ACIT, NEW DELHI vs. M/S. C.J. INTERNATIONAL HOTELS LTD., NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: B : NEW DELHI BEFORE SHRI R.S. SYAL, AM & SHRI A.T. VARKEY, JM ITA Nos.4791 & 4792/Del/2011 Assessment Year : 2006-07 ITA Nos.4793 & 4794/Del/2011 Assessment Year : 2007-08

C.J. International Hotels Ltd., Vs. Addl.CIT, Hotel Le Meridian, Range-49, 8, Windsor Place, Janpath, New Delhi. New Delhi. PAN: AAACC0174E

ITA Nos.21 & 25/Del/2015 Assessment Year : 2006-07

ITA Nos.22 & 26/Del/2015 Assessment Year : 2007-08

ITA Nos.5347/Del/2011 Assessment Year : 2006-07

ITA No.5349 /Del/2011 Assessment Year : 2007-08 Addl.CIT, Vs. C.J. International Hotels Ltd., Range-49(1)/73(1), Hotel Le Meridian, New Delhi 8, Windsor Place, Janpath, New Delhi. PAN: DELCO1385G

ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015

Assessee by : Shri Tarandeep Singh, CA Deptt. By : Ms Susan D. George, Sr. DR

Date of Hearing : 07.03.2016 Date of Pronouncement : 10.03.2016 ORDER PER R.S. SYAL, AM: This batch containing four appeals by the assessee and six

by the Revenue relating to Financial years 2005-06 and 2006-

07 arise out of the common order passed by the CIT(A) on

2.9.2011. Since these appeals are based on similar grounds and

common facts, we are, therefore, proceeding to dispose them

off by this consolidated order for the sake of convenience.

company is engaged in the business of running a hotel under

the name and style of Le Meridian. A survey operation was

conducted u/s 133A of the Income-tax Act, 1961 (hereinafter

also called ‘the Act’) at the business premises of the assessee

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on 29.9.2006, which highlighted certain defaults in the matter

of deduction of tax at source from the payments made by the

assessee. Notice dated 6.8.2007 u/s 201 was issued on the

premise that the assessee failed to properly deduct tax at

source in respect of certain payments. In a common order

dated 30.3.2011 passed by the Addl. Commissioner of Income-

tax, Range 49, New Delhi [hereinafter also called `the

AO(TDS)’] u/s 201(1)/(1A) of the Act for four years, it was

observed that the assessee made payments to four parties

including M/s Divya Ahuja and M/s Glow Show Stage Events.

The assessee was found to have deducted tax at source on

payments made to these two parties u/s 194C of the Act. The

AO opined that the tax ought to have been withheld on such

payments u/s 194J of the Act instead of section 194C, which

resulted into treating the assessee in default u/s 201(1) of the

Act. Consequently, interest u/s 201(1A) was also levied. The

ld. CIT(A) echoed the view of the AO(TDS) on the payments

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made to these two parties. Apart from the above, the assessee

was also found to have made payments to Auth. Bridge

Research Services P. Ltd. and Wang Professionals, after

deduction of tax at source u/s 194C. It is a matter of record

that the assessee was treated in default for the short deduction

of tax at source in respect of the payments made to these two

deductees as well. The ld. CIT(A) allowed relief in respect of

the alleged short deduction of tax at source in respect of

payment made to these two parties. Albeit, the Revenue has

preferred appeals against the impugned order, but, the decision

of the ld. CIT(A) on this aspect has not been assailed.

to its employees during the two years under consideration on

which no deduction of tax at source was made. The AO

treated such tips to employees as part of `Salaries’. On the

failure of the assessee in deducting tax at source u/s 192 of the

Act on such tips, the AO treated the assessee in default.

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Interest under section 201(1A) of the Act was also levied. The

ld. CIT(A) overturned the order of the AO (TDS) qua payment

of tips to the employees. Both the sides are in appeal on their

respective stands.

COMBINED OR SEPARATE APPEALS AGAINST ORDER U/S 201(1) / (1A) FOR ONE YEAR ? 4.1. The Revenue initially filed two appeals, one for each

year, against the order of the ld. CIT(A) against the relief in

first appeal. During the course of hearing on an earlier

occasion, the ld. AR argued before the Bench that the Revenue

ought to have filed separate appeals against the order u/s

201(1) and 201(1A) for each year. The Revenue filed separate

appeals stating to be `on the advice of the Bench' for quantum

and interest in respect of each of the years with accompanying

letter for condonation of delay. That is how, there are three

appeals by the Department for each of the years, namely, one

original consolidated appeal by the Revenue under both the

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sub-sections of section 201 and then separate appeals for

quantum and interest.

4.2. The ld. AR argued that separate appeals filed by the

Revenue for quantum and interest have become time barred

and are liable to be dismissed. It was further argued that since

the tax effect in some of the separate appeals is less than Rs.10

lac per appeal, the same should be dismissed in view of the

latest circular issued by the CBDT mandating non-

filing/withdrawal of appeals filed by the Revenue with tax

effect of less than Rs.10 lac. On a specific query, it was

candidly admitted that the tax effect on the consolidated

appeals of the Revenue for each year is more than Rs.10 lac. In

support of the contention that separate appeals should have

been filed, the ld. AR relied on certain orders by largely

focusing on the decision of Mumbai Bench of the Tribunal in

ITO vs. Vodafone Essar Ltd. (2011) 44 SOT 304. On a pointed

query, it was admitted that though there is no direct precedent

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on the point laying down that separate appeals should be filed

in respect of quantum and interest u/s 201, the ld. AR

submitted that in these orders separate appeals were preferred,

which has not been disputed. The ld. AR fortified his

contention of filing separate appeals by submitting that in

certain cases there may be the only levy of interest under

section 201(1A) de hors any liability u/s 201(1) because of the

deductee including the amount received from the deductor in

his total income.

4.3. The primary question which arises for our consideration

is as to whether separate appeals are required to be filed

against the order u/s 201(1) [Quantum] and 201(1A) [Interest].

In this regard, we find that section 246A deals with appealable

orders before Commissioner (Appeals). Sub-section (1)

provides that any assessee or any deductor aggrieved by any of

the specified orders (whether made before or after the

appointed day) may appeal to the Commissioner (Appeals).

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Clause (ha) of this list containing appealable orders refers to :

`an order made under section 201’. This deciphers that the

legislature has made an order u/s 201 appealable before the

CIT(A). It has drawn no further distinction between the order

under sub-sections (1) or (1A) of section 201. The order

passed by the CIT(A) against the order u/s 201 [covering order

passed by the AO(TDS) under sub-section (1) and also (1A)]

falls u/s 250(6) of the Act. It means that the AO(TDS) is

required to pass a common order u/s 201 covering sub-sections

(1) and (1A) and accordingly, CIT(A) is also obliged to pass

one common order u/s 250(6) covering the liability of the

assessee under both the sub-sections of section 201. Section

253 deals with appeals to the appellate tribunal. This section

lists the orders which can be appealed before the tribunal. Sub-

sections (1) and (2) respectively authorize any assessee or the

Department to file appeal before the tribunal against the orders

passed under specific sections. In both the sub-sections of

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section 253, there is a mention of an appeal against the order

passed by the CIT u/s 250, which obviously refers to a

common appellate order passed against order under sub-

sections (1) and (1A) of section 201 of the Act. This shows

that the law requires passing of one order by the AO(TDS) u/s

201, then one appeal against such order before the CIT(A); and

then one appeal against the order of CIT(A) u/s 250 before the

tribunal. The ld. AR could not draw our attention towards any

provision in the Act, mandating the filing of separate appeals

either before the CIT(A) or the tribunal against the order

covering defaults under sub-section (1) and sub-section (1A)

of section 201. In the absence of any such provision, we fail to

appreciate as to how such a requirement can be imported in the

statute. If the contention of the ld. AR is taken to its logical

conclusion, then that would automatically imply that in all

cases of assessments where additions are made and

consequently interest is charged, there would arise a need to

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file two appeals - one against the additions and another against

the interest - which proposition is absurd and illogical. When

this position was put across, the ld. AR was fair enough to

concede that none of the decisions cited by him has a

precedent value of having a ratio decidendi by the Tribunal

requiring separate filing of appeals against liability u/s 201(1)

and interest u/s 201(1A). We, therefore, jettison this

contention urged on behalf of the assessee. It is ergo held that

two original consolidated appeals filed by the Revenue for

both the years in respect of defaults u/s 201(1) and 201(1A)

are sufficient to protect the interest of the Department and the

four separate appeals filed subsequently are infructuous. In

view of our this decision, the question of delay in filing of

separate appeals by the Revenue becomes academic and so is

the argument of the ld. AR for dismissing some of the

Revenue’s appeals, each with tax effect of less than Rs.10 lac.

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LIMITATION

5.1. The ld. AR vehemently argued that the order passed by

the AO (TDS) is barred by limitation in so far as the Financial

year 2005-06 is concerned. It was put forth that the AO (TDS)

passed order on 30.3.2011, which is beyond a period of four

years from the end of the financial year 205-06 and, hence,

barred by limitation. In support of this contention, he relied on

the judgment of the Hon’ble jurisdictional High Court passed

in the assessee’s own case (copy placed on record) and also

CIT vs. Hutchison Essar Telecom Ltd. (2010) 323 ITR 230

(Del). Our attention was also drawn towards an order passed

by the Tribunal in assessee’s own case for the financial year

2000-01 to 2002-03 (in ITA No.5204/Del/2011) in which a

view favourable to the assessee has been taken, a copy of such

order is available on page 54 onwards of the paper book. The

ld. DR strongly opposed the contention raised on behalf of the

assessee.

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5.2. We have heard the rival submissions and perused the

relevant material on record. There are two principal questions

involved in this issue. First is that the period of four years as

held by the Hon’ble jurisdictional High Court is to be

reckoned from the end of the financial year or the relevant

assessment year? And second is whether such limitation is for

initiation of proceedings u/s 201(1)/(1A) or for passing of the

order.

5.3. As regards the first question, we find that the Tribunal

has recorded on page 3 of its order passed in the assessee’s

own case (in ITA No.5204/Del/2011) that the proceedings

cannot be initiated ‘after four years from the end of the

assessment year.’ The Hon’ble Delhi High Court in assessee’s

own case has also held that a period of four years is relevant.

There is not much discussion as to whether such period of four

years should be counted from the end of the relevant financial

year or the relevant Assessment year. However, we find that

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the Hon’ble jurisdictional High Court in Hutchison Essar

(supra), and some other cases has categorically held that the

period of four years is from the end of the financial year or

three years from the end of the relevant assessment year.

When we consider the judgments of the Hon’ble jurisdictional

High Court on this point, it clearly emerges that the period of

four years has to be reckoned from the end of the relevant

financial year.

5.4. Coming to the second question as to whether such period

of four years should be recognized for the purposes of

initiation of proceedings u/s 201(1)/(1A) or for passing of the

order, we find the contention of the ld. AR for applying it to

the passing of order, unacceptable. Not only the Tribunal in

the assessee’s own case, but the Hon’ble jurisdictional High

Court has also held that such period is only for `initiating’

proceedings u/s 201. It is apparent from the question as

referred to in para 1 of the judgment in which the reference is

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to initiation of the proceedings against the assessee in default

who does not deduct tax at source. Similar position is borne

out from the judgment in the case of Hutchison Essar (supra),

in which the entire discussion about the period of limitation

has been made qua initiation of proceedings u/s 201. Nowhere

any reference has been made to the date of passing of order u/s

201 vis-à-vis the period of limitation of four years. In view of

the direct judgments of the Hon’ble Delhi High Court

including one rendered in the assessee’s own case, we are of

the considered opinion that it is the ‘initiation’ of proceedings

u/s 201, which has been related with a period of four years

from the end of the relevant financial year. Turning to the

facts of the instant case, we find that though order u/s 201 was

passed by the AO on 30.3.2011, but the proceedings were

commenced by way of notice dated 6.8.2007, which period is

within four years from the end of the relevant financial year

2005-06, which expires on 31.3.2010. Since the proceedings

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were commenced before this cutoff date of 31.3.2010, we

reject the argument of limitation as urged by the ld. AR.

PAYMENTS TO TWO PARTIES – TDS U/S 194J OR 194C ? 6.1. Now, we take up the next issue raised by the assessee in

its appeals against the payments made to M/s Divya Ahuja for

the financial years 2005-06 and 2006-07, on which it deducted

tax at source u/s 194C, but, the ld. CIT(A) sustained the action

of the AO(TDS) in requiring deduction of tax at source u/s

194J of the Act and consequential interest thereon.

6.2. M/s Divya Ahuja is a Gazal group consisting of one male

singer, one female singer and three instrumentalists. We have

gone through the Agreement dated 1.8.2008 for rendition of

Gazals between M/s Divya Ahuja Gazal Group and the

assessee. The ld. AR submitted that similar Agreements

prevailed for the years in question, which contention was not

controverted by the ld. DR. We have gone through this

Agreement, a copy of which is available at page 2 onwards of 15

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the paper book. Clause 2 of the Agreement sets out obligations

of M/s Divya Ahuja to render and perform Gazals during the

week at ‘Pakwan Restaurant’ of the assessee at the timings

given by the hotel. Clause 2.6 of the Agreement provides that:

‘Gazal group agrees to allow the hotel to use Gazal group’s

name, photographs in primary activities, amplify the

performances and play the same throughout the premises of the

Hotel.’ There is a fixed sum payable by the assessee to Gazal

group as compensation for performing at the Pakwan

Restaurant. Under such circumstances, the question arises as to

whether the payment made to Gazal group requires deduction

of tax at source u/s 194J of the Act, as has been held by the

authorities below.

6.3. Section 194J requires deduction of tax at source from

‘fees for professional or technical services.’ Sub-section (1) of

section 194J provides that : `Any person, not being an

individual or a Hindu undivided family, who is responsible for

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paying to a resident any sum by way of— (a) fees for

professional services, or (b) fees for technical services or ….

(c) royalty, or… shall, …… deduct an amount equal to ten per

cent of such sum as income-tax on income comprised therein’.

The term ‘professional services’ as used in clause (a) of

section 194J(1) has been defined in the Explanation as under :

`(a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;’

6.4. On going through the prescription of ‘fees for

professional services’, it emerges that the definition given in

clause (a) of the Explanation is exhaustive and not inclusive. It

is manifest that payment to Gazal group cannot be considered

as a quid pro quo for rendering services in the carrying on of

any legal, medical, engineering or architectural profession or

profession of accountancy or technical consultancy or interior

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decoration or advertising. What remains for consideration is

the last part of the definition of ‘Professional services’ being:

‘such other profession as is notified by the Board for the

purposes of section 44AA or of this section.’ Section 44AA

discusses about ‘any other profession as is notified by the

Board in the official Gazette.’ Rule 6F of the Income-tax

Rules, 1962 covers, inter alia, ‘film artist’, which term has

been defined in clause (c) of the Explanation to Rule 6F(2) as

under:-

“(c) "film artist'' means any person engaged in his professional capacity in the production of a cinematograph film whether produced by him or by any other person, as— (i) an actor; (ii) a cameraman; (iii) a director, including an assistant director; (iv) a music director, including an assistant music director; (v) an art director, including an assistant art director;

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(vi) a dance director, including an assistant dance director; (vii) an editor; (viii) a singer; (ix) a lyricist; (x) a story writer; (xi) a screen play writer; (xii) a dialogue writer; and (xiii) a dress designer.”

6.5. A perusal of the definition of ‘film artist’ given in Rule

6F divulges that it refers to any person who is engaged in his

professional capacity in the production of a cinematograph

film whether or not produced by him in the capacity of an

actor; a cameraman; a director, including an assistant director;

a music director, including an assistant music director; an

editor etc. also including `a singer’. No doubt `a singer’ is also

included within the definition of a ‘film artist’ but, the

condition precedent for such inclusion is that such a singer

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should be `engaged in his professional capacity in the

production of a cinematograph film’. Unless `a singer’ is so

`engaged in his professional capacity in the production of a

cinematograph film’ whether or not produced by him, he

cannot be considered as a ‘film artist’ for the purposes of Rule

6F and, in turn, section 194J of the Act.

6.6. While analyzing the Agreement between the assessee and

Gazal group, we have noticed that there is no production of

any cinematograph film during the performance by the Gazal

group, which is simply a live event and can be amplified

throughout the premises of the hotel. There is no clause in the

Agreement which permits the assessee-hotel to shoot the

performance given by the Gazal group and use it for any

performance thereafter. Since Gazal group is giving

simplicitor live performance, which is not even captured, what

to talk of resulting into any production of cinematograph film,

we hold that it cannot be considered to have rendered any

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‘Professional services’ requiring deduction of tax at source u/s

194J of the Act from the payments made by the assessee to

them. We, therefore, overturn the view taken by the authorities

below in this regard and hold that the provisions of section

194J are not applicable. Ex conseqenti, the deduction of tax at

source u/s 194C is in order. The assessee succeeds.

7.1. The next item under dispute is payment by the assessee to

M/s Glow Show Stage Events which was made during the

financial year 2006-07 after deduction of tax at source u/s

194C of the Act. The AO(TDS) has discussed the nature of this

payment on page 2 of his order by noticing that this agency

was hired as a `Consultant’ for promoting F&B (Food &

Beverages) outlet of the assessee providing services like

Advisory services for product upgrade, entertainment,

consultancy, sourcing entertainment from worldwide. Such

payment was held to be falling within the ambit of

‘Professional or consultancy services.’ That is how, section

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194J was applied treating the assessee in default u/s 201(1)

and also 201(1A). The ld. CIT(A) affirmed the view taken by

the AO on this issue.

7.2. We have gone through the Agreement between the

assessee and M/s Glow Show Stage Events, a copy of which

has been placed on page 9 onwards of the paper book. This

Agreement is, again, dated 26.8.2008. The ld. AR contended

that similar Agreement was entered into for the year in

question, which submission has remained uncontroverted by

the ld. DR. As such, we are espousing this Agreement for

consideration. This Agreement provides that M/s Glow Show

Stage Events (‘Consultant’) are specialized in promotional and

event hotel activities and are willing to handle the

enhancement of the brand value of the assessee’s F&B outlet.

Clause 2 provides that the `Consultant’ has agreed to render

services of promoting the F&B outlet LE BELVEDERE

Restaurant by providing following services to the hotel:-

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“a. Provide Advisory services in terms of the product offering and any upgrades that may happen from time to time. b. Entertainment Consultancy for the LE BELVEDERE RESTAURANT. c. Sourcing entertainment from worldwide resources d. Overseas travel for the sourcing of entertainment. e. Coordinating the visa and travel arrangements of the artists between the hotel and the artists prior to their arrival in the country. f. Ensuring that the artists are punctual and maintains the schedule of the performance. g. Coordinating with the Director of Food & Beverage and the Chief Operating Officer of the Hotel in ensuring that the right entertainment is provided for the right venue.”

7.3. Clause 3 of the Agreement provides that in consideration

to the services rendered by the Consultant, the hotel shall pay

a consolidated amount of Rs.1 lac per month to the Consultant

subject to TDS. A cursory glance at the nature of services

provided by the Consultant, namely, M/s Glow Show Stage

Events, discerns that they shall provide ‘Advisory services’

and ‘Entertainment consultancy’ for the restaurant of the

assessee. Sub-clauses (c) to (f) of Clause 2 are in the nature 23

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of sourcing entertainment from worldwide resources by

overseeing their travel arrangements etc. The larger duty of

M/s Glow Show Stage Events is to render Advisory services

and Entertainment consultancy to the assessee. It is in

discharge of rendering such services that M/s Glow Show

Stage Events has to find out resources which can be used in

providing such entertainment. In fact, the services referred to

sub-clauses (c) to (f) are an essential outcome and necessarily

flow from the main service of providing `Entertainment

consultancy’. It is pertinent to note that payment for

performance by the actual entertainers and their stay

arrangements is the sole responsibility of the assessee-hotel

and M/s Glow Show Stage Events has nothing to do with it as

it is simply concerned with their fixed monthly fee, which is

not dependent on the successful sourcing of a particular

entertainment from worldwide resources. It is further palpable

that there is no separate bifurcation of the fee payable by the

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assessee to M/s Glow Show Stage Events qua the services

rendered under sub-clauses (a) to (g) of Clause 2 of the

Agreement. Taking a holistic view of the services rendered by

M/s Glow Show Stage Events, the inescapable conclusion

which follows is that the nature of services provided by them

are `Consultancy’. In our considered opinion, such payment

falls within the purview of section 194J of the Act. The

contention of the assessee that the provisions of section 194C

were applicable, is hereby repelled as sans merit.

7.4. The next plank of the arguments of the ld. AR was that

even if payment to M/s Glow Show Stage Events was

considered as covered u/s 194J, the assessee still could not be

treated in default because the receipts from the assessee were

included by the payee in its total income.

7.5. In this regard, we find that the Hon’ble Supreme Court

in the case of Hindustan Coca Cola Beverages Ltd. VS. CIT

(2007) 293 ITR 226 (SC) has held that where the payee has 25

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already paid tax on the income on which there was a short

deduction of tax at source, recovery of tax cannot be made

once again from the tax deductor. Giving recognition to the

principle laid down by the Hon’ble summit Court in Hindustan

Coca Cola Beverages Pvt. Ltd. (supra), the legislature has now

inserted proviso to section 201(1) by the Finance Act, 2012.

This proviso stipulates that that any person who fails to deduct

the whole or any part of the tax in accordance with the

provisions of this Chapter on the sum paid/credited to a

resident shall not be deemed to be an 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 the tax due on the income declared

by him in such return of income, and the person furnishes a

certificate to this effect. In view of the judgment in Hindustan

Coca Cola Beverages Pvt. Ltd. (supra), we hold in principle

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that if deductee has included amount received from the

deductor in his total income, then, there can be no obligation

u/s 201(1) on the person responsible. But, in such

circumstances, it is always obligatory on the part of the

deductor to lead evidence showing that the deductee has

included the amount received from him in his total income and

paid tax due thereon. This responsibility falls on the assessee

who is obliged to show it to the satisfaction of the Department

that the deductee included the amount received from him in his

total income. Reverting to the facts of the instant case, we find

that though there is a contention raised on behalf of the

assessee that the deductee, namely, M/s Glow Show Stage

Events, included an amount received from the assessee in its

total income, but there is no evidence whatsoever available in

this regard. Accepting the contention of the ld. AR, we give

an opportunity to the assessee to lead evidence before the AO

(TDS) to demonstrate that M/s Glow Show Stage Events

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included the amount received from the assessee in its total

income. If the assessee successfully shows that the amounts

received by the deductee were included in his total income,

then to that extent, there will be no liability on the assessee u/s

201(1) of the Act.

7.6. It is however pertinent to note that the judgment

Hindustan Coca Cola Beverages Pvt. Ltd. (supra) does not

discharge the obligation of the assessee towards interest u/s

201(1A) notwithstanding the obliteration of demand u/s 201(1)

of the Act. Their Lordships in para 10 of this judgment have

categorically upheld the liability of the assessee towards

interest by relying on Circular No. 275/201/95-IT(B), dt. 29th

Jan., 1997 issued by the CBDT, declaring that this will not

alter the liability to charge interest under s. 201(1A) of the Act

till the date of payment of taxes by the deductee. It is further

observed that proviso to sub-section (1A) of section 201

provides in unambiguous terms that in case any person fails to 28

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deduct the whole or any part of the tax in accordance with the

provisions of this Chapter on the sum paid to a resident or on

the sum credited to the account of a resident but is not deemed

to be an assessee in default under the first proviso of sub-

section (1), the interest under clause (i) shall be payable from

the date on which such tax was deductible to the date of

furnishing of return of income by such resident. This proviso

reaffirms the liability of the assessee towards interest

irrespective of the deletion of liability u/s 201(1) on the reason

of payee including receipts from the person responsible in his

income.

7.7. To sum up, we hold that payment made to M/s Glow

Show Stage Events requires deduction of tax u/s 194J of the

Act. There will be no liability of the payer u/s 201(1) to the

extent of the payee including the amount received in its total

income and paying tax thereon. However, liability towards

interest u/s 201(1A) will still be there from the date on which 29

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such tax was deductible to the date of furnishing of return of

income by M/s Glow Show Stage Events even if the assessee is

not treated as in default u/s 201(1).

TDS ON TIPS TO EMPLOYEES 8.1. The solitary grievance of the Revenue in its appeals for

both the years under consideration is against the direction of

the ld. CIT(A) in holding that the assessee should not be

treated in default u/s 201(1) for non-deduction of tax at source

from tips made to employees and consequently no interest be

charged under sub-section (1A). The facts apropos this issue

are that the assessee was found to have added some tips from

its customers in the bills and the same were given to

employees without deducting any tax at source, apart from

certain tips given directly by the customers to the staff. The

AO held that tips included in the bills were in the nature of

‘Salaries’ to the employees covered u/s 17(1)(iv) read with

section 17(3)(ii) and hence deduction of tax at source was

ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015

required u/s 192 of the Act. He determined such liability u/s

201(1) for both the years in question and also worked out the

amount of interest under sub-section (1A). The ld. CIT(A)

upheld the view point of the AO(TDS) on this issue, but

allowed relief under sub-sections (1)/(1A) of section 201 by

treating such default as a bona fide belief of the assessee in

not deducting tax at source. This was so decided by relying on

the judgment of the Hon’ble Delhi High Court captioned as

CIT vs. ITC Ltd. (2011) 338 ITR 598 (Del), which also include

the assessee as one of the respondents. The Revenue is

aggrieved against the relief allowed in the first appeal on this

issue.

8.2. We have heard the rival submissions and perused the

relevant material on record. There is no dispute on the fact

that the amount in question represents tips added in the

customer bills and in turn given to staff on regular interval on

point basis. Insofar as the obligation of deduction of tax at

ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015

source on the amount of tips is concerned, we find that this

issue is no more res integra in view of the judgment of the

Hon’ble Delhi High Court in assessee’s own case captioned as

ITC Ltd. (supra), in which it has been clearly held that once

the tips are paid by the customers either in cash directly to the

employees or by way of charge to the credit cards in the bills,

the employees can be said to have gained additional income.

When the tips are received by the employees directly in cash,

the employer hardly has any role and it may not be even

knowing the amount of tips collected by the employees. That

would rightly be out of the purview of responsibility of the

employer under s. 192 of the Act. But, however, when the tips

are charged to the bill either by way of fixed percentage of

amount, say 10 per cent or so on the total bill, or where no

percentage was specified and amount is indicated by the

customer on the bill as a tip, the same goes into the receipt of

the employer and is subsequently disbursed to the employees

ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015

depending upon the nature of understanding and agreement

between the employers and the employees. It has been held by

the Hon’ble High Court that such receipts at the hands of

employees are nothing but their income for the purpose of s.

15 and as such the employer was an ‘assessee-in-default’ for

non-deduction of tax at source on account of banquet and

restaurant tips collected and paid by it to its employees.

8.3. Now, comes the question of obligation of the employer in

deducting tax at source on such tips u/s 192 of the Act. At this

juncture, we consider it expedient to discuss the judgment dt.

25th March, 2009 delivered by the Hon’ble Apex Court in CIT

VS. Eli Lilly & Company (India) (P) Ltd. (2009) 312 ITR 225

(SC). In this case, the issue for consideration was about the

home salary/special allowance(s) paid abroad to expatriate

employees by the foreign company, particularly when no work

stood performed for the foreign company and the total

remuneration was paid only on account of services rendered in 33

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India during the period in question. The Hon’ble Supreme

Court held that Sec. 192(1) has to be read with s. 9(1)(ii) and

the Explanation thereto and thus the assessee was duty-bound

to deduct tax at source under s. 192(1). Their Lordships

bifurcated the decision part in four compartments and gave

separate decision on each of them. The second part was on the

scope of section 192(1). Here it was held that : `In such a case

the tax-deductor-assessee was statutorily obliged to deduct tax

under s. 192(1) of the 1961 Act’. The third part was on the

scope of s. 201(1) and s. 201(1A). In this regard, it was held

that the object underlying s. 201(1) is to recover tax. In the

case of short deduction, the object is to recover the shortfall.

As far as the period of default is concerned, the period starts

from the date of deductibility till the date of actual payment of

tax. Therefore, the levy of interest has to be restricted for the

above stated period only. The AO was directed vide para 37 of

the judgment : `to examine each case to ascertain whether the

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employee-assessee (recipient) has paid the tax due on the

home salary/special allowance(s) received from the foreign

company. In case taxes due on home salary/special

allowance(s) stand paid then the AO shall not proceed under s.

201(1). In cases where the tax has not been paid, the AO shall

proceed under s. 201(1) to recover the shortfall in the payment

of tax’. As regards the interest liability u/s 201(1A), their

Lordships held that : `the AO shall examine and find out

whether interest has been paid/recovered for the period

between the date on which tax was deductible till the date on

which the tax was actually paid. If, in any case, interest

accrues for the aforestated period and if it is not paid then the

adjudicating authority shall take steps to recover interest for

the aforestated period under s. 201(1A)’. The last part taken

up was on the scope of penalty s. 271C for failure to deduct

the whole or any part of the tax as required by the provisions

of Chapter XVII-B. On this score, it was held that section

ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015

271C is subject to section 273B which provides that no penalty

shall be imposed on the assessee for failure to deduct tax at

source if he proves that there was a reasonable cause for the

said failure. It was finally held that no penalty was exigible

under s. 271C as the respondent discharged its burden of

showing reasonable cause for failure to deduct tax at source.

From the above discussion it transpires that the liability to

deduct tax at source u/s 192 has been sustained, the failure of

which attracts consequences u/s 201(1)/(1A) subject to the

employees including the amount in their total income and

paying due tax thereon and also the period of default. It was

only on the question of penalty u/s 271C, that their Lordships

deleted the penalty on the ground of bona fide belief of the

assessee.

8.4. Now we take up the judgment of the Hon’ble

jurisdictional High Court rendered in the case of the assessee

captioned as CIT VS. ITC Ltd. (supra). In this case, the 36

ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015

question was identical to the one before us, namely, taxability

of tips in the hands of the employees and liability of the

assessee-employer to deduct tax at source u/s 192 of the Act

on such amount of tips and consequences for non-deduction

u/s 201(1) and (1A). We have discussed supra that such tips

have been held by the Hon’ble High Court to be chargeable to

tax in the hands of employees. However, as regards the

obligation of the employer to deduct tax at source and the

consequential liability u/s 201(1), the Hon’ble Court held that

the benefit of bona fide belief be given to the assessees.

Following is the relevant extraction from the judgment : -

“Since the taxes were to be deducted from the amounts, which were the dues of the employees, no dishonest intentions could be attributed to the assessees. Thus, while reiterating the conclusion that the receipts of the tips constitute ‘income’ of the recipients and is chargeable under the head ‘Salary’ under s. 15 and that it was obligatory upon the assessees to deduct taxes at source from such payments under s. 192, in the given circumstances, the benefit of bona fide belief to the 37

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assessees can be given for the periods upto the assessment years in question. In the given circumstances, the cause of non-deduction of taxes as submitted appears to be sufficient being adequate, reliable and sound. Based on this reasoning, one cannot make them liable for levy of penalty as envisaged under s. 201.

8.5. However, levy of interest under s. 201(1A) has been held

by the Hon’ble High Court to be mandatory and accordingly

the same was sustained by holding that the same is neither

treated as penalty nor the said provision has been included in

section 273B to make ‘reasonableness of the cause’ for the

failure to deduct. It was, therefore, held that : “There is,

therefore, no question of waiver of such interest on the basis

that the default was not intentional or on any other basis.”

8.6. It can be noticed that this judgment of the Hon’ble Delhi

High Court was rendered on 11.5.2011, which is much after

the advent of the judgment of the Hon’ble Supreme Court in

Eli Lilly & Company (supra) given on 25th March, 2009. In

the absence of the ld. DR showing that such judgment of the 38

ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015

Hon’ble jurisdictional High Court in the assessee’s own case

has been modified in any manner, we respectfully follow the

same. Consequently, benefit of bona fide belief will be

available to the assessee, insofar as section 201(1) is

concerned, in the period anterior to the date of the judgment,

which is 11.5.2011. As the order passed by the AO(TDS) for

all the years in question is dated 30.3.2011, we hold that the

ld. CIT(A) was justified in waiving the liability u/s 201(1) vis-

à-vis tips given to the employees.

8.7. However, the obligation for interest u/s 201(1A) still

remains as has been clarified by the Hon’ble Delhi High Court

in the aforestated case of the assessee with the caption of ITC

Ltd. (supra). The action of the ld. CIT(A) in also erasing the

liability u/s 201(1A) is, therefore, set aside. We, therefore,

hold that the assessee is liable for interest u/s 201(1A) in

respect of non-deduction of tax at source from tips given to its

staff.

ITA Nos.4791, 4792, 4793, 4794,5347 & 5349 /Del/2011 ITA Nos.21,22, 25&26/Del/2015

years under consideration are partly allowed; two separate

appeals for each year filed by the Revenue are dismissed as

infructuous; and consolidated appeals of the Revenue for each

of the two years are partly allowed.

Order Pronounced in the open Court on 10.03.2016.

Sd/- Sd/-

[A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated, 10th March, 2016. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.