ITO, New Delhi V. M/s ITC LTd, New Delhi

ITA 465/DEL/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8119 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-06-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 06-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEELA CHOPRA
• Keywords: Charitable institution; Non-deduction of tax; TDS; Set aside
• Section: 201(1); 201; 192

Judgement Text

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, WARD 50(1), NEW DELHI. VS. M/S ITC LTD., MAURYA SHERATON HOTEL & TOWER 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 28 TH NOVEMBER, 2008 FOR FINANCIAL YEARS 2003-04 & 2004-05. GROUNDS OF APPEAL IN BOTH THE AP PEALS 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 DE FAULT 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 T HEM TO THE ASSESSEE IN THE COURSE OF EMPLOYMENT WITH IT DU RING THE RELEVANT PERIOD ONLY. 2. THE LD. CIT (A) HAD ERRED IN LAW AS WELL AS ON FACTS IN ITA NO.465 & 466/DEL/2009 2 HOLDING THAT THE PAYMENT OF BANQUET AND RESTAURANT TIPS TO THE EMPLOYEES OF THE ASSESSEE IN ITS CAPACITY AS EMPLOY ER WERE NOT PROFITS IN LIEU OF SALARY WITHIN THE MEANING OF SECTION 17(3)(II) OF THE INCOME-TAX ACT, 1961 WITHOUT APPRE CIATING THE FACTS THAT PAYMENTS BEING ON ACCOUNT OF RENDERING OF SERVICES BY THE EMPLOYEES DURING THE RELEVANT PERIO D 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 LIA BLE FOR TDS UNDER SECTION 192 OF THE IT ACT. 4. THE APPELLANT CRAVES LEAVE TO ADD AFTER OR AMEN D ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 2. THESE APPEALS WERE FIXED FOR HEARING ON 29 TH JUNE, 2009. NOBODY ATTENDED ON BEHALF OF THE ASSESSEE. HOWEVER, IT WA S 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 13 3A WAS CONDUCTED ON THE HOTEL BELONGING TO THE ASSESSEE COMPANY ON 14 TH NOVEMBER, 2005 AND THE ASSESSEE WAS TREATED AS AN ASSESSEE IN DEFAULT UNDER SECTIO N 201 (1) VIDE ORDER DATED 29 TH 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 CH ARGED 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 OBLIGAT ION TO DEDUCT TAX AT SOURCE U/S 192, THE RELIANCE, INTER ALIA, WAS PLACED BY TH E ASSESSEE ON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1986-87 IN ITA NO. 7013-7014 IN WHICH RELYING ON THE DECISION OF HON'B LE SUPREME COURT IN THE CASE OF RAM BAGH PALACE HOTEL VS. THE RAJASTHAN HO TEL WORKS UNION; AIR ITA NO.465 & 466/DEL/2009 3 1976 SC 2303 AND TAKING NOTE OF THE FACT THAT BANQU ET SERVICE CHARGES ARE ESSENTIALLY IN THE NATURE OF TIPS, THE ORDER U/S 20 1(1) WAS QUASHED HOLDING THAT THE HOTEL AS AN ASSESSEE WAS NOT IN DEFAULT FOR ALL EGED FAILURE OF DEDUCTION OF TAX AT SOURCE U/S 192 OF THE IT ACT, 1961 (THE ACT). I T WAS OBSERVED BY THE LD. CIT (A) THAT THE SAID DECISION OF DELHI TRIBUNAL WAS NO T EVEN CHALLENGED IN APPEAL BEFORE HON'BLE HIGH COURT BY THE DEPARTMENT AND, T HUS, 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 EMPLOYERS OBLIGATION TO DEDUCT TAX AT SOUR CE 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 R EPRODUCED AT PAGE 7 AND 8 OF THE ORDER OF THE LD. CIT (A) AND THE SAME IS AL SO BEING REPRODUCED BELOW FOR THE SAKE OF CONVENIENCE:- WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MAT TER CAREFULLY. THE ISSUE RAISED BEFORE US IS REGARDING DEDUCTIBILI TY OF TDS ON THE TIPS RECEIVED BY THE EMPLOYEES WORKING IN THE RESTA URANT 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 TH E EMPLOYEES AND WHICH WERE DISTRIBUTED TO THE EMPLOYEES. THIS WAS NOT THE PAYMENT MADE BY THE ASSESSEE TO THE EMPLOYEES. THI S WAS NOT THE PAYMENT MADE BY THE ASSESSEE TO THE EMPLOYEES AND THEREFORE, IT COULD NOT FORM PART OF THE SALARY. T HE RELIANCE HAS BEEN PLACED ON THE JUDGEMENT OF HONBLE SUPREME COU RT IN CASE OF BIJILI COTTON MILLS LTD. ((SUPRA). IN THAT CASE, T HE 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 PU RPOSES. HON'BLE SUPREME COURT HELD THAT THE DHARMADA PAID BY THE B UYERS 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 T HE CHARGE SLIPS AND THEREFORE THE SAME COULD NOT BE CONSIDERED AS P ART OF THE HOTEL RECEIPTS. THE TIPS THEREFORE, COULD NOT BE CONSIDE RED AS A PAYMENT MADE BY THE ASSESSEE AS HOTELIER. ITA NO.465 & 466/DEL/2009 4 IT HAS ALSO BEEN POINTED OUT THAT ANY PAYMENT MAD E 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 REFER ABLE TO THE SERVICES RENDERED BY THE EMPLOYEE AS HELD BY THE HO N'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 HO N'BLE SUPREME COURT IN CASE OF KARAMCHARI UNION VS. UOI AND OTHER S (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 CAREF UL EXAMINATION WE FIND THAT THE SAID JUDGEMENT WAS IN RELATION TO TAX ABILITY 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 GA IN BY RECEIPT OF PAYMENT BY THE EMPLOYEES FROM THE EMPLOYER. THE PR OFIT IN LIEU OF SALARY WOULD THEREFORE INCLUDE ANY PAYMENT DUE TO O R RECEIVED BY THE EMPLOYEE FRO EMPLOYER EVEN IF IT HAD NO CONNECT ION WITH THE PROFIT OF THE EMPLOYER. IT WAS ACCORDINGLY HELD TH AT DA CCA AND HRA WAS TAXABLE. THE SAID JUDGEMENT IS NOT APPLICA BLE IN CASE OF THE ASSESSEE, FIRSTLY BECAUSE THE PAYMENT HAS NOT B EEN RECEIVED FROM THE EMPLOYER NOR IT HAD BEEN DUE FROM THE EMPL OYER. THE EMPLOYEES HAD RECEIVED THE PAYMENTS FROM THE CUSTOM ERS AS TIPS AND THE ASSESSEE HAD ACTED ONLY AS CONDUIT PIPE FOR PASSING ON THESE AMOUNTS TO EMPLOYEES AS PER INSTRUCTION OF TH E CUSTOMERS. ONLY THE PAYMENTS RECEIVED BY THE EMPLOYEES FROM TH E EMPLOYER FOR SERVICES RENDERED TO THE EMPLOYER CAN BE CONSID ERED AS PROFIT IN LIEU OF SALARY. THEREFORE, WE AGREE WITH THE SUBMI SSION 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 ASS ESSEE 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 PA ID TO THE EMPLOYEES BY THE CUSTOMERS. ACCORDINGLY, THE ORDER OF CIT (A) IS SET ASIDE AND THE CLAIM OF THE ASSESSEE IS ALLOWABL E. .. 4. IN THIS VIEW OF THE SITUATION, THE LD. CIT (A) H AS AGREED WITH THE ASSESSEES CONTENTION THAT TIPS COLLECTED BY THE HO TEL 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 DEC IDED IN FAVOUR OF THE ASSESSEE BY THE DELHI ITAT IN ASSESSEES OWN CASE FOR ASSESS MENT YEAR 1986-87 AND ITA NO.465 & 466/DEL/2009 5 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 NO T 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 S OURCE FROM THE AFOREMENTIONED TIPS COLLECTED BY THE ASSESSEE AND DISTRIBUTED AMON GST 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 ORD ER OF THE ASSESSING OFFICER, BUT SHE COULD NOT CONTROVERT TO THE FACT THAT THE L D. CIT (A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1986-87. NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE BY L D. 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 ASSESSEES OWN CAS E, 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 DEPARTME NT ARE DISMISSED. . 7. THE ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JULY, 2009. [B.C. MEENA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 3 RD JULY, 2009. DK ITA NO.465 & 466/DEL/2009 6 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES