The Income Tax Appellate Tribunal (ITAT) New Delhi on May 3rd, pronounced that the tips received from guests distributed among employees does not become part of salary and hence not eligible for deduction of tax under the Income Tax Act.
The appellants CJ International Hotels Ltd. is engaged in business of running a hotel. The assessing officer from various details furnished by the assessee, noted that there 3 types of tips, firstly, One which is added by the customer in the bills. Secondly, the one which is added in the credit card amount and thirdly, cash given by the guest to the staff directly.
Out of these, the first two are collected by the management and given to Tip-in-Charge who further distributes it to the staff on points basis. According to the Assessing Officer, the employees receive tips on account of employment directly from the employer and therefore it will form part of the salary. Rejecting the various explanations given by the assessee and following various decisions, the Assessing Officer determined the tax liability u/s 201 (1) and interest u/s. 201 (1A) treating the assessee as Assessee-in-default.
Judicial Member Suchitra Kamble and Accountant member R.K. Panda while allowing the appeal relied squarely on the ITC Vs. Commissioner of Income Tax wherein the Apex Court held that the payments of collected tips would not be payments made “by or on behalf of’ an employer and such payments would be outside the purview of section 15(b) of the Act.
Relying on the above ruling, the bench held that, “Since the issue has now been decided in favour of the assessee by the Hon’ble Apex Court as well as decision of the Tribunal for the immediately preceding assessment year, therefore, following the same we set aside the order of the CIT (A) and direct the Assessing Officer to delete the tax levied u/s 201 (1) and interest u/s 201 (1A) of the IT Act. The grounds raised by assessee are accordingly allowed.”
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