Recently in the case of ITC Ltd Vs. CIT [2011-TIOL-287-HC-DEL-IT], the Delhi High Court (HC) held that the tips or service charges distributed to employees are to be treated as part of salary and tax is required to be withheld under section 192 of the Income-tax Act (the Act) from the same. The AO treated the value of these tips as ‘salary’ and held that the assessees were liable to withheld tax at source from such payments under section 192 of the Act.
Facts – The ITC Ltd. and CJ International hotels Ltd. (the “assessees”) own, operate and manage hotels. During the course of a survey conducted under section 133A of the Act, the assessing officer (“AO”) noted that the assessees had been paying tips to their employees without withholding tax at source. The assessees were treated as `assessee-in -default’ for not withholding tax and were issued with a demand notice for taxes to be paid under section 201(1) of the Act, along with interest under section 201(1A) of the Act. Following an appeal by the assessees, the Commissioner of Income Tax (Appeals) (“CIT(A)”), relying on the Delhi Income-tax Appellate Tribunal (the “Tribunal”) order in the case of Nehru Place Hotels Ltd v. ITO [2008] 173 Taxman 88 (Del), held that the assessees could not be treated as assessee-in -default, with the result that no interest was to be charged under section 201(1A) of the Act. Aggrieved with the order of the CIT(A), the revenue approached the Tribunal. The Tribunal dismissed the appeal, relying upon its own order issued for an earlier assessment year and the decision of Delhi Tribunal in the case of Nehru Place Hotels (above).
The Revenue took the matter to the HC.
Issue
The following issues were considered by the HC
