2018 (5) TMI 431 - AT - Income Tax

Default for non deduction of tax from payment of tips u/s 192 - Tax liability u/s 201 (1) and interest u/s. 201 (1A) - Held that - We find the issue has now been decided in favour of the assessee by the decision of Hon ble Apex Court in the case of ITC Vs. CIT (2016 (4) TMI 1055 - SUPREME COURT) been decided in favour of the assessee by the Hon ble Apex Court as well as decision of the Tribunal for the immediately proceeding assessment year, therefore, following the same we set aside the order of the CIT (A) and direct the Assessing Officer to delete the tax levied u/s 201 (1) and interest u/s 201 (1A) of the IT Act. - Decided in favour of assessee.

Summary

Issues:
- Non-deduction of tax from tips paid to employees
- Treatment of tips as part of salary
- Liability under sections 201(1) and 201(1A) of the IT Act
- Applicability of interest under section 201(1A)
- Jurisdictional High Court's decision
- Hon'ble Apex Court's decision in ITC Ltd. Vs. CIT (TDS)

Analysis:

The judgment involves two appeals by the assessee against the order confirming the Assessing Officer's decision under sections 201(1) and 201(1A) of the IT Act for the A.Y. 2011-12. The Assessing Officer noted the non-deduction of tax from tips paid to employees by the hotel company. The tips were categorized into three types, with the first two collected by management and distributed to staff. The Assessing Officer considered these tips as part of the salary, leading to tax liability determination and interest imposition under sections 201(1) and 201(1A).

The CIT (A) upheld the Assessing Officer's decision based on the Jurisdictional High Court's ruling in the assessee's own case. The assessee appealed, challenging the default status under section 201(1), liability to deduct tax on tips disbursed, and the validity of the orders under sections 201(1) and 201(1A). The assessee relied on the Hon'ble Supreme Court's decision in ITC Ltd. Vs. CIT (TDS), arguing that tips collected and disbursed did not constitute salary or payment by the employer.

The Tribunal, considering the arguments and precedents, found in favor of the assessee. Citing the Hon'ble Apex Court's decision and a previous Tribunal ruling in the assessee's case, it determined that tips collected and distributed by the employer were not part of the salary. Consequently, the tax liability under section 201(1) and interest under section 201(1A) were deemed invalid. The Tribunal directed the Assessing Officer to delete the tax and interest, setting aside the CIT (A)'s order.

In conclusion, both appeals by the assessee were allowed, with the Tribunal ruling in favor of the assessee based on the decisions of the Hon'ble Apex Court and the Tribunal's previous judgment in a similar matter. The tax liability and interest under sections 201(1) and 201(1A) were directed to be deleted by the Assessing Officer.