TMI Blog2016 (4) TMI 1055X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt vide the impugned judgment dated 11.5.2011 framed the questions of law as follows:- (a) Whether on the facts and in the circumstances of the case, the Ld. ITAT erred in law and on merits holding that the assessee was not an assessee in default for short/non deduction of tax at source on account of banquet and restaurant tips 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? 7. The High Court held, after considering Sections 15, 17 and 192 of the Income Tax Act, that tips would amount to profit in addition to salary or wages and would fall under Section 15(b) read with Section 17(1)(iv) and 17(3)(ii). Even so, the High Court held that when tips are received by employees directly in cash, the employer has no role to play and would therefore be outside the purview of Section 192 of the Act. However, the moment a tip is included and paid by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for services rendered by the employees to the assessees. They argued that there was no vested right of an employee to claim any tip from a customer. It was further argued that the expression employer contained in Sections 15 and 17 is of crucial importance, and must be contrasted with the expression any person occurring in Section 17 (3)(iii). It was also argued, based on the Hotel Receipts Tax Act and a circular issued thereunder, that tips do not form any part of taxable receipts of the employers. Further, we were shown a publication in which guidelines were issued by the Australian Tax Office stating that voluntary tips are not consideration for the supply of food or service in a hotel or restaurant. The intervenor represented by Shri S. Ganesh also argued that Section 192 is attracted only when any person responsible for paying any income chargeable under the head salary is to deduct income tax on the amount payable. According to the learned counsel, since the income received from tips is not income chargeable under the head salary , so far as the employees are concerned, but income from other sources, Section 192 is not at all attracted. It was further agued by him th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s his submission that the machinery provisions contained in Section 192 could easily be worked out as monthly estimates of the tips that were received or receivable had to be made by the employer. 11. Before adverting to the contentions raised by counsel for both the parties, it will be necessary to set out some of the provisions of the Income Tax Act. 192. Salary (1) Any person responsible for paying any income chargeable under the head Salaries shall, at the time of payment, deduct income-tax on the amount payable at the average rate of incometax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year. xx (3) The person responsible for making the payment referred to in sub-section (1) or sub-section (1A) or sub-section (2) or sub-section (2A) or sub-section (2B) may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year. 201. Consequences of failure t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident but is not deemed to be an assessee in default under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident. 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 or a former employer, if not charged to income-tax for any earlier previous year. Explanation 1.-For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee receives income chargeable under a head other than the head salaries , then Section 192 does not get attracted at all. In Emil Webber v. CIT, (1993) 2 SCC 453, the Ballarpur Paper and Straw Board Mills wanted to set up a caustic soda/chlorine manufacturing plant at Ballarpur. For this purpose, it entered into two agreements with Krebs, a French concern, which in turn entered into an agreement with a Swiss concern for making available services of certain personnel. The assessee, Emil Webber, was a person engaged by the Swiss concern. The assessee came to India and worked in connection with the setting up of the said plant. The question that was posed before this Court was whether the tax component paid by Ballarpur of the assessee s taxable income could be included within the income of the assessee. This Court, in answering the said question, specifically stated in paragraph 8, that the question arose as to under which head of income should the said income be placed. This Court held that inasmuch as the assessee is not an employee of Ballarpur, which made the payment, it cannot be brought within the purview of Section 17 of the Act. Thus, such income must necessarily be placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed to him by or are due to him, whether paid or not, from, or are paid by or on behalf of................ a company..................... Explanation I- For the purpose of this section, perquisite includes- (v) any sum payable by the employer, whether directly or through a fund to which the provisions of Chapters IXA and IXB do not apply, to effect an assurance on the life of the assessee or in respect of a contract of annuity on the life of the assessees. This section imposes a tax on the remuneration of an employee. It presupposes the existence of the relationship of employer and employee. The present case is sought to be brought under the head perquisites in lieu of, or in addition to, any salary or wages, which are allowed to him by or are due to him, whether paid or not, from, or are paid by or on behalf of a company . The expression perquisites is defined in the Oxford Dictionary as casual emoluments, fee or profit attached to an office or position in addition to salary or wages . Explanation 1 to Section 7(1) of the Act gives an inclusive definition. Clause (v) thereof includes within the meaning of perquisites any sum payable by the employer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an expression of width, the salary must be paid by or on behalf of an employer. It must first be noticed that the expression employer is different from the expression person . An employer is a person who employs another person under a contract of employment, express or implied, to perform work for the employer. Therefore, Section 15(b) necessarily has reference to the contract of employment between employer and employee, and salary paid or allowed must therefore have reference to such contract of employment. On the facts of the present case, it is clear that the amount of tip paid by the employer to the employees has no reference to the contract of employment at all. Tips are received by the employer in a fiduciary capacity as trustee for payments that are received from customers which they disburse to their employees for service rendered to the customer. There is, therefore, no reference to the contract of employment when these amounts are paid by the employer to the employee. Shri Kaul, however, argued that there is an indirect reference to the contract of employment inasmuch as but for such contract, tips to employees could not possibly have been paid at all. We are afrai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expression allowed is of wide amplitude, yet the other expressions in Section 15 as construed by us would exclude tips from its purview. 19. Interestingly, this Court in Rambagh Palace Hotel s case (supra), in paragraph No.2 held as under:- 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 directly or in the shape of service charges or otherwise to the management along with the bill for the items consumed. In short, the true character of tips cannot be treated as any payment made by the management out of its pocket but a transfer of what is collected to the staff as it is intended by the payer to be so distributed. It may also happen that more money comes in by way of tips into the pockets of the management than distributed by it. We cannot therefore consider the receipt of tips by the staff as anything like a payment made by the management to its employees warranting consideration by the tribunal to depress the award of dearness allowance. Of course, it is a factor which may per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were not in the nature of wages as they were not given to the employees under the terms of the contract of employment, either express or implied. The aforesaid statement made by this Court, though made in a different context, would apply on all fours in the present case, again for the reasons mentioned hereinabove. 22. Along the lines of the aforesaid judgments, the House of Lords, in Wrottesley v. Regent Street Florida Restaurant, [1951] 2 K.B. 277 dealt with a case in which, under a tronc system, customers tips are shared out between the waiters, and, in some cases, other members of the staff. This judgment arose under Section 9(2) of the Catering Wages Act, 1943 which provided that if an employer fails to pay to a worker, to whom a wages regulation order applies, remuneration not less than the statutory minimum remuneration (clear of all deductions), he shall be guilty of an offence. The question that arose in that case is whether tips received by waiters under the tronc system were to be regarded as remuneration so as to take the employer out of Section 9 (2) aforesaid. In this context, the House of Lords held: What we have to decide is whether, when a waiter rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory allowance and other allowances such as house rent allowance are salary under Section 17. This Court held that Section 17 gives an exhaustive meaning to the expression salary by extending the ordinary connotation of the word to fees, commissions, perquisites or payments of profits in lieu of salary which are not ordinarily considered to be salary. The question posed before this Court was what does the expression salary signify. Would it also include any payment received from the employer relatable to or out of the profits or could it be understood as any pecuniary gain or advantage? This Court held:- In our view, even though there is much substance in the contentions raised by the learned counsel for the assessee yet it is to be stated that the Act is a self-contained code and the taxability of the receipt of any amount or allowance is to be determined on the basis of the meaning given to the words or phrases in the Act. Section 2(24) of the Act gives a wide inclusive definition to the word income . Similarly, for levying tax on salary income, an exhaustive definition is given under Section 17, which includes perquisites and profits in lieu of salary. The only exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income by way of salary, which would be a taxable one. In the result, we hold that DA, CCA and HRA would be taxable income. Since, counsel for the employees did not make any submission with regard to other allowances like night allowance, tuition fee, leave encashment linked with leave travel concession, running allowance etc. we do not pass any order with regard to those allowances. [at paras 23, 25 and 28] 25. All that was held by this Court in the aforesaid decision is that even if an amount is received by an employee which has no connection with the profits of the employer, it may yet be salary as any advantage or gain by receipt of such payment would be included in the expression profits in lieu of salary . Hence, this court did not accede to the contention of learned counsel for the assessee that as the CCA amount is paid to meet additional expenditure as contemplated by statutory service rules, it cannot be said to be profit . This Court finally held that CCA and HRA would be taxable income in the hands of the employee. 26. 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 manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o attract the aforesaid provision. Since this is the case, it is clear that amounts that are received by any person chargeable under the said Schedule and Rule become taxable even if the said amount is paid by a third person. Keeping this vital difference in view, let us analyse the two English judgments relied upon by Shri Kaul. 30. In Calvert (Inspector of Taxes) v. Wainwright, [1947] 1 KB 526, the question posed before the King s Bench was: Are tips received by taxi drivers from their customers assessable to income tax in their hands? The King s Bench Division held that such tips are assessable under Schedule E read with Rule 1 of the Income tax Act, 1918. In so holding, the King s Bench held that though persons like taxi drivers have no vested right to ask for tips, they would yet be covered. This is for the reason that Rule 1 indicates that emoluments may be received either from the employer or from a third party as a reward for services rendered in the course of employment. This case is obviously distinguishable, first, on the ground that an emolument received from a third party is not covered by Sections 15 and 17 of the Indian Income Tax Act unless such emolument is on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealt with in this context. In Hochstrasser (Inspector of Taxes) v. Mayes, [1960] A.C. 376, a certain company employed many persons in numerous factories in different places. The employees were required by their service agreement to be prepared to serve the employer wherever required. A housing scheme was entered into with the employees under which, whenever the employee had to shift residence, and in so shifting would incur a loss on selling the house in the place from which he was transferred, the Company would compensate such loss. This loss was the subject matter of assessment under Schedule E of the Income Tax Act, 1918. The House of Lords, in this judgment, had to deal with paragraph 2 of Schedule E which reads as follows:- 2. Tax under this Schedule shall also be charged in respect of any office employment or pension, the profits or gains arising or accruing from which would be chargeable to tax under Schedule D but for the proviso to paragraph 1 of that Schedule . 33. The House of Lords held that it is not enough for the Crown to establish that the employee would not have received the sum on which tax is claimed had he not been an employee at all. The Court must b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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