TMI Blog2011 (5) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... ls are being disposed of by this common order as the questions of law arising in these appeals are common. ITAs No.475/2010, 476/2010 and 860/2010 relate to assessee/ITC Ltd. (hereinafter referred to as the assessee/ITC ) for the assessment years 2005-06, 2004-05 and 2003-04 respectively. ITA No.445/2011 relates to assessee, C.J. International Hotels Ltd. (hereinafter referred to as the assessee/CJ ) for the assessment year 2004-04. 2. The assessees are engaged in the business of owning, operating and managing hotels. Surveys were conducted under Section 133A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) at the business premises of the assessees during which it was found that the assessees had been paying tips to its employees but not deducting taxes thereon. The Assessing Officers treated the amounts of tips under the head Salary in the hands of respective staff and held that the assessees were liable to deduct taxes at source from such payments under Section 192 of the Act. The assessees were treated by the Assessing Officers as assessees-in-default under Section 201(1) of the Act. The Assessing Officers worked out different amount of taxes to be pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collected and paid by it to its employees? (b) Whether on the facts and in the circumstances of the case, the Ld. ITAT erred in law and on merits in holding that the payment of banquet and restaurant tips to the employees of the assessee in its capacity as employer were not profits in lieu of salary within the meaning of Section 17 (3) (ii) of the Income Tax Act, 1961? 6. We have heard the learned counsel for the parties and perused the record. The common question that arises for consideration is, as to whether tips paid by the customers for availing services in the restaurants of the assessees constitute salary within the meaning of Section 15 and Section 17 of the Act and whether the assessees are liable to deduct taxes at source on these payments under Section 192 of the Act. 7. There is no dispute with regard to the proposition that the obligation to deduct taxes at source under Section 192 of the Act in respect of a payment arises when an employee is responsible to make a payment, which is chargeable to tax under the head Salary in the hands of the recipient. It is for the purpose of deduction of tax at source from salary that Section 192 of the Act defines salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g part of the salary paid by the assessees to the employees. The assessees only act as a conduit for passing the tips onto the employees. No part of tips is retained by the assessees. Learned counsels for the assessees submit that the assessees act in fiduciary capacity in the matter of collection and distribution of the tips. They are neither contractually nor compulsorily bound to pay any tips to the staff. The tips amount collected from the customers and distributed among the staff cannot, by any stretch of imagination, be said to be salary due/payable or paid by the assessees. They submit that the tips received by the employees are not remuneration or reward/return for services rendered by the employees to the assessees (employer). But, the same represent reward given by the customers at their discretion pleased with the services rendered. The earning of the tips was entirely at the pleasure of the customers. They further submit that the tips vary from customer to customer and from bill to bill. Further, the employees cannot claim any vested right thereto, since the employer neither pays nor is bound to pay any amount to the employees as tips. The tips are not any dues from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the assessees before distribution of the balance to the staff. The tips collected from the other outlets are also being disbursed to the employees on monthly or fortnightly basis. She submits that it is immaterial how the same is collected and how the amount is paid to it employees. But as and when it is disbursed by the assessees, the employees earned the same only on account of rendering services to the employer. Thus, there was an employer and employee relationship that existed at all times. The business activities of the assessees are pursued from its employees, whose duties are to serve their customers or the tips are being paid to the employees in lieu of rendering prompt services for their employers. Learned counsel, Ms.Rashmi Chopra, further submits that the assessees are now deducting TDS from the tips/service charges from the bills of banquets, but are not doing so in respect of tips collected from other outlets. She submits that the assessees cannot adopt double tax policies in distribution of tip amounts. The tip amounts may be charged in any shape or by any name, may be called as service charges or tips , the meaning and purpose remains the same. The day the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential to see, as to whether tips form part of the salary within the meanings scribed to it under the Act. For the purpose of income to be chargeable under the head salary, Section 15 defines salary as under: 15. Salaries. The following income shall be chargeable to income-tax under the head Salaries (a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not; (b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer on a former employer, if not charged to income-tax for any earlier previous year. 15. Section 17 extends the scope of meaning of Section 15, which reads as under: 17. Salary , Perquisite and profits in lieu of salary defined - For the purposes of sections 15 and 16 and of this section, - (1) salary includes (i) Wages, (ii) Any annuity or pension; (iii) Any gratuity; (iv) Any fees, commissions, perquisites or profits in lieu of or in addition to any salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to any salary or wages shall be included in income, taxable under Section 15 of the Act. As per CIT v. Gopal Krishna Suri, [2000] 113 Taxman 707 (Bombay), the word salary under Section 17(1) is very wide and an inclusive definition. Further as per CIT v. Ram Rattan Lal Verma, [2005] 145 Taxman 256 (Allahabad), the expression salary for the purpose of computing income for charging purpose will mean only as defined under Section 17. 17. In fact, Section 17 defines salary , perquisites and profits in lieu of salary only for the purposes of Section 15 and Section 16. Under sub-Section (1), Salary includes not only wages, pension, gratuity, etc., but under the sub-clause (iv), it includes any fees, commissions, perquisites, or profits in lieu of or in addition to salary or wages. The income of tips in all cases may not strictly fall within the profits in lieu of salary , but in any case, it would be profit in addition to salary or wages at the hands of the recipients. It is in this way that the meaning of salary under Section 15 as also under Section 16 is expanded by the inclusion of anything which is received by an employee in addition to salary or wages. The word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployment, where under the employee acquires vested right, enforceable in law to receive the amount. In this case, it was also held that the expression paid includes every receipt by the employee from the employer whether it was due to him or not and the expression allowed is of wider connotation and any credit made in the employee‟s account is covered thereby and it should imply that the right is conferred on the employee in respect of the same. Once the tips are paid by the customers either in cash directly to the employees or by way of charge to the credit cards in the bills, the employees can be said to have gained additional income. When the tips are received by the employees directly in cash, the employer hardly has any role and it may not be even knowing the amounts of tips collected by the employees. That would outrightly be out of the purview of responsibility of the employer under Section 192 of the Act. But, however, when the tips are charged to the bill either by way of fixed percentage of amount, say 10% or so on the total bill, or where no percentage was specified and amount is indicated by the customer on the bill as a tip, the same goes into the receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue to or received by an assessee from an employer, even though it has no connection with the profit of the employer. 21. Applying the above ratio of the Apex Court, the advantage to the hotel employees in the form of monies received as banquet tips or other outlet tips would be covered by the inclusive definition of salary and there cannot be two opinions in view of the said judgment of the Supreme Court. 22. In the case of Ram Bagh Palace Hotel, Jaipur (supra), which was relied upon by the learned counsels for assessees, in support of their submission that the amounts of tips do not constitute salary of the employees paid by the employer under the contract of the employment, the context was entirely different. The Honble Supreme Court described the nature of tips at the hands of the employees as payments not paid by the management out of its pocket but a transfer of what was collected from the customers in the following manner: 2. We regret to be unable to agree with the counsel on this point. It is well-known that in important hotels in the country, the appellant is now a five star hotel-the customers are of the affluent variety and pay tips either to the waiters d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary on account of bonafide difference of opinion, regarding inter alia treatment of any amount/receipt, then the employer/assessee cannot be held liable as assessee-in-default under Section 201 of the Act and subjected to the penal consequences of the alleged failure. They submit that the assessees bonafide believed that the tips are paid by the customers and that though the employee is liable to pay tax in respect of the tips, the employer is not liable to include the same in the estimated salary for the purpose of bonafide deductions of tax at source under Section 192 of the Act. They submit that this practice was adopted since the commencement of the hotel business and the same was accepted by the Revenue by accepting the assessments in the form of annual returns in the past. They place reliance on the cases of Gwalior Rayon Silk Co. Limited v. CIT, 140 ITR 832 (Madhya Pradesh) and CIT v. Nestle India Limited, 243 ITR 435 (Delhi). 26. In the case of Gwalior Rayon Silk Co. Limited (supra), the Madhya Pradesh High Court observed as under:- The provisions of s. 201 of the Act are attracted in the case of an employer only when that employer does not deduct or, after deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Appellate Tribunal dated 27.7.2007. The issue before the Tribunal was whether the assessee could be termed as an assessee in default within the parameters of Section 201(1)/201(IA) of the Income Tax Act, 1961. The Tribunal has inter alia come to the conclusion that in any event it was quite reasonable for the assessee to form a bonafide belief that the tips which were collected by it on behalf of the employees and subsequently distributed to its employees did not form part of the salary paid by them and, therefore, no deduction on account of tax at source was required to be made by the assessee. The Tribunal came to the conclusive finding that the assessee had such a bonafide belief and it is on account of this that the tax was not deducted at source. Consequently, we find that no substantial question of law arises for our consideration. The appeals are dismissed. 29. We have given our thoughtful consideration to the submissions of the learned counsels for the assessees based on bonafide belief and non deducting tax at source from the payments made to the employees on account of tips. Learned counsel appearing for the Revenue did not controvert that this practi ..... 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