on Tips: The Assessing Officer (AO) argued that tips distributed to employees constituted salary and thus required TDS under Section 192. The AO's stance was based on the premise that tips were remuneration for services rendered by employees, falling under the inclusive definition of salary in Section 17. The CIT(A) upheld this view, stating that tips, whether paid in cash or through credit cards, are additional income for employees and thus taxable under the head 'salary.' 3. Interpretation of Sections 15, 16, and 17 - Definition of Salary: The AO and CIT(A) referred to Sections 15, 16, and 17 to argue that tips are part of salary. Section 15 covers salary due from an employer, while Section 17 provides an inclusive definition of salary, including perquisites and profits in lieu of salary. The CIT(A) emphasized that tips paid by the employer constitute salary as they are additional payments made by the employer to the employee. 4. Liability to Deduct TDS and Interest under Section 201(1A): The assessee contended that tips received from customers and distributed to employees do not constitute salary and thus do not attract TDS under Section 192. The Apex Court in ITC Ltd. vs. CIT held that tips received from customers are chargeable as income from other sources in the hands of employees and not as salary. Therefore, Section 192 does not apply, and the assessee is not liable to deduct TDS on such tips. Consequently, the assessee cannot be held in default under Section 201(1), and interest under Section 201(1A) is not applicable. Conclusion: The Tribunal concluded that the facts and circumstances of the case align with the Apex Court's decision in ITC Ltd. vs. CIT. Since tips are received from customers and not from the employer, they do not constitute salary under Sections 15 and 17. Therefore, the assessee is not liable to deduct TDS under Section 192, and the orders of the AO under Sections 201(1) and 201(1A) are quashed. The appeals of the assessee are allowed, and the impugned order is set aside. Judgment: The appeals of the assessee are allowed, and the orders of the AO under Sections 201(1) and 201(1A) are quashed. The order is pronounced in the open court on 14th February 2017.
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