Income Tax Appellate Tribunal - Delhi
Cj International Hotels Ltd., New Delhi vs Assessee on 10 March, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: B : NEW DELHI
BEFORE SHRI R.S. SYAL, AM & SHRI A.T. VARKEY, JM
ITA Nos.4791 & 4792/Del/2011
Assessment Year : 2006-07
ITA Nos.4793 & 4794/Del/2011
Assessment Year : 2007-08
C.J. International Hotels Ltd., Vs. Addl.CIT,
Hotel Le Meridian, Range-49,
8, Windsor Place, Janpath, New Delhi.
New Delhi.
PAN: AAACC0174E
ITA Nos.21 & 25/Del/2015
Assessment Year : 2006-07
ITA Nos.22 & 26/Del/2015
Assessment Year : 2007-08
ITA Nos.5347/Del/2011
Assessment Year : 2006-07
ITA No.5349 /Del/2011
Assessment Year : 2007-08
Addl.CIT, Vs. C.J. International Hotels Ltd.,
Range-49(1)/73(1), Hotel Le Meridian,
New Delhi 8, Windsor Place, Janpath,
New Delhi.
PAN: DELCO1385G
ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011
ITA Nos.21,22, 25&26/Del/2015
Assessee by : Shri Tarandeep Singh, CA
Deptt. By : Ms Susan D. George, Sr. DR
Date of Hearing : 07.03.2016
Date of Pronouncement : 10.03.2016
ORDER
PER R.S. SYAL, AM:
This batch containing four appeals by the assessee and six by the Revenue relating to Financial years 2005-06 and 2006- 07 arise out of the common order passed by the CIT(A) on 2.9.2011. Since these appeals are based on similar grounds and common facts, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience.
2. Briefly stated, the facts of the case are that the assessee company is engaged in the business of running a hotel under the name and style of Le Meridian. A survey operation was conducted u/s 133A of the Income-tax Act, 1961 (hereinafter also called 'the Act') at the business premises of the assessee 2 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 on 29.9.2006, which highlighted certain defaults in the matter of deduction of tax at source from the payments made by the assessee. Notice dated 6.8.2007 u/s 201 was issued on the premise that the assessee failed to properly deduct tax at source in respect of certain payments. In a common order dated 30.3.2011 passed by the Addl. Commissioner of Income- tax, Range 49, New Delhi [hereinafter also called `the AO(TDS)'] u/s 201(1)/(1A) of the Act for four years, it was observed that the assessee made payments to four parties including M/s Divya Ahuja and M/s Glow Show Stage Events. The assessee was found to have deducted tax at source on payments made to these two parties u/s 194C of the Act. The AO opined that the tax ought to have been withheld on such payments u/s 194J of the Act instead of section 194C, which resulted into treating the assessee in default u/s 201(1) of the Act. Consequently, interest u/s 201(1A) was also levied. The ld. CIT(A) echoed the view of the AO(TDS) on the payments 3 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 made to these two parties. Apart from the above, the assessee was also found to have made payments to Auth. Bridge Research Services P. Ltd. and Wang Professionals, after deduction of tax at source u/s 194C. It is a matter of record that the assessee was treated in default for the short deduction of tax at source in respect of the payments made to these two deductees as well. The ld. CIT(A) allowed relief in respect of the alleged short deduction of tax at source in respect of payment made to these two parties. Albeit, the Revenue has preferred appeals against the impugned order, but, the decision of the ld. CIT(A) on this aspect has not been assailed.
3. In addition, the assessee was also found to have paid Tips to its employees during the two years under consideration on which no deduction of tax at source was made. The AO treated such tips to employees as part of `Salaries'. On the failure of the assessee in deducting tax at source u/s 192 of the Act on such tips, the AO treated the assessee in default. 4
ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 Interest under section 201(1A) of the Act was also levied. The ld. CIT(A) overturned the order of the AO (TDS) qua payment of tips to the employees. Both the sides are in appeal on their respective stands.
COMBINED OR SEPARATE APPEALS AGAINST ORDER U/S 201(1) / (1A) FOR ONE YEAR ?
4.1. The Revenue initially filed two appeals, one for each year, against the order of the ld. CIT(A) against the relief in first appeal. During the course of hearing on an earlier occasion, the ld. AR argued before the Bench that the Revenue ought to have filed separate appeals against the order u/s 201(1) and 201(1A) for each year. The Revenue filed separate appeals stating to be `on the advice of the Bench' for quantum and interest in respect of each of the years with accompanying letter for condonation of delay. That is how, there are three appeals by the Department for each of the years, namely, one original consolidated appeal by the Revenue under both the 5 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 sub-sections of section 201 and then separate appeals for quantum and interest.
4.2. The ld. AR argued that separate appeals filed by the Revenue for quantum and interest have become time barred and are liable to be dismissed. It was further argued that since the tax effect in some of the separate appeals is less than Rs.10 lac per appeal, the same should be dismissed in view of the latest circular issued by the CBDT mandating non- filing/withdrawal of appeals filed by the Revenue with tax effect of less than Rs.10 lac. On a specific query, it was candidly admitted that the tax effect on the consolidated appeals of the Revenue for each year is more than Rs.10 lac. In support of the contention that separate appeals should have been filed, the ld. AR relied on certain orders by largely focusing on the decision of Mumbai Bench of the Tribunal in ITO vs. Vodafone Essar Ltd. (2011) 44 SOT 304. On a pointed query, it was admitted that though there is no direct precedent 6 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 on the point laying down that separate appeals should be filed in respect of quantum and interest u/s 201, the ld. AR submitted that in these orders separate appeals were preferred, which has not been disputed. The ld. AR fortified his contention of filing separate appeals by submitting that in certain cases there may be the only levy of interest under section 201(1A) de hors any liability u/s 201(1) because of the deductee including the amount received from the deductor in his total income.
4.3. The primary question which arises for our consideration is as to whether separate appeals are required to be filed against the order u/s 201(1) [Quantum] and 201(1A) [Interest]. In this regard, we find that section 246A deals with appealable orders before Commissioner (Appeals). Sub-section (1) provides that any assessee or any deductor aggrieved by any of the specified orders (whether made before or after the appointed day) may appeal to the Commissioner (Appeals). 7
ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 Clause (ha) of this list containing appealable orders refers to :
`an order made under section 201'. This deciphers that the legislature has made an order u/s 201 appealable before the CIT(A). It has drawn no further distinction between the order under sub-sections (1) or (1A) of section 201. The order passed by the CIT(A) against the order u/s 201 [covering order passed by the AO(TDS) under sub-section (1) and also (1A)] falls u/s 250(6) of the Act. It means that the AO(TDS) is required to pass a common order u/s 201 covering sub-sections (1) and (1A) and accordingly, CIT(A) is also obliged to pass one common order u/s 250(6) covering the liability of the assessee under both the sub-sections of section 201. Section 253 deals with appeals to the appellate tribunal. This section lists the orders which can be appealed before the tribunal. Sub-
sections (1) and (2) respectively authorize any assessee or the Department to file appeal before the tribunal against the orders passed under specific sections. In both the sub-sections of 8 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 section 253, there is a mention of an appeal against the order passed by the CIT u/s 250, which obviously refers to a common appellate order passed against order under sub- sections (1) and (1A) of section 201 of the Act. This shows that the law requires passing of one order by the AO(TDS) u/s 201, then one appeal against such order before the CIT(A); and then one appeal against the order of CIT(A) u/s 250 before the tribunal. The ld. AR could not draw our attention towards any provision in the Act, mandating the filing of separate appeals either before the CIT(A) or the tribunal against the order covering defaults under sub-section (1) and sub-section (1A) of section 201. In the absence of any such provision, we fail to appreciate as to how such a requirement can be imported in the statute. If the contention of the ld. AR is taken to its logical conclusion, then that would automatically imply that in all cases of assessments where additions are made and consequently interest is charged, there would arise a need to 9 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 file two appeals - one against the additions and another against the interest - which proposition is absurd and illogical. When this position was put across, the ld. AR was fair enough to concede that none of the decisions cited by him has a precedent value of having a ratio decidendi by the Tribunal requiring separate filing of appeals against liability u/s 201(1) and interest u/s 201(1A). We, therefore, jettison this contention urged on behalf of the assessee. It is ergo held that two original consolidated appeals filed by the Revenue for both the years in respect of defaults u/s 201(1) and 201(1A) are sufficient to protect the interest of the Department and the four separate appeals filed subsequently are infructuous. In view of our this decision, the question of delay in filing of separate appeals by the Revenue becomes academic and so is the argument of the ld. AR for dismissing some of the Revenue's appeals, each with tax effect of less than Rs.10 lac. 10
ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 LIMITATION 5.1. The ld. AR vehemently argued that the order passed by the AO (TDS) is barred by limitation in so far as the Financial year 2005-06 is concerned. It was put forth that the AO (TDS) passed order on 30.3.2011, which is beyond a period of four years from the end of the financial year 205-06 and, hence, barred by limitation. In support of this contention, he relied on the judgment of the Hon'ble jurisdictional High Court passed in the assessee's own case (copy placed on record) and also CIT vs. Hutchison Essar Telecom Ltd. (2010) 323 ITR 230 (Del). Our attention was also drawn towards an order passed by the Tribunal in assessee's own case for the financial year 2000-01 to 2002-03 (in ITA No.5204/Del/2011) in which a view favourable to the assessee has been taken, a copy of such order is available on page 54 onwards of the paper book. The ld. DR strongly opposed the contention raised on behalf of the assessee.
11
ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 5.2. We have heard the rival submissions and perused the relevant material on record. There are two principal questions involved in this issue. First is that the period of four years as held by the Hon'ble jurisdictional High Court is to be reckoned from the end of the financial year or the relevant assessment year? And second is whether such limitation is for initiation of proceedings u/s 201(1)/(1A) or for passing of the order.
5.3. As regards the first question, we find that the Tribunal has recorded on page 3 of its order passed in the assessee's own case (in ITA No.5204/Del/2011) that the proceedings cannot be initiated 'after four years from the end of the assessment year.' The Hon'ble Delhi High Court in assessee's own case has also held that a period of four years is relevant. There is not much discussion as to whether such period of four years should be counted from the end of the relevant financial year or the relevant Assessment year. However, we find that 12 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 the Hon'ble jurisdictional High Court in Hutchison Essar (supra), and some other cases has categorically held that the period of four years is from the end of the financial year or three years from the end of the relevant assessment year. When we consider the judgments of the Hon'ble jurisdictional High Court on this point, it clearly emerges that the period of four years has to be reckoned from the end of the relevant financial year.
5.4. Coming to the second question as to whether such period of four years should be recognized for the purposes of initiation of proceedings u/s 201(1)/(1A) or for passing of the order, we find the contention of the ld. AR for applying it to the passing of order, unacceptable. Not only the Tribunal in the assessee's own case, but the Hon'ble jurisdictional High Court has also held that such period is only for `initiating' proceedings u/s 201. It is apparent from the question as referred to in para 1 of the judgment in which the reference is 13 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 to initiation of the proceedings against the assessee in default who does not deduct tax at source. Similar position is borne out from the judgment in the case of Hutchison Essar (supra), in which the entire discussion about the period of limitation has been made qua initiation of proceedings u/s 201. Nowhere any reference has been made to the date of passing of order u/s 201 vis-à-vis the period of limitation of four years. In view of the direct judgments of the Hon'ble Delhi High Court including one rendered in the assessee's own case, we are of the considered opinion that it is the 'initiation' of proceedings u/s 201, which has been related with a period of four years from the end of the relevant financial year. Turning to the facts of the instant case, we find that though order u/s 201 was passed by the AO on 30.3.2011, but the proceedings were commenced by way of notice dated 6.8.2007, which period is within four years from the end of the relevant financial year 2005-06, which expires on 31.3.2010. Since the proceedings 14 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 were commenced before this cutoff date of 31.3.2010, we reject the argument of limitation as urged by the ld. AR. PAYMENTS TO TWO PARTIES - TDS U/S 194J OR 194C ? 6.1. Now, we take up the next issue raised by the assessee in its appeals against the payments made to M/s Divya Ahuja for the financial years 2005-06 and 2006-07, on which it deducted tax at source u/s 194C, but, the ld. CIT(A) sustained the action of the AO(TDS) in requiring deduction of tax at source u/s 194J of the Act and consequential interest thereon. 6.2. M/s Divya Ahuja is a Gazal group consisting of one male singer, one female singer and three instrumentalists. We have gone through the Agreement dated 1.8.2008 for rendition of Gazals between M/s Divya Ahuja Gazal Group and the assessee. The ld. AR submitted that similar Agreements prevailed for the years in question, which contention was not controverted by the ld. DR. We have gone through this Agreement, a copy of which is available at page 2 onwards of 15 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 the paper book. Clause 2 of the Agreement sets out obligations of M/s Divya Ahuja to render and perform Gazals during the week at 'Pakwan Restaurant' of the assessee at the timings given by the hotel. Clause 2.6 of the Agreement provides that:
'Gazal group agrees to allow the hotel to use Gazal group's name, photographs in primary activities, amplify the performances and play the same throughout the premises of the Hotel.' There is a fixed sum payable by the assessee to Gazal group as compensation for performing at the Pakwan Restaurant. Under such circumstances, the question arises as to whether the payment made to Gazal group requires deduction of tax at source u/s 194J of the Act, as has been held by the authorities below.
6.3. Section 194J requires deduction of tax at source from 'fees for professional or technical services.' Sub-section (1) of section 194J provides that : `Any person, not being an individual or a Hindu undivided family, who is responsible for 16 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 paying to a resident any sum by way of-- (a) fees for professional services, or (b) fees for technical services or ....
(c) royalty, or... shall, ...... deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein'. The term 'professional services' as used in clause (a) of section 194J(1) has been defined in the Explanation as under :
`(a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;' 6.4. On going through the prescription of 'fees for professional services', it emerges that the definition given in clause (a) of the Explanation is exhaustive and not inclusive. It is manifest that payment to Gazal group cannot be considered as a quid pro quo for rendering services in the carrying on of any legal, medical, engineering or architectural profession or profession of accountancy or technical consultancy or interior 17 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 decoration or advertising. What remains for consideration is the last part of the definition of 'Professional services' being:
'such other profession as is notified by the Board for the purposes of section 44AA or of this section.' Section 44AA discusses about 'any other profession as is notified by the Board in the official Gazette.' Rule 6F of the Income-tax Rules, 1962 covers, inter alia, 'film artist', which term has been defined in clause (c) of the Explanation to Rule 6F(2) as under:-
"(c) "film artist'' means any person engaged in his professional capacity in the production of a cinematograph film whether produced by him or by any other person, as--
(i) an actor;
(ii) a cameraman;
(iii) a director, including an assistant director;
(iv) a music director, including an assistant music director;
(v) an art director, including an assistant art director; 18
ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015
(vi) a dance director, including an assistant dance director;
(vii) an editor;
(viii) a singer;
(ix) a lyricist;
(x) a story writer;
(xi) a screen play writer;
(xii) a dialogue writer; and
(xiii) a dress designer."
6.5. A perusal of the definition of 'film artist' given in Rule 6F divulges that it refers to any person who is engaged in his professional capacity in the production of a cinematograph film whether or not produced by him in the capacity of an actor; a cameraman; a director, including an assistant director; a music director, including an assistant music director; an editor etc. also including `a singer'. No doubt `a singer' is also included within the definition of a 'film artist' but, the condition precedent for such inclusion is that such a singer 19 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 should be `engaged in his professional capacity in the production of a cinematograph film'. Unless `a singer' is so `engaged in his professional capacity in the production of a cinematograph film' whether or not produced by him, he cannot be considered as a 'film artist' for the purposes of Rule 6F and, in turn, section 194J of the Act.
6.6. While analyzing the Agreement between the assessee and Gazal group, we have noticed that there is no production of any cinematograph film during the performance by the Gazal group, which is simply a live event and can be amplified throughout the premises of the hotel. There is no clause in the Agreement which permits the assessee-hotel to shoot the performance given by the Gazal group and use it for any performance thereafter. Since Gazal group is giving simplicitor live performance, which is not even captured, what to talk of resulting into any production of cinematograph film, we hold that it cannot be considered to have rendered any 20 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 'Professional services' requiring deduction of tax at source u/s 194J of the Act from the payments made by the assessee to them. We, therefore, overturn the view taken by the authorities below in this regard and hold that the provisions of section 194J are not applicable. Ex conseqenti, the deduction of tax at source u/s 194C is in order. The assessee succeeds. 7.1. The next item under dispute is payment by the assessee to M/s Glow Show Stage Events which was made during the financial year 2006-07 after deduction of tax at source u/s 194C of the Act. The AO(TDS) has discussed the nature of this payment on page 2 of his order by noticing that this agency was hired as a `Consultant' for promoting F&B (Food & Beverages) outlet of the assessee providing services like Advisory services for product upgrade, entertainment, consultancy, sourcing entertainment from worldwide. Such payment was held to be falling within the ambit of 'Professional or consultancy services.' That is how, section 21 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 194J was applied treating the assessee in default u/s 201(1) and also 201(1A). The ld. CIT(A) affirmed the view taken by the AO on this issue.
7.2. We have gone through the Agreement between the assessee and M/s Glow Show Stage Events, a copy of which has been placed on page 9 onwards of the paper book. This Agreement is, again, dated 26.8.2008. The ld. AR contended that similar Agreement was entered into for the year in question, which submission has remained uncontroverted by the ld. DR. As such, we are espousing this Agreement for consideration. This Agreement provides that M/s Glow Show Stage Events ('Consultant') are specialized in promotional and event hotel activities and are willing to handle the enhancement of the brand value of the assessee's F&B outlet. Clause 2 provides that the `Consultant' has agreed to render services of promoting the F&B outlet LE BELVEDERE Restaurant by providing following services to the hotel:- 22
ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 "a. Provide Advisory services in terms of the product offering and any upgrades that may happen from time to time.
b. Entertainment Consultancy for the LE BELVEDERE RESTAURANT.
c. Sourcing entertainment from worldwide resources d. Overseas travel for the sourcing of entertainment. e. Coordinating the visa and travel arrangements of the artists between the hotel and the artists prior to their arrival in the country.
f. Ensuring that the artists are punctual and maintains the schedule of the performance.
g. Coordinating with the Director of Food & Beverage and the Chief Operating Officer of the Hotel in ensuring that the right entertainment is provided for the right venue."
7.3. Clause 3 of the Agreement provides that in consideration to the services rendered by the Consultant, the hotel shall pay a consolidated amount of Rs.1 lac per month to the Consultant subject to TDS. A cursory glance at the nature of services provided by the Consultant, namely, M/s Glow Show Stage Events, discerns that they shall provide 'Advisory services' and 'Entertainment consultancy' for the restaurant of the assessee. Sub-clauses (c) to (f) of Clause 2 are in the nature 23 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 of sourcing entertainment from worldwide resources by overseeing their travel arrangements etc. The larger duty of M/s Glow Show Stage Events is to render Advisory services and Entertainment consultancy to the assessee. It is in discharge of rendering such services that M/s Glow Show Stage Events has to find out resources which can be used in providing such entertainment. In fact, the services referred to sub-clauses (c) to (f) are an essential outcome and necessarily flow from the main service of providing `Entertainment consultancy'. It is pertinent to note that payment for performance by the actual entertainers and their stay arrangements is the sole responsibility of the assessee-hotel and M/s Glow Show Stage Events has nothing to do with it as it is simply concerned with their fixed monthly fee, which is not dependent on the successful sourcing of a particular entertainment from worldwide resources. It is further palpable that there is no separate bifurcation of the fee payable by the 24 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 assessee to M/s Glow Show Stage Events qua the services rendered under sub-clauses (a) to (g) of Clause 2 of the Agreement. Taking a holistic view of the services rendered by M/s Glow Show Stage Events, the inescapable conclusion which follows is that the nature of services provided by them are `Consultancy'. In our considered opinion, such payment falls within the purview of section 194J of the Act. The contention of the assessee that the provisions of section 194C were applicable, is hereby repelled as sans merit. 7.4. The next plank of the arguments of the ld. AR was that even if payment to M/s Glow Show Stage Events was considered as covered u/s 194J, the assessee still could not be treated in default because the receipts from the assessee were included by the payee in its total income.
7.5. In this regard, we find that the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages Ltd. VS. CIT (2007) 293 ITR 226 (SC) has held that where the payee has 25 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 already paid tax on the income on which there was a short deduction of tax at source, recovery of tax cannot be made once again from the tax deductor. Giving recognition to the principle laid down by the Hon'ble summit Court in Hindustan Coca Cola Beverages Pvt. Ltd. (supra), the legislature has now inserted proviso to section 201(1) by the Finance Act, 2012.
This proviso stipulates that that any person who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid/credited to a resident shall not be deemed to be an assessee in default in respect of such tax if such resident (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect. In view of the judgment in Hindustan Coca Cola Beverages Pvt. Ltd. (supra), we hold in principle 26 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 that if deductee has included amount received from the deductor in his total income, then, there can be no obligation u/s 201(1) on the person responsible. But, in such circumstances, it is always obligatory on the part of the deductor to lead evidence showing that the deductee has included the amount received from him in his total income and paid tax due thereon. This responsibility falls on the assessee who is obliged to show it to the satisfaction of the Department that the deductee included the amount received from him in his total income. Reverting to the facts of the instant case, we find that though there is a contention raised on behalf of the assessee that the deductee, namely, M/s Glow Show Stage Events, included an amount received from the assessee in its total income, but there is no evidence whatsoever available in this regard. Accepting the contention of the ld. AR, we give an opportunity to the assessee to lead evidence before the AO (TDS) to demonstrate that M/s Glow Show Stage Events 27 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 included the amount received from the assessee in its total income. If the assessee successfully shows that the amounts received by the deductee were included in his total income, then to that extent, there will be no liability on the assessee u/s 201(1) of the Act.
7.6. It is however pertinent to note that the judgment Hindustan Coca Cola Beverages Pvt. Ltd. (supra) does not discharge the obligation of the assessee towards interest u/s 201(1A) notwithstanding the obliteration of demand u/s 201(1) of the Act. Their Lordships in para 10 of this judgment have categorically upheld the liability of the assessee towards interest by relying on Circular No. 275/201/95-IT(B), dt. 29th Jan., 1997 issued by the CBDT, declaring that this will not alter the liability to charge interest under s. 201(1A) of the Act till the date of payment of taxes by the deductee. It is further observed that proviso to sub-section (1A) of section 201 provides in unambiguous terms that in case any person fails to 28 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 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 of 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. This proviso reaffirms the liability of the assessee towards interest irrespective of the deletion of liability u/s 201(1) on the reason of payee including receipts from the person responsible in his income.
7.7. To sum up, we hold that payment made to M/s Glow Show Stage Events requires deduction of tax u/s 194J of the Act. There will be no liability of the payer u/s 201(1) to the extent of the payee including the amount received in its total income and paying tax thereon. However, liability towards interest u/s 201(1A) will still be there from the date on which 29 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 such tax was deductible to the date of furnishing of return of income by M/s Glow Show Stage Events even if the assessee is not treated as in default u/s 201(1).
TDS ON TIPS TO EMPLOYEES 8.1. The solitary grievance of the Revenue in its appeals for both the years under consideration is against the direction of the ld. CIT(A) in holding that the assessee should not be treated in default u/s 201(1) for non-deduction of tax at source from tips made to employees and consequently no interest be charged under sub-section (1A). The facts apropos this issue are that the assessee was found to have added some tips from its customers in the bills and the same were given to employees without deducting any tax at source, apart from certain tips given directly by the customers to the staff. The AO held that tips included in the bills were in the nature of 'Salaries' to the employees covered u/s 17(1)(iv) read with section 17(3)(ii) and hence deduction of tax at source was 30 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 required u/s 192 of the Act. He determined such liability u/s 201(1) for both the years in question and also worked out the amount of interest under sub-section (1A). The ld. CIT(A) upheld the view point of the AO(TDS) on this issue, but allowed relief under sub-sections (1)/(1A) of section 201 by treating such default as a bona fide belief of the assessee in not deducting tax at source. This was so decided by relying on the judgment of the Hon'ble Delhi High Court captioned as CIT vs. ITC Ltd. (2011) 338 ITR 598 (Del), which also include the assessee as one of the respondents. The Revenue is aggrieved against the relief allowed in the first appeal on this issue.
8.2. We have heard the rival submissions and perused the relevant material on record. There is no dispute on the fact that the amount in question represents tips added in the customer bills and in turn given to staff on regular interval on point basis. Insofar as the obligation of deduction of tax at 31 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 source on the amount of tips is concerned, we find that this issue is no more res integra in view of the judgment of the Hon'ble Delhi High Court in assessee's own case captioned as ITC Ltd. (supra), in which it has been clearly held that 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 amount of tips collected by the employees. That would rightly be out of the purview of responsibility of the employer under s. 192 of the Act. But, however, when the tips are charged to the bill either by way of fixed percentage of amount, say 10 per cent 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 the employer and is subsequently disbursed to the employees 32 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 depending upon the nature of understanding and agreement between the employers and the employees. It has been held by the Hon'ble High Court that such receipts at the hands of employees are nothing but their income for the purpose of s. 15 and as such the employer was an 'assessee-in-default' for non-deduction of tax at source on account of banquet and restaurant tips collected and paid by it to its employees. 8.3. Now, comes the question of obligation of the employer in deducting tax at source on such tips u/s 192 of the Act. At this juncture, we consider it expedient to discuss the judgment dt. 25th March, 2009 delivered by the Hon'ble Apex Court in CIT VS. Eli Lilly & Company (India) (P) Ltd. (2009) 312 ITR 225 (SC). In this case, the issue for consideration was about the home salary/special allowance(s) paid abroad to expatriate employees by the foreign company, particularly when no work stood performed for the foreign company and the total remuneration was paid only on account of services rendered in 33 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 India during the period in question. The Hon'ble Supreme Court held that Sec. 192(1) has to be read with s. 9(1)(ii) and the Explanation thereto and thus the assessee was duty-bound to deduct tax at source under s. 192(1). Their Lordships bifurcated the decision part in four compartments and gave separate decision on each of them. The second part was on the scope of section 192(1). Here it was held that : `In such a case the tax-deductor-assessee was statutorily obliged to deduct tax under s. 192(1) of the 1961 Act'. The third part was on the scope of s. 201(1) and s. 201(1A). In this regard, it was held that the object underlying s. 201(1) is to recover tax. In the case of short deduction, the object is to recover the shortfall. As far as the period of default is concerned, the period starts from the date of deductibility till the date of actual payment of tax. Therefore, the levy of interest has to be restricted for the above stated period only. The AO was directed vide para 37 of the judgment : `to examine each case to ascertain whether the 34 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 employee-assessee (recipient) has paid the tax due on the home salary/special allowance(s) received from the foreign company. In case taxes due on home salary/special allowance(s) stand paid then the AO shall not proceed under s. 201(1). In cases where the tax has not been paid, the AO shall proceed under s. 201(1) to recover the shortfall in the payment of tax'. As regards the interest liability u/s 201(1A), their Lordships held that : `the AO shall examine and find out whether interest has been paid/recovered for the period between the date on which tax was deductible till the date on which the tax was actually paid. If, in any case, interest accrues for the aforestated period and if it is not paid then the adjudicating authority shall take steps to recover interest for the aforestated period under s. 201(1A)'. The last part taken up was on the scope of penalty s. 271C for failure to deduct the whole or any part of the tax as required by the provisions of Chapter XVII-B. On this score, it was held that section 35 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 271C is subject to section 273B which provides that no penalty shall be imposed on the assessee for failure to deduct tax at source if he proves that there was a reasonable cause for the said failure. It was finally held that no penalty was exigible under s. 271C as the respondent discharged its burden of showing reasonable cause for failure to deduct tax at source. From the above discussion it transpires that the liability to deduct tax at source u/s 192 has been sustained, the failure of which attracts consequences u/s 201(1)/(1A) subject to the employees including the amount in their total income and paying due tax thereon and also the period of default. It was only on the question of penalty u/s 271C, that their Lordships deleted the penalty on the ground of bona fide belief of the assessee.
8.4. Now we take up the judgment of the Hon'ble jurisdictional High Court rendered in the case of the assessee captioned as CIT VS. ITC Ltd. (supra). In this case, the 36 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 question was identical to the one before us, namely, taxability of tips in the hands of the employees and liability of the assessee-employer to deduct tax at source u/s 192 of the Act on such amount of tips and consequences for non-deduction u/s 201(1) and (1A). We have discussed supra that such tips have been held by the Hon'ble High Court to be chargeable to tax in the hands of employees. However, as regards the obligation of the employer to deduct tax at source and the consequential liability u/s 201(1), the Hon'ble Court held that the benefit of bona fide belief be given to the assessees. Following is the relevant extraction from the judgment : -
"Since the taxes were to be deducted from the amounts, which were the dues of the employees, no dishonest intentions could be attributed to the assessees. Thus, while reiterating the conclusion that the receipts of the tips constitute 'income' of the recipients and is chargeable under the head 'Salary' under s. 15 and that it was obligatory upon the assessees to deduct taxes at source from such payments under s. 192, in the given circumstances, the benefit of bona fide belief to the 37 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 assessees can be given for the periods upto the assessment years in question. In the given circumstances, the cause of non-deduction of taxes as submitted appears to be sufficient being adequate, reliable and sound. Based on this reasoning, one cannot make them liable for levy of penalty as envisaged under s. 201.
8.5. However, levy of interest under s. 201(1A) has been held by the Hon'ble High Court to be mandatory and accordingly the same was sustained by holding that the same is neither treated as penalty nor the said provision has been included in section 273B to make 'reasonableness of the cause' for the failure to deduct. It was, therefore, held that : "There is, therefore, no question of waiver of such interest on the basis that the default was not intentional or on any other basis."
8.6. It can be noticed that this judgment of the Hon'ble Delhi High Court was rendered on 11.5.2011, which is much after the advent of the judgment of the Hon'ble Supreme Court in Eli Lilly & Company (supra) given on 25th March, 2009. In the absence of the ld. DR showing that such judgment of the 38 ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015 Hon'ble jurisdictional High Court in the assessee's own case has been modified in any manner, we respectfully follow the same. Consequently, benefit of bona fide belief will be available to the assessee, insofar as section 201(1) is concerned, in the period anterior to the date of the judgment, which is 11.5.2011. As the order passed by the AO(TDS) for all the years in question is dated 30.3.2011, we hold that the ld. CIT(A) was justified in waiving the liability u/s 201(1) vis- à-vis tips given to the employees.
8.7. However, the obligation for interest u/s 201(1A) still remains as has been clarified by the Hon'ble Delhi High Court in the aforestated case of the assessee with the caption of ITC Ltd. (supra). The action of the ld. CIT(A) in also erasing the liability u/s 201(1A) is, therefore, set aside. We, therefore, hold that the assessee is liable for interest u/s 201(1A) in respect of non-deduction of tax at source from tips given to its staff.
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ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015
9. In the result, the appeals of the assessee for both the years under consideration are partly allowed; two separate appeals for each year filed by the Revenue are dismissed as infructuous; and consolidated appeals of the Revenue for each of the two years are partly allowed.
Order Pronounced in the open Court on 10.03.2016.
Sd/- Sd/-
[A.T. VARKEY] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 10th March, 2016.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT AR, ITAT, NEW DELHI.
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