Explain with reasons whether the Company is responsible for deducting tax at source from disbursement of tips to its employees?

In respect of tips collected by the company from the guests and distributed to the employees, the person responsible for paying the employee was not the employer at all, but a third person, namely the guest. The payments of collected tips included and paid by way of credit cards, UPI or Net Banking in the bills by guest, would not be payments made "by or on behalf of" an employer. The contract of employment not being the proximate cause for the receipt of tips by the employee from a guest, such payments would be outside the scope of Sections 15 and 17 of the Income tax Act, 1961. There is no employer-employee relationship between customers and the employees of Nahar Hotels and Resorts Ltd. and therefore, such payments do not fall in the nature of salary. This view is supported by Supreme Court judgment (ITC Ltd v. CIT (2016) 384 ITR 14 (SC). On account of such tips being received from guests and not from the employer, Section 192 of the Income tax Act, 1961, would not get attracted at all in the hands of Nahar Hotels and Resorts Ltd. Thus, the company is not responsible for deducting tax at source from disbursement of tips to its employees.