TMI Blog1993 (9) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... were not applicable. This contention was rejected by the Assessing Officer as in his view, the luxury tax levied by the State Government was part of " room charges " and when so considered, the room charges exceeded Rs. 400 to attract the impost. He further observed that the assessee collected luxury tax from its customers and the same thus formed part of room rent. The Assessing Officer accordingly applied provisions of Expenditure Tax Act and brought to charge the " chargeable expenditure " in assessment separately made for each of the year under appeal. 3. The assessee impugned the levy in appeal before the CIT(A) and reiterated its claim but without any success. The learned CIT(A) remarked that the luxury tax was applicable only to certain luxury hotels and if an inmate was to get services and facilities in a luxury hotel, he has to pay luxury tax. Thus luxury tax was not to be considered in isolation but as part of room tariff. Just as sales-tax paid to the seller was part of cost of goods purchased, the luxury tax paid by a customer in a hotel appears to form part of room charges. No doubt, the luxury tax would be excluded from the " chargeable expenditure " for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wvg. Mills Co. Ltd. [1960] 40 ITR 142, for the proposition that if the words of a taxing statute fail, then so must the tax. The courts cannot accept rarely and in clear cases help the draftsman by a favourable construction. 5. The learned departmental representative fully supported the order of CIT(A). He contended that the expression, " room charges " under section 2(10) was an expression of wide import and included every type of charges payable by a customer to a hotel for occupying a room. As luxury tax was to be paid by the occupier, it is part and parcel of " room rent ". " Any other services ", according to the learned departmental representative, was also expression of wide import and would include every kind of service be that manual or otherwise. Thus considered luxury tax which is normally included in the room rent by hotels has to be held part of room charges. Learned departmental representative pointed out that luxury tax was collected by the assessee in the assessment year under appeal. He further relied upon circulars of CBDT justifying inclusion of luxury tax in room charges under sub-clause (b) of section 2(10). Shri Kandhari, in rebuttal brought to our notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which the Legislature wishes to impose a curb. The idea is to encourage society to cater better to the needs of those who cannot afford them. For instance, a luxury tax may, to cite a catchy example encourage construction of ' Janata ' hotels rather than five star hotels." It is thus clear that luxury tax is a levy imposed by the State for a public purpose. It is not collected as fees for any services rendered. It is a compulsory extraction of money by public authority without promise to render any services. There is total absence of quid pro quo between the payment made and the benefit realised. Luxury tax is thus an impost truly described as a tax and not a fee charged for any services rendered or promised. In the case of Indian Mica Micanite Industries Ltd. v. State ofBihar AIR1971 SC 1182, the Supreme Court observed as under : "From the above discussion, it is clear that before any levy can be upheld as a fee, it must be shown that the levy has reasonable correlationship with the services rendered by the Government. In other words, the levy must be proved to be a quid pro quo for the services rendered. 7. Shri Kandhari during the course of hearing laid considerable s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e " for purposes of computing the levy. Charges for " food or drink " or any other services at hotel as enumerated in separate clauses are specifically included in " chargeable expenditure ". These very expenditures are excluded in the definition of " room charges ". This shows that policy adopted by the Legislature in the definition of " room charges " for purposes of application of provision is quite different from the policy adopted from computing and defining the levy. In the case of Federation of Hotels Restaurants the court observed as follows : " The subject of a taxis different from the measure of the levy. The measure of the tax is not determinative of its essential character." The converse is equally true. Thus mere exclusion of tax from " chargeable expenditures " more as a matter of policy would not mean than tax cannot be room rent or room charges. All the same sub-clause (iv) does reflect that the Legislature had no intention to levy expenditure tax on taxes incurred as expenditure. 8. The answer to the problem before us, in our view has to be found by properly considering the text, setting and context of provisions of section 2(10) and section 3 of the Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices in a room, and not the gross payment made for occupying a room. This intention is clear from the language employed as we would presently attempt to show. 10. " Room charges " in section 2(10) are stated to mean charges for a unit of residential accommodation in a hotel and includes charges for furniture, air-conditioner, etc., mentioned in sub-clauses (a). In sub-clause (b), charges for " such other services as are normally included by a hotel in room rent " are included. Down below sub-clauses (a) and (b), charges for food, drinks and any services other than those referred to in clauses (a) and (b) are specifically excluded. Thus common string binding both inclusionary and exclusionary clauses is " charges " for services provided. The expression " other services " in sub-clause (b) according to the Revenue is entitled to be given such meaning as to include luxury tax. This contention, in our view, is devoid of any substance. As already discussed, luxury tax by stretch of no imagination can be taken to be fee or charges for any services rendered. It is truly described as tax pure and simple collected by the State in exercise of governmental power and cannot be taken as a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But all situations relate exclusively to " charges " for services rendered or provided. There is not even a remote suggestion in the application provision to consider " charges " de hors the " services " rendered or provided. The element of charges for services is all pervading and charges without services cannot be envisaged. A harmonious and plain reading of section 3 and section 2(10) leaves no amount of doubt that expression " room charges " is used in a generic sense to cover charges for items enumerated in sub-clause (a) and charges of services provided and normally included in " room rent " and not total burden, a customer has to bear for occupying a room for residential accommdation in a hotel. In holding that sub-clause (b) covers the matter, the lower authorities wrongly took luxury tax as a charge for services and further ignored that the expression " other services " is qualified by the words " as are normally included in a room rent ". For the reasons already given, we see no justification for upholding the above approach. The luxury tax therefore cannot be treated as part of room charges on plain reading of the provision defining room charges. 12. The revenue furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed. Per CH. G. Krishnamurthg, President -- I am in entire agreement with the conclusion reached by my learned Brother and also the reasons given. On the applicability of the principle of construction of statutes, namely ejusdem generies, I have my reservations. A taxing statute has to be strictly construed. This rule has been expressed in different language in different cases : " In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." (See CIT v. MG Mills AIR 1971 SC 2434). There is no dispute that if luxury tax is included in the room charges, for any unit of residential accommodation at the time of incurring of such expenditure, it would exceed the prescribed minimum of Rs. 400 per day per individual and thus the assessee would come within the net of Expenditure Tax Act otherwise it is much below the prescribed limit of Rs. 400 per day. That was how this question of including luxury tax in the room service charges had assumed importance. Before we proceed furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x under this Act. Explanation : For the purposes of this clause--- (a) expenditure incurred or any payments made in Indian currency obtained by conversion of foreign exchange into Indian currency shall in such cases and in such circumstances as may be prescribed be deemed to have been incurred or, as the case may be, made in foreign exchange ; and (b) ' foreign exchange ' and ' Indian currency ' shall have the meanings respectively assigned to them in clauses (h) and (k) of section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973) ; (2) in relation to a restaurant referred to in clause (2) of section 3, means any expenditure incurred in, or payments made to, a restaurant in connection with the provision of food or drink by the restaurant, whether at the restaurant or outside, or by any other person in the restaurant but does not include any expenditure referred to in sub-clauses (ii) and (iv) of clause (1)." By section 7 of the Act the responsibility of collecting the expenditure tax as specified in section 4, which we have referred to above, is placed squarely upon the person running the hotel. The person running the hotel is thus constituted as an agent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. It is only in case they fail to collect the tax that they have to pay it from their own funds. Otherwise this is a tax levied to curb as provided for in the objects the ostentatious expenditure. 2. Now with this background if we see what should be the meaning of the word " room charges ". The room charges means the charges for a unit of residential accommodation in a hotel and includes the charges for furniture, air-conditioner, refrigerator, music, telephone and television and such other services as are normally included by a hotel in room rent but does not include charges for food, drinks etc. Now whether the luxury tax imposed by the State Government is a tax levied for rendering any services as are normally included by a hotel in room rent and whether the services spoken of in sub-clause (b) or the same as and are comparable to what are mentioned in sub-clause (a), that is the question, that has to be resolved. A plain reading of this clause would show that the expression " such other services " must refer only to the payment made for providing any services, which are normally included by a hotel in room rent and not otherwise. It is difficult to accept the proposition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om sub-clause (a), the words " other services " must take in the context in which they are used from such services as are provided for in sub-clause (a). Without reference to the services mentioned in sub-clause (a) the expression " such other services " in sub-clause (b) will not have any specific meaning because it is further restricted by the expression " as are normally included by a hotel in room rent ". In other words " such other services " as are normally included in room rent which partake the character of providing furniture, air-conditioner, refrigerator, radio, music, telephone and television can only be considered as other services. Construed this way, ' such other services ' referred to in sub-clause (b) are the general words, which precede the particular words referred to in sub-clause (a), which serves as a list or string or a family of genus, and which describes the items that are to follow in the verbal context and linguistic implications of the words in sub-clause (a) explains the meaning of the words used in sub-clause (b). That is how the statutory interpretation referred to in the Supreme Court decision must be construed in to say that the draftsmen must be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idity of the expenditure tax assumes importance. The Supreme Court in the case of Federation of Hotels Restaurants observed as under : " Object of the tax on luxury is to impose a tax on the enjoyment of certain types of benefits, facilities and advantages on which the Legislature wishes to impose a curb. The idea is to encourage society to cater better to the needs of those who cannot afford them. For instance, a luxury tax may, to cite a catchy example encourage construction of ' Janta ' hotels rather than five star hotels." Further there is no quid pro quo between the payment made and the benefit realised, the luxury tax is a tax and not a fee charged for any services rendered or promised. The luxury tax being thus an extraction compulsorily made by the State without any promise to render any services cannot be considered as a service rendered by the hotelier to its guests. Judged by this standard of the difference between the tax and the fee, the luxury tax cannot be considered as a service much less other services akin to the kind of services mentioned in sub-clause (a) of sub-section (10) of section 2. 5. We have already mentioned above that the charging section 4 men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the luxuries. The manner in which the room charge is to be ascertained out of the composite charge, lends further support to the view that a room charge as defined in section 2(10) cannot include any tax imposed other than the charge levied for rendering of a service. 6. It is to be home in mind that luxury tax is a tax imposed on the provision of luxuries by hotels. This tax, as we have pointed out above, is levied by the State Government. The Karnataka Act defines luxuries provided in a hotel more elaborately i.e. to include Air-conditioner, telephone, television, radio, music, extra beds and other amenities for which charges are compulsorily payable. It is this expanded definition that was also borrowed most probably into the Expenditure Tax Act also. So a tax levied by the State Government for luxuries provided in a hotel is not so different from the taxable event under the Expenditure Tax Act also. Thus when the object of levy of tax is more or less the same and in any case not so different, how can the tax levied for achieving the same objective by a State Government, which is also a part of the Government, can be considered again as a service provided by the hotelier. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 3, 5 and 2(10) made it abundantly clear that the expression " room charges " for the purpose of the Act, means only the room rent and the charges for providing residential accommodation and other services like privilege and facilities in a room but not the gross payment made by a customer for occupying the room. 10. The revenue has given clarification by a circular dated15-3-1993that : " Luxury tax and such other taxes levied by the State Governments will form part of the ' room charges ' as the customer is required to pay these taxes to the hotel." This clarification, in our opinion, is not a proper understanding of the expression " room charges ". In response to a query made by the Secretary General, Federation of Hotel and Restaurant Association ofIndia, the Deputy Secretary, Government of India, Ministry of Finance by a letter dated10-1-1989also stated that the luxury tax will have to be included for the purpose of ascertaining the room charges. The submission of the Revenue has been that in view of these circulars and clarification, the Revenue has rightly included the luxury tax in the room charges. It is also argued that these circulars issued by the Board are b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar can only confer benefits on the assessees even by departing from the strict tenor of the statutory provision by mitigating the rigour of the law, it cannot impose an additional burden on the taxpayer. This shows that if the circular goes against the tenor of the statute and impose a higher burden on the taxpayer than what the Act itself envisages, then such a circular can be departed from by the Tribunal not only because the circular travelled beyond the scope of the Act but such circulars are not even binding, inasmuch as, it is the function of the Tribunal as well as of the High Courts, to interpret the law. In that process of interpretation these circulars can only constitute an external aids to construction. Thus, in our opinion, the circular issued by the Board has placed a higher burden on the taxpayer than what the Act envisages. Further more this circular was issued by way of clarification sometime on15-3-1993. If this is a circular issued within the meaning of section 31 of the Expenditure Tax Act with a view to remove difficulties, then such circular shall not be made after the expiry of the period of two years from the commencement of the Act. The Expenditure Tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atute fail, the tax also must fail. This was the law enunciated by the Supreme Court in dealing with the interpretation of the Finance Act of 1951, Schedule 1, Part 1, Para B for the purpose of levy of additional income-tax on excess dividends.The Supreme Court held in that case reported as Elphinstone Spg. Wvg. Mills Co. Ltd. : " If the words of a taxing statute fail, then so much the tax. The courts cannot, except rarely and in clear cases, help the draftsmen by a favourable construction. It is for the Legislature to avoid anomalies, which spring not from judicial interpretation but from the language employed by it." We do not wish to say further on the subject except to state that the language of section 2(10) looked at from any angle does not support the view taken by the Revenue that luxury tax imposed by the State Government can be equated to the services rendered by the hotel so that it could also be included as a component forming part of the room charges within the definition of section 2(10) of the Expenditure Tax Act. 14. Dealing with the argument of the learned Departmental Representative that the charges levied by a hotelier should be viewed from the customer's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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