In a recent order of Income Tax Appellate Tribunal (ITAT), Delhi has reiterated that, Tax Deduction at Source (TDS) cannot be deducted from the Tips received by Hotel employees.
The assessee company is engaged in the business of chain of hotels. Survey operation under section 133A of the Income Tax Act, 1961 was carried out at the business premises of the assessee company at Hotel -The Oberoi, New Delhi.
During the survey proceedings, it was noticed that the assessee company was in receipt of extra amount known as “TIPS” paid by the guests in cash or through credit cards at the time of settlement of bills in appreciation of good services provided by the service staff. On disbursal of this amount to the employees by the hotel, no tax was deducted.
The Assessing Officer required the assessee to explain why under the provision of Section 192 why TDS was not deducted. The assessee explained as per record that “the company in the business of running a chain of hotels, has a non-executive staff of about 700 persons. The members of staff belong to different departments such as Kitchen, Sales, Housekeeping, Horticulture, Laundry, Systems, Training, Logistics, Materials/Stores, Communication, Bell dusk, Airport Management, finance, Front Office, Banquet, Pastry shop, Human resource, Security, ‘Therapists Technicians etc. The company does not interfere in the manner of tips sharing amongst its staff. Cash-tips, if any, received by staff of the company are pooled and shared amongst its staff; the company cannot interfere in this matter. When credit-tips are paid by the customers, the company is per necessity required to act as a collecting agent of credit tips for and on behalf of its staff.
The Tribunal bench observed that, the facts as considered by the Hon’ble Apex Court in the case of ITC Ltd. vs CIT (TDS), Delhi would fully apply to the present case. The Apex Court held that, since TIPS were received from the customers and not from the employer these would be chargeable in the hands of the employee as income from other sources and section 192 would not get attracted on the facts of the case.
The Apex Court observed that “section 15 of the Act is in three parts. Subclause (a) refers to salary that is “due” from an employer or a former employer, whether paid or not. Under this sub-clause, salary is taxable upon accrual – it matters not whether payment is actually made or not. On the other hand, under sub-clause (b), with which we are directly concerned, any salary that is paid or allowed to an employee by or on behalf of an employer or former employer though not due, or before it becomes due, becomes taxable. Under this sub-clause, it matters not whether the salary is at all due. Payment made or allowance given to the employee by or on behalf of an employer or former employer is sufficient to bring such payment or allowance to tax under the said sub-clause.
While allowing the appeals, the Tribunals also observed that, “accordingly in the afore-mentioned peculiar facts and circumstances wherein the material facts continue to remain the same the assessee in the facts as they stand cannot be said to be in default of the provisions of Section 192 of the income Tax Act, 1961 as there was no liability of the assessee to deduct TDS under the said provision on the tips recovered from the hotel guests”.
The Tribunal also noted that, Since interest under section 201(1A) of the Income Tax Act can only be levied only a person who is declared as in assessee is default the question of interest does not arise. Accordingly in the face of the clear statement of law as settled by the Apex Court, the impugned order cannot be upheld.
Read the full text of the order below.
