SC : Tips collected by hotel from customers and paid to employees couldn't be taxable as salary

Issue

"Whether tips collected by a hotel from customers and paid to employees could be chargeable as salary in hands of employees?"

The Supreme Court held as under-

(1)   Section 15 of the Income-tax Act which talks about salaries provides that there should be a vested right in an employee to claim any salary from an employer. (2)   Tips being purely voluntary amounts that may or may not be paid by customers for services rendered to them would not fall under Section 15 as there is no vested right in the employee to claim any amount of tip from his employer. (3)   Further, the said section provides that salary paid or allowed must have reference to contract of employment, i.e., an amount paid under contract of employment could only be treated as salary. (4)   In the instant case, the amount of tip paid by the employer to the employees had no reference to the contract of employment at all. Tips were received by the employer in a fiduciary capacity as trustee for payments that were received from customers which it disburse to its employees for service rendered to the customer. (5)   Hence, tips so disbursed to employees couldn't be chargeable to tax as salary.