ITC Limited Gurgaon v. Commissioner of I.T. (TDS) Delhi
[Citation -2016-LL-0426-1]

Citation 2016-LL-0426-1
Appellant Name ITC Limited Gurgaon
Respondent Name Commissioner of I.T. (TDS) Delhi
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 26/04/2016
Judgment View Judgment
Keyword Tags deduction of tax at source • profit in lieu of salary • levy of interest • plant
Bot Summary: The moment a tip is included and paid by way of a credit card by a customer, since such tip goes into the account of the employer after which it is distributed to the employees, the receipt of such money from the employer would, according to the High Court, amount to salary within the extended definition contained in Section 17 of the Act. Shri Neeraj K. Kaul, learned Additional Solicitor General, appearing on behalf of the Revenue, argued that Section 15(b) 7 referred to salary that is paid or allowed to an employee by or on behalf of an employer, and stated that the expression allowed is an expression of wide import and would include amounts such as tips paid by employers to their employees. The following income shall be chargeable to income-tax under the head Salaries any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not; any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him; 11 any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year. Sub-clause refers to salary that is due from an employer or a former employer, whether paid or not. Under sub-clause any arrears of salary paid or allowed to an employee by or on behalf of an 15 employer or previous employer if not earlier charged to income tax in any previous year is also brought to tax. An employer is a person who employs another person under a contract of employment, express or implied, to perform work for the employer. Because of the inclusive meaning given to the phrase profits in lieu of salary would include any payment due to or received by an assessee from an employer, even though it has no connection with the profits of the employer.


REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 4435-37 of 2016 (ARISING OUT OF SLP (CIVIL) NOS. 20822-20824 OF 2011) ITC LIMITED GURGAON APPELLANT VERSUS COMMISSIONER OF I.T. (TDS) DELHI RESPONDENT WITH CIVIL APPEAL NOS. 4438-40 of 2016 (ARISING OUT OF SLP (CIVIL) NOS.9587-9589 OF 2012) CIVIL APPEAL NO. 4441 of 2016 (ARISING OUT OF SLP (CIVIL) NO.10653 OF 2012) CIVIL APPEAL NO. 4442 of 2016 (ARISING OUT OF SLP (CIVIL) NO.17964 OF 2012) CIVIL APPEAL NOS. 4443-44 of 2016 (ARISING OUT OF SLP (CIVIL) NOS.18128-18129 OF 2012) J U D G M E N T R.F. Nariman, J. 1. Leave granted. 2. These appeals arise out of common judgment of Signature Not Verified Digitally signed by JAYANT KUMAR ARORA Date: 2016.04.26 17:35:20 IST Delhi High Court dated 11.5.2011. Reason: 1 3. assessees are engaged in business of owning, operating, and managing hotels. Surveys conducted at business premises of assessees allegedly revealed that assessees had been paying tips to its employees but not deducting taxes thereon. 4. Assessing Officer treated receipt of tips as income under head salary in hands of various employees and held that assessees were liable to deduct tax at source from such payments under Section 192 of Income Tax Act, 1961. assessees were treated by Assessing Officers as assessees-in-default under Section 201(1) of Act. Assessing Officers in various assessment orders worked out different amounts of tax to be paid by all aforesaid assessees under Section 201(1), as also interest under Section 201 (1A) of said Act for assessment years 2003-2004, 2004-2005 and 2005-2006. 5. CIT (Appeals) vide his common order dated 28.11.2008 allowed various appeals of assessees holding that assessees could not be treated as assessees- in-default under Section 201(1) of Act for non-deduction of 2 tax on tips collected by them and distributed to their employees. Appeals filed by Revenue to Income Tax Appellate Tribunal (ITAT) came to be dismissed by Tribunal by relying upon its own order for assessment year 1986-1987 in case of ITC and case of Nehru Palace Hotels Limited. Against said orders of Tribunal, appeals were preferred by Revenue to High Court. 6. High Court vide impugned judgment dated 11.5.2011 framed questions of law as follows:- (a) Whether on facts and in circumstances of case, Ld. ITAT erred in law and on merits holding that assessee was not assessee in default for short/non deduction of tax at source on account of banquet and restaurant tips collected and paid by it to its employees? (b) Whether on facts and in circumstances of case, Ld. ITAT erred in law and on merits in holding that payment of banquet and restaurant tips to employees of assessee in its capacity as employer were not profits in lieu of salary within meaning of Section 17 (3) (ii) of Income Tax Act, 1961? 7. High Court held, after considering Sections 15, 17 and 192 of Income Tax Act, that tips would amount to profit in addition to salary or wages and would fall under Section 3 15(b) read with Section 17(1)(iv) and 17(3)(ii). Even so, High Court held that when tips are received by employees directly in cash, employer has no role to play and would therefore be outside purview of Section 192 of Act. However, moment tip is included and paid by way of credit card by customer, since such tip goes into account of employer after which it is distributed to employees, receipt of such money from employer would, according to High Court, amount to salary within extended definition contained in Section 17 of Act. For arriving at this interpretation, High Court relied upon decision of this Court in Karamchari Union, Agra v. Union of India, (2000) 3 SCC 335, while distinguishing judgments of this Court in Rambagh Palace Hotel v. Rajasthan Hotel Workers' Union, (1976) 4 SCC 817 and Quality Inn Southern Star v. ESI Corpn., (2008) 2 SCC 549. After distinguishing said judgments, High Court arrived at following conclusion:- From above discussion, we may conclude that receipt of tips constitute income at hands of recipients and is chargeable to income tax under head salary under Section 15 of Act. That being so, it was obligatory upon assessees 4 to deduct taxes at source from such payments under Section 192 of Act. 8. Since assesses were, therefore, declared to be assessees-in-default under Section 201 of Act, High Court found that despite fact that assessees did not deduct said amounts based on bonafide belief and no dishonest intention could be attributed to any of them, yet High Court held that levy of interest under Section 201(1A) would follow, as payment of simple interest under said provision is mandatory; and not being penal in nature, no question of bonafide belief would arise to absolve assessees from any interest liability under said provision. 9. Learned senior advocates Shri Vohra and Shri Syali, assailed judgment of High Court before us. They argued that tips are paid by customers out of their own volition as payments to employees being waiters in restaurant for quality of service provided to them and for courteous behavior. Since this payment is gratuitous, and assessees act as mere trustees in collecting tips charged to customers credit cards, and then pass over same to employees, it 5 is clear that no amount by way of tip has any connection with contract of employment between employer and employee. They further submitted that tips received by employees are not remuneration or reward for services rendered by employees to assessees. They argued that there was no vested right of employee to claim any tip from customer. It was further argued that expression employer contained in Sections 15 and 17 is of crucial importance, and must be contrasted with expression any person occurring in Section 17 (3)(iii). It was also argued, based on Hotel Receipts Tax Act and circular issued thereunder, that tips do not form any part of taxable receipts of employers. Further, we were shown publication in which guidelines were issued by Australian Tax Office stating that voluntary tips are not consideration for supply of food or service in hotel or restaurant. intervenor represented by Shri S. Ganesh also argued that Section 192 is attracted only when any person responsible for paying any income chargeable under head salary is to deduct income tax on amount payable. According to learned counsel, since 6 income received from tips is not income chargeable under head salary , so far as employees are concerned, but income from other sources, Section 192 is not at all attracted. It was further agued by him that machinery provision contained in Section 192 is not possible of compliance inasmuch as it is impossible for employer to predicate how much each individual employee would get by way of income from tips, particularly when schemes for distribution are many and varied and may include different sums being received by different employees based on various criteria. He also argued that no question of Section 201 would come into play in this case as it is only in consequence of failure to comply with Section 192 that Section 201 is at all attracted. It was also argued that since High Court had found that conduct of assessees was bonafide, interest therefore could not have been charged from them under Section 201(1A). All learned counsel have relied upon various judgments of this Court and other courts in support of their submissions. 10. Shri Neeraj K. Kaul, learned Additional Solicitor General, appearing on behalf of Revenue, argued that Section 15(b) 7 referred to salary that is paid or allowed to employee by or on behalf of employer, and stated that expression allowed is expression of wide import and would include amounts such as tips paid by employers to their employees. He also relied upon Section 17(3) (ii) to state that any payment received by assessee from employer would be regarded as profit in lieu of salary , and that since amount of tips received by way of credit cards from customer are first put into employer s account and thereafter received by employees from employer, that was sufficient to attract profits in lieu of salary as defined. According to learned counsel, section makes no reference to contract of employment, which is therefore foreigner to Section. learned Additional Solicitor General for this proposition relied heavily upon Karamchari Union, Agra s case (supra), to buttress this submission and stated that High Court correctly relied upon said decision. He went on to add that judgments contained in Rambagh Palace Hotel and Quality Inn Southern Star were not directly on point and were rightly distinguished by High Court. He also supported 8 finding of High Court that bonafide belief would have no bearing on payability of interest under Section 201(1A). He referred to provision of section 192(3) in order to buttress his submission that machinery provisions contained in Section 192 could easily be worked out as monthly estimates of tips that were received or receivable had to be made by employer. 11. Before adverting to contentions raised by counsel for both parties, it will be necessary to set out some of provisions of Income Tax Act. 192. Salary (1) Any person responsible for paying any income chargeable under head "Salaries" shall, at time of payment, deduct income-tax on amount payable at average rate of income-tax computed on basis of rates in force for financial year in which payment is made, on estimated income of assessee under this head for that financial year. xx (3) person responsible for making payment referred to in sub-section (1) or sub-section (1A) or sub-section (2) or sub-section (2A) or sub-section (2B) may, at time of making any deduction, increase or reduce amount to be deducted under this section for purpose of adjusting any excess or deficiency arising out of any previous 9 deduction or failure to deduct during financial year. 201. Consequences of failure to deduct or pay. (1) Where any person, including principal officer of company, (a) who is required to deduct any sum in accordance with provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being employer, does not deduct, or does not pay, or after so deducting fails to pay, whole or any part of tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be assessee in default in respect of such tax: Provided that any person, including principal officer of company, who fails to deduct whole or any part of tax in accordance with provisions of this Chapter on sum paid to resident or on sum credited to account of resident shall not be deemed to be assessee in default in respect of such tax if such resident (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid tax due on income declared by him in such return of income, and person furnishes certificate to this effect from accountant in such form as may be prescribed: Provided further that no penalty shall be charged under section 221 from such person, unless Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax. 10 (1A) Without prejudice to provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct whole or any part of tax or after deducting fails to pay tax as required by or under this Act, he or it shall be liable to pay simple interest, (i) at one per cent for every month or part of month on amount of such tax from date on which such tax was deductible to date on which such tax is deducted; and (ii) at one and one-half per cent for every month or part of month on amount of such tax from date on which such tax was deducted to date on which such tax is actually paid, and such interest shall be paid before furnishing statement in accordance with provisions of sub-section (3) of section 200: Provided that in case any person, including principal officer of company fails to deduct whole or any part of tax in accordance with provisions of this Chapter on sum paid to resident or on sum credited to account of resident but is not deemed to be assessee in default under first proviso to sub-section (1), interest under clause (i) shall be payable from date on which such tax was deductible to date of furnishing of return of income by such resident. 15. Salaries. following income shall be chargeable to income-tax under head "Salaries" (a) any salary due from employer or former employer to assessee in previous year, whether paid or not; (b) any salary paid or allowed to him in previous year by or on behalf of employer or former employer though not due or before it became due to him; 11 (c) any arrears of salary paid or allowed to him in previous year by or on behalf of employer or former employer, if not charged to income-tax for any earlier previous year. Explanation 1. For removal of doubts, it is hereby declared that where any salary paid in advance is included in total income of any person for any previous year it shall not be included again in total income of person when salary becomes due. Explanation 2. Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, partner of firm from firm shall not be regarded as "salary" for purposes of this section. 17. "Salary", "perquisite" and "profits in lieu of salary" defined. For purposes of sections 15 and 16 and of this section, (1) "salary" includes xx (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; xx (3) "profits in lieu of salary" includes (i) amount of any compensation due to or received by assessee from his employer or former employer at or in connection with termination of his employment or modification of terms and conditions relating thereto; (ii) any payment (other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12), clause (13) or clause (13A) of section 10), due to or received by assessee from employer or former employer or from provident or other fund, to extent to which it does not consist of contributions by assessee or interest on such contributions or any sum received 12 under Keyman insurance policy including sum allocated by way of bonus on such policy. Explanation. For purposes of this sub-clause, expression "Keyman insurance policy" shall have meaning assigned to it in clause (10D) of section 10; (iii) any amount due to or received, whether in lump sum or otherwise, by any assessee from any person (A) before his joining any employment with that person; or (B) after cessation of his employment with that person. 12. At this stage it is important to analyse Section 192 of Income Tax Act. First and foremost, under sub-section (1) thereof, any person responsible for paying any income chargeable under head salaries is alone brought into dragnet of deduction of tax at source. person responsible for paying employee amount which is to be regarded as employee s income is only employer. In facts of present case, it is clear that person who is responsible for paying employee is not employer at all, but third person namely, customer. Also, if employee receives income chargeable under head other than head salaries , then Section 192 does not get attracted at all. In Emil Webber 13 v. CIT, (1993) 2 SCC 453, Ballarpur Paper and Straw Board Mills wanted to set up caustic soda/chlorine manufacturing plant at Ballarpur. For this purpose, it entered into two agreements with Krebs, French concern, which in turn entered into agreement with Swiss concern for making available services of certain personnel. assessee, Emil Webber, was person engaged by Swiss concern. assessee came to India and worked in connection with setting up of said plant. question that was posed before this Court was whether tax component paid by Ballarpur of assessee s taxable income could be included within income of assessee. This Court, in answering said question, specifically stated in paragraph 8, that question arose as to under which head of income should said income be placed. This Court held that inasmuch as assessee is not employee of Ballarpur, which made payment, it cannot be brought within purview of Section 17 of Act. Thus, such income must necessarily be placed under Section 56(1) of Act as income from other sources . 14 13. Following aforesaid decision, it is clear that as income from tips would be chargeable in hands of employees as income from other sources, such tips being received from customers and not from employer, Section 192 would not get attracted at all on facts of present case. 14. Section 15 of Act is in three parts. Sub-clause (a) refers to salary that is due from employer or former employer, whether paid or not. Under this sub-clause, salary is taxable upon accrual it matters not whether payment is actually made or not. On other hand, under sub-clause (b), with which we are directly concerned, any salary that is paid or allowed to employee by or on behalf of employer or former employer though not due, or before it becomes due, becomes taxable. Under this sub-clause, it matters not whether salary is at all due. Payment made or allowance given to employee by or on behalf of employer or former employer is sufficient to bring such payment or allowance to tax under said sub-clause. Under sub-clause (c) any arrears of salary paid or allowed to employee by or on behalf of 15 employer or previous employer if not earlier charged to income tax in any previous year is also brought to tax. 15. It can be seen, on analysis of Section 15, that for said Section to apply, there should be vested right in employee to claim any salary from employer or former employer, whether due or not if paid; or paid or allowed, though not due. In CIT v. L.W. Russel reported in 53 ITR 91 (SC), this Court dealt with provisions of Section 7(1) of 1922 Act, which preceded Sections 15 and 17 of present Act. Holding that it is necessary for employee to have vested right to receive amount from his employer before he could be brought to tax under head salaries , this Court held:- Now let us look at provisions of section 7(1) of Act in order to ascertain whether such contingent right is hit by said provisions. material part of section reads: 7.(1) -The tax shall be payable by assessee under head salaries in respect of any salary or wages, any annuity, pension or gratuity, and any fees, commissions, perquisites, or profits in lieu of, or in addition to, any salary or wages, which are allowed to him by or are due to him, whether paid or not, from, or are paid by or on behalf of................ company..................... 16 Explanation I- For purpose of this section, perquisite includes- (v) any sum payable by employer, whether directly or through fund to which provisions of Chapters IXA and IXB do not apply, to effect assurance on life of assessee or in respect of contract of annuity on life of assessees. This section imposes tax on remuneration of employee. It presupposes existence of relationship of employer and employee. present case is sought to be brought under head "perquisites in lieu of, or in addition to, any salary or wages, which are allowed to him by or are due to him, whether paid or not, from, or are paid by or on behalf of company". expression "perquisites" is defined in Oxford Dictionary as "casual emoluments, fee or profit attached to office or position in addition to salary or wages". Explanation 1 to Section 7(1) of Act gives inclusive definition. Clause (v) thereof includes within meaning of "perquisites" any sum payable by employer, whether directly or through fund to which provisions of Chapters IXA and IXB do not apply, to effect assurance on life of assessee or in respect of contract for annuity on life of assessee. combined reading of substantive part of Section 7(1) and clause (v) of Explanation 1 thereto makes it clear that if sum of money is allowed by employee by or is due to him from or is paid to enable latter to effect insurance on his life, said sum would be perquisite within meaning of section 7(1) of Act and, therefore, would be eligible to tax. But before such sum becomes so exigible, it shall either be paid to employee or allowed to him by or due to him from employer. So far as expression "paid" is concerned, there is no difficulty, for it takes in every receipt by employee from employer 17 whether it was due to him or not. expression "due" followed by qualifying clause "whether paid or not" shows that there shall be obligation on part of employer to pay that amount and right on employee to claim same. expression "allowed", it is said, is of wider connotation and any credit made in employer's account is covered thereby. word "allowed" was introduced in section by Finance Act of 1955. said expression in legal terminology is equivalent to "fixed, taken into account, set apart, granted". It takes in perquisites given in cash or in kind or in money or money's worth and also amenities which are not convertible into money. It implies that right is conferred on employee in respect of those perquisites. One cannot be said to allow perquisite to employee if employee has no right to same. It cannot apply to contingent payments to which employee has no right till contingency occurs. In short, employee must have vested right therein. 16. On facts of present case, it is clear that there is no vested right in employee to claim any amount of tip from his employer. Tips being purely voluntary amounts that may or may not be paid by customers for services rendered to them would not, therefore, fall within Section 15(b) at all. Also, it is clear that salary must be paid or allowed to employee in previous year by or on behalf of employer. Even assuming that expression allowed is expression of width, salary must be paid by or on behalf of employer. It must first 18 be noticed that expression employer is different from expression person . employer is person who employs another person under contract of employment, express or implied, to perform work for employer. Therefore, Section 15(b) necessarily has reference to contract of employment between employer and employee, and salary paid or allowed must therefore have reference to such contract of employment. On facts of present case, it is clear that amount of tip paid by employer to employees has no reference to contract of employment at all. Tips are received by employer in fiduciary capacity as trustee for payments that are received from customers which they disburse to their employees for service rendered to customer. There is, therefore, no reference to contract of employment when these amounts are paid by employer to employee. Shri Kaul, however, argued that there is indirect reference to contract of employment inasmuch as but for such contract, tips to employees could not possibly have been paid at all. We are afraid that this argument must be rejected for simple reason that payments received by 19 employees have no reference whatsoever to contract of employment and are received from customer, employer only being conduit in fiduciary capacity in between two. Indeed, if Shri Kaul s arguments were to be accepted, even position accepted by revenue and consequently High Court that tips given in cash, which admittedly are not covered by Section 192, would also then be covered inasmuch as such tips also would not have been given but for contract of employment between employer and employee. Clearly, therefore, such argument does not avail Revenue. 17. However, sheet anchor of Shri Kaul s submission is Section 17(3)(ii) in which Shri Kaul stressed that any payment received by assessee from employer would be regarded as profits in lieu of salary. According to Shri Kaul it is undisputable that payments were received by employees from their employer and that, without more, Section 17 would therefore be attracted to facts of case. This argument again cannot be countenanced for simple reason that Section 17(3) itself uses two different expressions employer in sub-clause (ii) and person in sub-clause (iii). Obviously 20 person is wider than employer . Even word person which appears in said sub-clause has reference either to future employer or past employer. Therefore, it is clear that under scheme of Section 17, payment must be by employer, whether such employer is future employer or past employer of employee in question. When sub-clause (ii) uses expression employer , it uses said expression in same sense as is used in Section 15, as opening line of Section 17 itself states that for purposes of Section 15 salary includes profits in lieu of salary. We have already held that word employer in Section 15 necessarily brings in contract of employment, express or implied, and for this reason also we are afraid we are not able to accept Shri Kaul s argument. 18. judgment of this Court in CIT v. L.W. Russel reported in 53 ITR 91 (SC) was relied upon by Shri Kaul stating that expression allowed is of wider connotation and would be equivalent to fixed, taken into account, set apart or granted . We have already held that given fact that expression allowed is of wide amplitude, yet other 21 expressions in Section 15 as construed by us would exclude tips from its purview. 19. Interestingly, this Court in Rambagh Palace Hotel s case (supra), in paragraph No.2 held as under:- We regret to be unable to agree with counsel on this point. It is well-known that in important hotels in country appellant is now five star hotel customers are of affluent variety and pay tips either to waiters directly or in shape of service charges or otherwise to management along with bill for items consumed. In short, true character of tips cannot be treated as any payment made by management out of its pocket but transfer of what is collected to staff as it is intended by payer to be so distributed. It may also happen that more money comes in by way of tips into pockets of management than distributed by it. We cannot therefore consider receipt of tips by staff as anything like payment made by management to its employees warranting consideration by tribunal to depress award of dearness allowance. Of course, it is factor which may perhaps be in mind of tribunal when he finalised actual figures. There is no reason for us to think that although not specifically put down in his order, tribunal has lost sight of this circumstance. For this reason, we think there is no ground for interference with award of Industrial Tribunal. Having regard to fair way case has been placed before us, we do not regard this as case where costs should be awarded while dismissing appeal. appeal is dismissed but parties will bear their own costs. 22 This judgment was followed in Quality Inn Southern Star v. ESI Corpn., (2008) 2 SCC 549. 20. Shri Kaul sought to distinguish aforesaid judgments as they arose in contexts that were outside Income Tax Act. For this, he relied upon Jagatram Ahuja v. Commissioner of Gift Tax, Hyderabad, (2000) 8 SCC 249 at paragraph 23, for proposition that words judicially construed in particular statute cannot be guide to construction of same words in another statute, unless concerned statutes are statutes in pari materia. He argued that Rambagh Palace Hotel judgment arose in context of award made by Industrial Tribunal in favour of workers of Rambagh Palace Hotel who had raised dispute on score that price index having gone up, workers were entitled to adequate compensation by way of dearness allowance. It is in this context, that according to Shri Kaul, this Court held that true character of tips cannot be treated as any payment made by management out of its pocket but only as transfer of 23 what is collected, to staff, as it is intended by employer to be distributed to staff. 21. Shri Kaul may be right in his submission that generally speaking context of two statutes being different, no reliance can be placed as precedent on Rambagh Palace Hotel case. However, we may point out that statement by this Court that true character of tips cannot be treated as any payment made by management but only as transfer of what is collected from customer and paid to staff is equally applicable to facts of present case. Similarly, Quality Inn Southern Star case was also judgment in different context, namely Employees State Insurance Act, 1948. In that case, it was held that amounts of tips received by employees were not in nature of wages as they were not given to employees under terms of contract of employment, either express or implied. aforesaid statement made by this Court, though made in different context, would apply on all fours in present case, again for reasons mentioned hereinabove. 24 22. Along lines of aforesaid judgments, House of Lords, in Wrottesley v. Regent Street Florida Restaurant, [1951] 2 K.B. 277 dealt with case in which, under tronc system, customers tips are shared out between waiters, and, in some cases, other members of staff. This judgment arose under Section 9(2) of Catering Wages Act, 1943 which provided that if employer fails to pay to worker, to whom wages regulation order applies, remuneration not less than statutory minimum remuneration (clear of all deductions), he shall be guilty of offence. question that arose in that case is whether tips received by waiters under tronc system were to be regarded as remuneration so as to take employer out of Section 9 (2) aforesaid. In this context, House of Lords held: What we have to decide is whether, when waiter receives payment from tronc in manner found in case, that sum can be regarded as remuneration paid to him by, or as remuneration obtained by him in cash from, his employer. In our opinion, when customer gives tip to waiter money becomes property of latter. customer has no intention of giving anything to employer. Mr. Salmon, indeed, did not contend that in case where no tronc existed, tip given by customer could be regarded as remuneration paid 25 by or obtained from employer. But where tronc system obtains money given by customer is paid into tronc or pool by waiter so that it then becomes joint property of all those entitled to share in pool. In parenthesis, it may be seen by reference to French dictionary, that word tronc is applied to box or receptacle for money, and can be used to indicate, for instance, poor box. It seems to us that there is no ground for saying that these tips ever became property of employers. Even if box were kept in actual custody of employer he would have no title to money: position would be exactly same as if owner of some bank notes and coin put them in bag and handed it to some person to keep for him. When tronc money is shared out waiters are dividing up their own money. Accordingly, we hold that sums received from tronc by waiters cannot be taken into account in computing amounts paid by respondents to them. 23. We approve of reasoning contained in this judgment and hold that payments of collected tips made in manner indicated in Paras 7 and 9 above would not be payments made by or on behalf of employer. We agree with statement of law that there is no ground for saying that these tips ever became property of employers. Even if box were kept in actual custody of employer he would have no title to money as he would hold such money in fiduciary 26 capacity for and on behalf of his employees. In said circumstances, it is clear that such payments would be outside purview of Section 15(b) of Act. 24. It remains to deal with sheet anchor of Shri Kaul s submission, which is this Court s judgment in Karamchari Union, Agra v. Union of India, (2000) 3 SCC 335. In this judgment, this Court was faced with whether city compensatory allowance and other allowances such as house rent allowance are salary under Section 17. This Court held that Section 17 gives exhaustive meaning to expression salary by extending ordinary connotation of word to fees, commissions, perquisites or payments of profits in lieu of salary which are not ordinarily considered to be salary. question posed before this Court was what does expression salary signify. Would it also include any payment received from employer relatable to or out of profits or could it be understood as any pecuniary gain or advantage? This Court held:- 27 In our view, even though there is much substance in contentions raised by learned counsel for assessee yet it is to be stated that Act is self-contained code and taxability of receipt of any amount or allowance is to be determined on basis of meaning given to words or phrases in Act. Section 2(24) of Act gives wide inclusive definition to word income . Similarly, for levying tax on salary income, exhaustive definition is given under Section 17, which includes perquisites and profits in lieu of salary. only exclusion provided under sub-section (3) is any payment referable to clause (10), clause (10-A), clause (10-B), clause (11), clause (12), clause (13) or clause (13-A) of Section 10. In view of this specific inclusion and exclusion in meaning of word income and salary , it is rightly submitted that payment received by assessee has no connection with profits of employer. word profits is used only to convey any advantage or gain by receipt of any payment by employee. Applying aforesaid general meaning of word profits and considering dictionary (sic statutory) meaning given to it under Sections 17(1)(iv) and (3)(ii), it can be said that advantage in terms of payment of money received by employee from employer in relation or in addition to any salary or wages would be covered by inclusive definition of word salary . Because of inclusive meaning given to phrase profits in lieu of salary would include any payment due to or received by assessee from employer, even though it has no connection with profits of employer. It is true that legislature might have avoided giving inclusive meaning to word salary by stating that any payment received by employee from employer would be considered to be salary except 28 payments which are excluded by Section 17(3) (ii) i.e. clause (10), (10-A), (10-B), (11), (12), (13) or (13-A) of Section 10. However, it is for legislature to decide same. This would not mean that by giving exhaustive and inclusive meaning, word profits can be given meaning only when it pertains to sharing of profits by employer. For assessee, receipt of such amount would be profit, gain or advantage in addition to salary, even though it is not named as salary. Therefore, word profits in context is required to be understood as gain or advantage to assessee. Hence, it is not possible to accept contention of learned counsel for employee that as CCA amount is paid to meet additional expenditure as contemplated by statutory Service Rules, it cannot be said to be profit, gain or additional salary. Under Act, such receipt of amount as conceded is covered by definition of word income and as provided it would be in addition to salary. Hence, it would be part and parcel of income by way of salary, which would be taxable one. In result, we hold that DA, CCA and HRA would be taxable income. Since, counsel for employees did not make any submission with regard to other allowances like night allowance, tuition fee, leave encashment linked with leave travel concession, running allowance etc. we do not pass any order with regard to those allowances. [at paras 23, 25 and 28] 25. All that was held by this Court in aforesaid decision is that even if amount is received by employee which has no connection with profits of employer, it may yet be 29 salary as any advantage or gain by receipt of such payment would be included in expression profits in lieu of salary . Hence, this court did not accede to contention of learned counsel for assessee that as CCA amount is paid to meet additional expenditure as contemplated by statutory service rules, it cannot be said to be profit . This Court finally held that CCA and HRA would be taxable income in hands of employee. 26. It is well settled that case is authority, for what it decides, and not for what logically follows from it. This case in no manner supports Shri Kaul s submission on Section 17(3) (ii) that moment any amount is received from employer by employee, without more, such amount becomes profit in lieu of salary. In Karamchari Union judgment, CCA and HRA arose directly from employer employee relationship. question Court had to answer was whether pecuniary advantage in form of CCA and HRA would be covered by Section 17, which Court answered in affirmative. This Court s decision cannot be understood to mean that even de hors employer employee relationship, any amount 30 received from employer by employee would become salary under Section 17. We are, therefore, unable to subscribe to High Court s view in understanding this decision to mean that so long as employer pays amount to employee, even in fiduciary capacity and de hors employer employee relationship, amount so paid would come within head salary . 27. Shri Kaul also relied upon two English judgments and one Australian judgment to buttress his submission. 28. Before adverting to English judgments, it is necessary first to set out statutory scheme contained in Schedule E of English Income Tax Act, 1918. SCHEDULE E Tax under Schedule E shall be charged in respect or every public office or employment of profit and in respect of every annuity, pension, or stipend payable by Crown or out of public revenue of United Kingdom, other than annuities charged under Schedule C, for every twenty shillings of annual amount thereof. 1. Tax under this Schedule shall be annually charged on every person having or exercising office or employment of profit mentioned in this Schedule, or to whom any annuity, pension, or 31 stipend, as described in this Schedule, is payable, in respect of all salaries, fees, wages, perquisites or profits whatsoever therefrom for year of assessment, except as otherwise provided, after deducting amount of duties or other sums payable or chargeable on same by virtue of any Act of Parliament, where same have been really and bona fide paid and borne by party to be charged. 29. difference in language between U.K. Act and Sections 15 and 17 of Income Tax Act, 1961 is obvious. There need not be employer employee relationship under Schedule E read with Rule 1 to attract aforesaid provision. Since this is case, it is clear that amounts that are received by any person chargeable under said Schedule and Rule become taxable even if said amount is paid by third person. Keeping this vital difference in view, let us analyse two English judgments relied upon by Shri Kaul. 30. In Calvert (Inspector of Taxes) v. Wainwright, [1947] 1 KB 526, question posed before King s Bench was: Are tips received by taxi drivers from their customers assessable to income tax in their hands? King s Bench Division held that such tips are assessable under Schedule E read with Rule 1 of 32 Income tax Act, 1918. In so holding, King s Bench held that though persons like taxi drivers have no vested right to ask for tips, they would yet be covered. This is for reason that Rule 1 indicates that emoluments may be received either from employer or from third party as reward for services rendered in course of employment. This case is obviously distinguishable, first, on ground that emolument received from third party is not covered by Sections 15 and 17 of Indian Income Tax Act unless such emolument is on behalf of employer. Secondly, case dealt with whether such emoluments may be taxable in hands of taxi driver. It is nobody s case that amount of tips received by employees in present cases are not taxable in their hands indeed learned counsel for assessees have stated that they are so taxable as income from other sources. question that we have to determine is somewhat different whether person responsible for paying salary income to his employee is liable to deduct tax of employee and pay it over on estimated basis under Section 192 of Income Tax Act. For 33 both aforesaid reasons, this judgment therefore does not take Shri Kaul s case any further. 31. Similarly, judgment in Moorhouse (Inspector of Taxes) v. Dooland, [1955] 2 W.L.R. 96, also arose under Schedule E Rule 1. question posed in that case was whether collections made by professional cricketer for his own benefit under contract with cricket club could be assessed to tax under aforesaid provisions. Court of Appeal, in holding that such sum could so be assessed to income tax, held that by express term in contract of employment cricketer was entitled to solicit contributions from spectators. Since this was actual situation before Court of Appeal, Court of Appeal held that from standpoint of recipient, such voluntary payments accrued to him by virtue of his employment by cricket club. distinction was made by Court of Appeal, regard being had to U.K. statute, between voluntary payments made in circumstances on ground personal to recipient as opposed to those which arise from his contract of employment. Court of Appeal held that given special facts of case, being clause 34 contained in contract of employment, that said amounts could not be said to be purely personal to cricketer but arose from his contract of employment. For very reasons given in distinguishing earlier U.K. judgment, we find this judgment also has no application as U.K. statute is markedly different from Sections 15 and 17 of Indian Income Tax Act, and that consequently tests applied by English Courts, being based upon language of U.K. Income Tax Act, would not apply to situation in India. 32. judgment cited by appellants has also to be dealt with in this context. In Hochstrasser (Inspector of Taxes) v. Mayes, [1960] A.C. 376, certain company employed many persons in numerous factories in different places. employees were required by their service agreement to be prepared to serve employer wherever required. housing scheme was entered into with employees under which, whenever employee had to shift residence, and in so shifting would incur loss on selling house in place from which he was transferred, Company would compensate such loss. This loss was subject matter of assessment 35 under Schedule E of Income Tax Act, 1918. House of Lords, in this judgment, had to deal with paragraph 2 of Schedule E which reads as follows:- 2. Tax under this Schedule shall also be charged in respect of any office employment or pension, profits or gains arising or accruing from which would be chargeable to tax under Schedule D but for proviso to paragraph 1 of that Schedule . 33. House of Lords held that it is not enough for Crown to establish that employee would not have received sum on which tax is claimed had he not been employee at all. Court must be satisfied that service agreement was causa causans and not merely causa sine qua non of receipt of amount. 34. Having held that judgments cited by Shri Kaul would have no application to facts of this case because they deal with U.K. Act, which is different in material particular from Indian Act, this case would also be tarnished with same brush. However, we find that paragraph 2 of Schedule E speaks of profits or gains arising or accruing from any office or employment. This statutory provision, unlike paragraph 1 of 36 Schedule E, comes somewhat close to Section 15 of Indian Income Tax Act as construed by us, and consequently test of proximity with service agreement, which was applied by House of Lords, is test applicable to facts of present case. We find, therefore, that contract of employment in present cases, not being proximate cause for receipt of tips by employee from customer, same would be outside dragnet of Sections 15 and 17 of Income Tax Act. 35. Shri Kaul also cited before us decision of Supreme Court of Western Australia reported in 85 ATC 4283 (Kelly v. Federal Commissioner of Taxation). Suffice it to say that this very judgment distinguished some of English judgments on ground that Australian Act was not in pari materia with Schedule E of English Income Tax Act, 1918. This being case, and Australian Act being far removed from Indian Income Tax Act, we do not feel this judgment throws any further light on issue at hand. 36. Shri Kaul further argued that in cross appeal filed by Commissioner of Income Tax, we should set aside all 37 observations made by High Court insofar as penalty is concerned. We find on reading of assessment order dated 29.3.2007, that penalty proceedings under Section 271C were separately initiated by Assessing Officer, and consequently form no part of this appeal. Indeed we have been told that by order dated 19.6.2013, penalty under said Section has been levied against ITC in Civil Appeals arising from SLP(C) Nos.20822-20824 of 2011. Since High Court judgment is being set aside in toto, none of observations on penalty would consequently bind either of parties. 37. great deal of argument was made by both sides on nature of interest contained in Section 201(1A) of Act. We find it unnecessary to go into this question for simple reason that as held in Commissioner of Income Tax, New Delhi v. Eli Lilly and Company (India) Private Limited, (2009) 15 SCC 1 at paragraph 91, interest under section 201(1A) can only be levied when person is declared as assessee-in-default. Having found that appellants in present cases are outside Section 192 of Act, appellants cannot be stated 38 to be assessees-in-default and hence no question of interest therefore arises. 38. In view we have taken it is unnecessary to go into various other submissions made by counsel on both sides. appeals filed by assessees are, therefore, allowed and civil appeals arising out of SLP (Civil) Nos.9587-9589 of 2012 filed by Revenue are dismissed. judgment of High Court is set aside with no order as to costs. J. (Kurian Joseph) J. New Delhi; (R.F. Nariman) April 26, 2016 39 ITEM NO.1A COURT NO.11 SECTION IIIA S U P R E M E C O U R T O F I N D I RECORD OF PROCEEDINGS CIVIL APPEAL NOS. 4435-37 of 2016 (ARISING OUT OF SLP (CIVIL) NOS.20822-20824 OF 2011) ITC LIMITED GURGAON Appellant(s) VERSUS COMMR.OF I.T(TDS) DELHI Respondent(s) WITH CIVIL APPEAL NOS. 4438-40 of 2016 (ARISING OUT OF SLP (CIVIL) NOS.9587-9589 OF 2012) CIVIL APPEAL NO. 4441 of 2016 (ARISING OUT OF SLP (CIVIL) NO.10653 OF 2012) CIVIL APPEAL NO. 4442 of 2016 (ARISING OUT OF SLP (CIVIL) NO.17964 OF 2012) CIVIL APPEAL NOS. 4443-44 of 2016 (ARISING OUT OF SLP (CIVIL) NOS.18128-18129 OF 2012) Date : 26/04/2016 These matters were called on for Judgment today. For Appellant(s) Mr. M. S. Syali, Sr. Adv. Ms. Husnal Syali, Adv. Mr. Mayank Nagi, Adv. Ms. Mahua Kalra, Adv. Mr. Rameshwar Prasad Goyal, Adv. Ms. Kavita Jha, Adv. For Respondent(s) Mr. Neeraj Kishan Kaul, ASG Ms. Chanan Parwani, Adv. Mr. Nitesh Daryanani, Adv. 40 Ms. Sanyat Lodha, Adv. Mr. Arijit Prasad, Adv. Mr. B. V. Balaram Das, Adv. M/s. Khaitan & Co. Hon'ble Mr. Justice Rohinton Fali Nariman pronounced reportable Judgment of Bench comprising Hon'ble Mr. Justice Kurian Joseph and His Lordship. Leave granted. appeals filed by assessees are allowed and civil appeals arising out of SLP (Civil) Nos. 9587-9589 of 2012 filed by Revenue are dismissed. (Jayant Kumar Arora) (Renu Diwan) Sr. P.A. Court Master (Signed reportable Judgment is placed on file) 41 ITC Limited Gurgaon v. Commissioner of I.T. (TDS) Delhi
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