Income Tax Appellate Tribunal - Delhi
Itc Ltd , New Delhi vs Department Of Income Tax on 28 November, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : C : NEW DELHI
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER
AND
SHRI B.C. MEENA, ACCOUNTANT MEMBER
ITA Nos. 465 & 466/Del/2009
Financial Year : 2003-04 & 2004-05
Income Tax Officer, Vs. M/s ITC Ltd.,
Ward 50(1), Maurya Sheraton Hotel & Tower
New Delhi. Diplomatic Enclave,
S.P. Marg,
New Delhi.
PAN: DEL101736A
(Appellant) (Respondent)
Assessee by : None
Revenue by : Smt. Sheela Chopra, Sr. DR
O R D E R
PER I.P. BANSAL, JUDICIAL MEMBER:
These are appeals filed by the Revenue. They are directed against the consolidated order of the CIT (A) dated 28th November, 2008 for financial years 2003-04 & 2004-05. Grounds of appeal in both the appeals are identical and read as under:-
1. The Ld. CIT (A) has erred in law as well as on facts in 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.
She has failed to appreciate that this payment was made to the employees on account of services rendered by them to the assessee in the course of employment with it during the relevant period only.
2. The Ld. CIT (A) had erred in law as well as on facts in 2 ITA No.465 & 466/Del/2009 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 without appreciating the facts that payments being on account of rendering of services by the employees during the relevant period clearly partakes the character of salary.
3. The Ld. CIT (A) has erred in law as well as on facts in holding that the payment of banquet and restaurant tips paid to the employees by the assessee during the course of employment for services rendered by them is not liable for TDS under section 192 of the IT Act.
4. The appellant craves leave to add after or amend any of the grounds of appeal at the time of hearing.
2. These appeals were fixed for hearing on 29th June, 2009. Nobody attended on behalf of the assessee. However, it was seen that while deciding this issue in favour of the assessees the Ld. CIT (A) has followed the order of ITAT. Therefore, these are covered matters and we proceed to decide these appeals ex parte qua the assessee.
3. The assessee is a Public Limited Company engaged inter alia in hospitality industries,. A survey under section 133A was conducted on the hotel belonging to the assessee company on 14th November, 2005 and the assessee was treated as an assessee in default under section 201 (1) vide order dated 29th March, 2007 on account of non-deduction of tax at source under section 192 of the Act in respect of tips collected by the hotel and distributed to the staff. Consequently, interest under section 201(1A) was charged against which an appeal was filed before the CIT (A) challenging the levy of such interest. While arguing that the assessee was not under an obligation to deduct tax at source u/s 192, the reliance, inter alia, was placed by the assessee on the decision of the Tribunal in assessee's own case for Assessment Year 1986-87 in ITA No. 7013-7014 in which relying on the decision of Hon'ble Supreme Court in the case of Ram Bagh Palace Hotel vs. The Rajasthan Hotel Works Union; AIR 3 ITA No.465 & 466/Del/2009 1976 SC 2303 and taking note of the fact that banquet service charges are essentially in the nature of tips, the order u/s 201(1) was quashed holding that the hotel as an assessee was not in default for alleged failure of deduction of tax at source u/s 192 of the IT Act, 1961 (the Act). It was observed by the Ld. CIT (A) that the said decision of Delhi Tribunal was not even challenged in appeal before Hon'ble High Court by the Department and, thus, the Department had accepted the said decision. The reliance was also placed on the Delhi ITAT decision in the case of M/s Nehru Place Hotels Ltd. Vs. ITO TDS ITA Nos.4055 to 4060/Del/2005 where the Tribunal had decided the similar issue with respect to the employer's obligation to deduct tax at source before making distribution of tips amongst employees and the issue was decided in favour of the assessee. The relevant observation of ITAT orders has been reproduced at page 7 and 8 of the order of the Ld. CIT (A) and the same is also being reproduced below for the sake of convenience:-
"We have perused the records and considered the matter carefully. The issue raised before us is regarding deductibility 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 argument of the assessee is that the tips had been received from the customers in fiduciary capacity on behalf of the employees and which were distributed to the employees. This was not the payment made by the assessee 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 Bijili Cotton Mills 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 hotelier.4 ITA No.465 & 466/Del/2009
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 rendered by the employee as held by the Hon'ble High Court in case of Jaikaran Kohli (124 ITR 706). A similar view had been taken by the Hon'ble Supreme Court in case of FD Shapherd (49 ITR 237). The authorities below have however, taken the tips as part of the salary following the judgement of Hon'ble Supreme Court in case of Karamchari Union Vs. UOI and others (243 ITR
143). It has been observed by them that in view of the Supreme Court judgement (supra), any payment received from the employer is taxable as a profit in lieu of salary. On careful examination we find that the said judgement was in relation to taxability DA, CCA and HRA. Hon'ble Supreme Court had observed that 'profit in lieu of salary' did not mean that the amount paid to the employee should be 'profit' as understood in common parlance. The profits in the context of section 17 meant any advantage or gain by receipt of payment by the employees from the employer. The profit in lieu of salary would therefore include any payment due to or received by the employee fro employer 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.
.........
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 u/s 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 allowable. ....."
4. In this view of the situation, the Ld. CIT (A) has agreed with the assessee's contention that tips collected by the hotel cannot be treated as "salary" and subjected to TDS under section 192 of the IT Act. He also noted that similar issue of banquet charges was also decided in favour of the assessee by the Delhi ITAT in assessee's own case for Assessment Year 1986-87 and 5 ITA No.465 & 466/Del/2009 taking note of the fact that the similar issue was decided by ITAT in the case of M/s Nehru Place Hotels Ltd. Vs. ITO also, Ld. CIT (A) has held that payment of tips made by the assessee to hotel employees is not liable for TDS u/s 192 of IT Act and consequently the assessee cannot be treated as an assessee in default u/s 201(1) of the Act for non-deduction of tax at source from the aforementioned tips collected by the assessee and distributed amongst the employees. It is in this manner the Ld. CIT (A) has deleted the demand raised u/s 201(1)/201(1A) of the IT Act. It is against these findings of the Ld. CIT (A) the revenue has filed an appeal.
5. At the time of hearing, Ld. DR relied on the order of the Assessing Officer, but she could not controvert to the fact that the Ld. CIT (A) has followed the decision of the Tribunal in assessee's own case for Assessment Year 1986-87. No contrary decision was brought to our notice by Ld. DR . In this view of the situation, as the issue has been held to be covered by the Ld. CIT (A), by the earlier order of the Tribunal in assessee's own case, we find no justification in interfering with the findings of Ld. CIT (A). The appeals filed by the revenue are, therefore, dismissed.
6. In the result, the appeals filed by the Department are dismissed. .
7. The order pronounced in the open court on 3rd July, 2009.
[B.C. MEENA] [I.P. BANSAL]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated, 3rd July, 2009.
dk
6 ITA No.465 & 466/Del/2009
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order,
Deputy Registrar,
ITAT, Delhi Benches