ITC LIMITED GURGAON versus COMMISSIONER OF LT. (TDS) DELHI

Citation: [2016] 3 S.C.R. 23 · Decided: 26-04-2016 · Supreme Court of India · Bench: KURIAN JOSEPH

Judgment (excerpt)

[2016] 3 S.C.R. 23 
lTC LIMITED GURGAON 
v. 
COMMISSIONER OF LT. (TDS) DELHI 
(Civil Appeal Nos. 4435-37 of2016) 
APRIL 26, 2016 
[KURIAN JOSEPH AND R.F. NARIMAN, JJ.J 
Income Tax Act, 1961: s.192 - Applicability of - Held: If an 
employee receives income chargeable under a head other than the 
head ··salaries", then s.192 does not get attracted at all - In the 
instant case, assessee was engaged in the business of hotels and 
paying tips collected fro111 custo111ers to its employees but not 
deducting taxes thereon -
Assessing Officer erred in treating the 
receipt of the tips as income under the head 'salary' in the hands of 
the various employees and in holding that assessee is liable to deduct 
tax at source from such payments uls.192 of the Act - As income 
fro111 tips would be chargeable in the hands of the employees as 
income ji·om other sources, such tips being received fro111 customers 
and not from the employer, s.192 is not attracted - The payments 
received by the e111ployees have no reference whatsoever to the 
contract of e111ployment and are received from the customer, the 
employer only being a conduit in a fiduciary capacity in between 
the two. 
Allowing the assessees' appeals and dismissing the 
revenue's appeal, the Court 
HELD: 1. Under sub-section (1) of Section 192, "any person 
responsible" for paying any income chargeable under the head 
"salaries" is alone brought into the dragnet of deduction of tax at 
source. The person responsible for paying an employee an amount 
which is to be regarded as the employee's income is only the 
employer. In the facts of the present case, it is clear that the 
person who is responsible for paying the employee is not the 
employer at all, but a third person - namely, the customer. Also, 
if an employee receives income chargeable unde,r a head other 
than the head "salaries", then Section 192 does not get attracted 
at all. As income from tips would be chargeable in the hands of 
23 
A 
8 
c 
D 
E 
F 
G 
H 
24 
SUPREME COURT REPORTS .· 
[20I6J 3 s:c.R. 
A · the employees as income from other sources, such tips being 
rec.eived from customers and not from the employer, Section 192 
would not get attracted at all on the facts of the present case. 
[Paras''12, 13) (33-E-G; 34-C) 
B 
c 
D 
E 
2. Section 15 of the Act is in three parts. Sub-clause (a) 
refers to salary that is "due" from an employer or a forme'r 
employer, whether paid or not. Under this sub-clause, salary is 
taxable upon accrual - it matters not whether payment is actually 
made or riot. On the other hand, under sub-clause (b), any salary 
that is paid or allowed to an employee by or on behalf of an 
employer or former employer though not due, or before it becomes 
due; ·becomes taxable. Under this sub-clause, it matters not 
whether the salary is at all due. Payment made or allowance given 
to the employee by or on behalf of an employer or former employer 
is sufficient to bring such payment or allowance to tax under the 
said sub-clause. Under sub-clause (c) any arrears of salary paid 
or ~llowed to an employee by or on behalf of an employer or 
previous employer if not earlier charged to income tax 1n any 
previous year is also brought to tax. It can be seen, on an analysis 
of Section 15, that for the said Section to apply, there should be a 
vested right in an employee to claim any salary from an employer 
or former employer, whether due or not if paid; or paid or allowed, 
though not due~ ln the present case, it is clear that there is no 
vested right in the employee to claim any amount of tip from his 
employe1: Tips being purely voluntary am~unts 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, salary must 
f,. 
be .paid or allowed to an.employee in the previous year "by or on 
behalf of'' an employer. Even assuming that. the expression 
G 
H 
· "allowed" is an expression of width, the salary must be paid by 
' ()r on' behalf of an employer; It must first be noticed that the 
expression "employer" is different from the expression "person". 
An "employer" is a person who employs another person under a 
contract of employment; express or implied, to perform work for 
die employe·r .. Therefore, Section 15(b) necessarily has reference 
to the contract of employment between employer and employee, 
·and salary paid or allowed must therefore have reference to such 
contract of employment.· The amount of tip 

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