TIPS TO EMPLOYEES: WHETHER FORM PART OF SALARY OR PERQUISITE AND PROFITS IN LIEU OF SALARY & LIABLE TO TDS?
Questions have arisen many a time regarding whether the particular payment/ receipt falls under the ambit of ‘salary’. Section 15 of the Income Tax Act, 1961(hereinafter referred to as the Act) deals with the changeability of salary and section 17 defines prerequisite and profits in lieu of salary.
There must be an employee-employer relationship to constitute a payment/receipt in question under the ambit of ‘salary’. There does not exist employer-employee relationship in a partnership firm with its partners. Also, section 28(v) of the Act, makes chargeable to income-tax under the head “Profits and gains of business or profession”, any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm.
Recently, in ITC Limited Gurgaon vs. C.I.T. (TDS) Delhi [Civil Appeal Nos. 4435-37 of 2016 With Civil Appeal Nos. 4438-40 of 2016, 4441 of 2016, 4442 of 2016, 4443-44 of 2016], the assessees were engaged in the business of owning, operating and managing hotels. Surveys conducted at the business premises of the assessees allegedly revealed that the assessees had been paying tips to its employees but not deducting taxes thereon.
