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The Tax Publishers ITC Ltd. v. CIT [Civil Appeal Nos. 4435 to 4444 of 2016, dt. 26-4-2016] : 2016 TaxPub(DT) 2060 (SC) Tips to employee whether subject to TDS *Facts:* The assessee star hotel along with other petitioners was found to have received tips and disbursed the same to its employees. In a survey it was held that such tips were to be subjected to TDS under section 192 as salaries thus assessee was held to be in default under section 201/201(1A) accordingly interest was also levied. On appeal Commissioner (Appeals) negated the demand, ITAT upheld the order of Commissioner (Appeals). On further appeal high court held that the same is subject to TDS under section 192 read with section 15/17 held that they were profit in addition to salary/wages will fall into sec. 15(b) read with section 17(1)(iv) and 17(3)(ii). Since there was a bona fide belief no interest will be applicable under section 201 but interest under section 201(1A) is compensatory thus becomes applicable. On further appeal: Held by the Apex court in favour of the assessee that to be taxed as salaries there has to be a vested right from employer to employee. This was missing in the case of tips. The quantum and the magnitude etc. will all make it a non-taxable item nonetheless. Section 15(b) envisages tax only arising out of an employer employee relation. Section 17(3)(ii) profit in lieu of salary no doubt wider still envisages only a payout from an employment as it refers to section 15 in the preamble. Consequential penalty orders of section 271C also stand quashed. The fact that these were collected and distributed also do not make any difference in principle as that is only a mechanism.

The Tax Publishers

ITC Ltd. v. CIT [Civil Appeal Nos. 4435 to 4444 of 2016, dt. 26-4-2016] : 2016 TaxPub(DT) 2060 (SC)

Tips to employee whether subject to TDS

Facts:

The assessee star hotel along with other petitioners was found to have received tips and disbursed the same to its employees. In a survey it was held that such tips were to be subjected to TDS under section 192 as salaries thus assessee was held to be in default under section 201/201(1A) accordingly interest was also levied. On appeal Commissioner (Appeals) negated the demand, ITAT upheld the order of Commissioner (Appeals). On further appeal high court held that the same is subject to TDS under section 192 read with section 15/17 held that they were profit in addition to salary/wages will fall into sec. 15(b) read with section 17(1)(iv) and 17(3)(ii). Since there was a bona fide belief no interest will be applicable under section 201 but interest under section 201(1A) is compensatory thus becomes applicable. On further appeal:

Held by the Apex court in favour of the assessee that to be taxed as salaries there has to be a vested right from employer to employee. This was missing in the case of tips. The quantum and the magnitude etc. will all make it a non-taxable item nonetheless. Section 15(b) envisages tax only arising out of an employer employee relation. Section 17(3)(ii) profit in lieu of salary no doubt wider still envisages only a payout from an employment as it refers to section 15 in the preamble. Consequential penalty orders of section 271C also stand quashed. The fact that these were collected and distributed also do not make any difference in principle as that is only a mechanism.