TMI Blog2007 (7) TMI 646X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had engaged casual workers on contract basis to handle the banquet functions. These casual workers had been paid 50 per cent of the service charges levied by the assessee company at the rate of 10 per cent in the bills for food and beverages. The balance 50 per cent was being retained by the assessee company for meeting operating supplies. The assessee had not deducted tax at source in respect of the 50 per cent of the service charges paid to the casual workers also known a banquet tips. Similarly, regular employees working in the restaurant had been paid tips by the customers in appreciation of good services provided by them. These tips were being added by the customers in the charge slips signed for the restaurant bills, The tips were collected by the assessee along with the bills and later dispersed to the employees within 10-15 days. While deducting tax at source in respect of salary income of the employees, the tips paid to the customers known as other outlet tips had not been included by the assessee. The total amounts paid as banquet tips and other outlet tips from financial year 1998-99 to 2003-04 on which no tax had been deducted, were as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existed an obligation on the part of the employer and a right on the part of the employees to claim the same. The Assessing Officer also made inquiries from some other hotels who confirmed that they were including the banquet charges and service charges paid to the employees in their emoluments while computing the tax deduction at source. The Assessing Officer also referred to the judgement of Hon ble Supreme Court in case of Karamchari Union Agra v. Union of India [2000] 243 ITR 143 in which the Hon ble Supreme Court had held that because of inclusive meaning given to the phrase profit in view of salary it would include any payment due to or received by an assessee from any employer even though it had no collection with the profit of the employer . Accordingly, the Assessing Officer held that other outlet tips paid to the employees working in the restaurant constituted the taxable income of the employees under the head salary and thus, liable for deduction of tax at source. He therefore, treated the assessee in default under section 201(1). As regards the banquet tips i.e. service charges paid to the casual workers, the assessee itself agreed for raising demand for non dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce was followed and was being accepted by the department. The assessee was therefore, under the bona fide belief that these were not to be included in salary. The assessee argued that the Assessing Officer s reliance on the decision of Hon ble Supreme Court in case of Karamchari Union v. Union of India ( supra ) regarding definition of salary was misplaced. It was pointed out that any payment mentioned under section 17(3)( ii ) in the definition of profit in lieu of salary must be a payment due or received from the employer and former employer and it must be an award or remuneration for the services rendered by the employee. It does not include any payment as held by Hon ble Supreme Court in case of CIT v. E D Sheppard [1963] 48 ITR 235. The same view had been taken by Hon ble High Court of Delhi in case of Lachhman Dass [1980] 124 ITR 706. The CIT(A) was however not satisfied. It was noted by him that there was no dispute that the banquet tips and other outlet tips paid to the casual workers/employees were taxable income in their hands. The CIT(A) also observed that the case laws relied upon by the assessee were distinguishable. It was held by him that the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four years from the end of the relevant financial year. The Ld. A.R. for the assessee has reiterated the submissions made before the lower authorities. It has been argued that the assessee had received the tips in fiduciary capacity on behalf of employees and acted as conduit pipe for passing these amounts to the employees who rendered the services. Reliance has also been placed on the judgement of Hon ble Supreme Court in case of CIT v. Bijli Cotton Mills (P.) Ltd. [1979] 116 ITR 60 . As regards the orders for financial year 1998-99 and 199-2000 being barred by limitation, the reliance has been placed on the decision of Delhi Bench of the Tribunal in case of Mitsubishi Corpn. ( supra ). The ld Sr. DR appearing for the revenue on the other hand strongly supported the orders of authorities below and placed reliance on the findings given by them. 3.2 We have perused the records and considered the matter carefully. The issue raised before us is regarding deducibility of TDS on the tips received by the employees working in the restaurant of the hotel. The assessee had not considered the tips as part of the salary and accordingly had not deducted the tax at source. The argum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyer even if it had no connection with the profit of the employer. It was accordingly held that DA, CCA and HRA was taxable. The said judgement is not applicable in case of the assessee, firstly because the payment has not been received from the employer nor it had been due from the employer. The employees had received the payments from the customers as tips and the assessee had acted only as conduit pipe for passing on these amounts to employees as per instruction of the customers. Only the payments received by the employees from the employer for services rendered, to the employer can be considered as profit in lieu of salary. Therefore, we agree with the submission of ld. AR that tips cannot be considered as part of salary. 3.4 In any case, on the facts of the case, it is quite reasonable to form a bona fide belief by any employer that the tips were not part of salary paid by them and on this ground also, the assessee cannot be treated in default for not deducting the tax at source. The judgments of Hon ble High Court of Delhi in case of CIT v. HCL Info Systems Ltd. [2005] 146 Taxman 227 supports the case of the assessee. In that case, no tax had been deducted on conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re rejected. The revenue had. also made reference to the provisions of section 231 regarding period of limitation which had been omitted with effect from 1-4-1989. This was rejected by the Tribunal who observed that it had no relevance since that section was for recovery of tax or interest levied by the Assessing Officer for which demand notice had already been issued or for which the assessee was deemed to be in default. Section 231 could be applied only if any tax was to be recovered and thereafter limitation provided in that section did not control the action of the Assessing Officer under section 201, which was anterior to section 231. It was held that limitation would apply in relation to orders under section 201(1)/201(1A). The facts in the present case are identical. No_ contrary decision of the jurisdictional High Court or the Apex Court has been brought to our notice. We, therefore, respectfully following the decision of the Tribunal ( supra ) quash the order passerby the Assessing Officer under section 201(1)/201(1A) for the financial years 1998-99 and 1999-2000. 4. In the result, all the appeals filed by the assessee are allowed. - - TaxTMI - TMITax - Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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