In Brief
Hotel employers were surveyed and found to be paying tips collected from customers to their employees without deducting tax at source under Section 192 of the Income Tax Act, 1961. Tax authorities treated employers as assessees-in-default and levied tax and interest. The High Court upheld this, treating tips as 'salary' payable by the employer. The Supreme Court reversed the High Court's judgment, holding that tips are not 'salary' under the Act; they are voluntary payments by customers to employees. The employer acts only as a trustee or conduit, not as the payer of salary. Tips are thus income from other sources in the hands of employees, not subject to employer deduction obligations under Section 192. Consequently, employers cannot be assessed as defaulters or liable for interest."
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