TaxTMI 
TaxTMI 
2007 (7) TMI 646
X X X X Extracts X X X X
X X X X Extracts X X X X
.... course of which it was noted that the 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 d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 deduction of tax at source under section 194C. The Assessing Officer therefore, treated the assessee in default both in respect of non deduction of tax at source in relation to salary income under section 192 and in relation to payments "to casual workers under section 194C. The demands raised against the assessee under section 201 and the consequential charge of interest under section 201(1 A) were as under:- Financial year ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the case as the payments were received by the employees from the employer for the services rendered to the employer and as such these were profits in lieu of salary. CIT(A) further noted that the assessee could not give any information whether the staff members had paid taxes in respect of the tips received by them. He, therefore, upheld the order of the Assessing Officer treating the assessee in default under section 201(1) and also upheld the charge of interest under section 201(1A). 3. The assessee had also raised a legal issue that the order passed by the Assessing Officer in respect of financial yeas 1998-99 and 1999-2000 were barred by limitation as the same were passed after four years from the end of the financial year. The assessee relied on the decision of Delhi bench of the Tribunal in case of Mitsubishi Corporation v. Dy. CIT [2003] 85 ITD 414 in which the Tribunal following, the earlier decision of the tribunal in case of Raymond Woollen Mills Ltd. v. ITO [1996] 57 ITD 536 (Bom.) and Sahara Airlines Ltd. v. Dy. CIT [2002] 83 ITD 11 (Delhi) and the decision in case of Pepsi Foods [I.T.A. No. 542/543 (Delhi) had held that the order passed by the Assessing Officer afte....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... distributed to the employees. This was not the payment made by the assessee to the employees and therefore, it could not form part of the salary. The reliance has been placed on the judgement of Hon'ble Supreme Court in case of Bijli Cotton Mills (P.) Ltd. (supra). In that case, the assessee had collected dharmada from the buyers, which had been separately accounted and spent for charitable purposes only. The assessee had obligation to spend the same for charitable purposes. Hon'ble Supreme Court held that the dharmada paid by the buyers of goods could not be considered as income in case of the assessee. Similarly it has been argued that the tips had been specifically paid by the customers to the employees by duly signing the charge slips and therefore, the same could not be considered as part of the hotel receipts. The tips therefore, could not be considered as a payment made by the assessee as a hotelier. 3.3 It has also been pointed out that 'any payment' made in the definition of 'profit in lieu of salary', which had to be considered as a part of the salary, does not include 'any payment'. It should be a payment made by the employer, which should be referable to the services ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompute the taxable income of the employee. The tribunal accepted the plea of bona fide belief and held that the assessee could not be held in default under section 201(1). The order of the tribunal was upheld by the Hon'ble High Court. Similar view has been taken by the Hon'ble High Court of Kerala in case of Ernakulam Distt. Co-op. Bank v. Asstt. CIT [2005] 142 Taxman 98. In that case, no tax had been deducted on the salary advance paid to the employee. It was explained that there was an agreement for recovery of advance and thus there was a bona fide belief that the payment made was not salary advance. The plea was accepted. In view of the foregoing discussion, we are of the view that on the facts and in the circumstances of the case, the assessee could not be held liable for payment of tax and consequential interest under section 201(1)/201(1A) for not deducting tax on the tips paid to the employees by the customers. Accordingly, the order of CIT(A) is set aside and the claim of the assessee is allowed. 3.5 As regards the financial year 1998-99 and 1999-2000, it has been pointed out that orders in this case had been passed after expiry of four years from the end of the relevant....