9911796707
TMI Blog1993 (3) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... rements of the Tourism department in the classification of a hotel business with hotel as defined under the Expenditure Tax Act. (3) The learned CIT(A) erred in relying on extraneous requirements for other purposes while considering the legal provisions of the E.T. Act as observed by him in para 16 of the order for assessment year 1988-89. (4) The learned CIT(A) erred in not appreciating the real intent of the word 'includes' in the definition of the hotel under section 2(6) of the E.T. Act and expanding the definition to cover the interpretation and requirements for purposes not connected with the assessment under the E.T. Act. (5) The learned CIT(A) erred in not appreciating distinction between properties let out as part of business of hotel under the I.T. Act and the hiring or providing residential accommodation for monetary considerations under the E.T. Act. (6) The learned CIT(A) erred in observing in para 18 that leasing out of part of hotel building as interpreted by him is not distinct from the company's hotel business and also relying on the inclusion of such income in "hotel business" income presumably under the I.T. Act. Further he erred in applying the so-called "wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customer in the hotel and hence it cannot become chargeable expenditure under the E.T. Act irrespective of the manner in which or the time when such discount is allowed to the customer. He ought to have appreciated the concept of "real expenditure" which should be chargeable under the E.T. Act. (16) The learned CIT(A) erred in not appreciating that the sales at Baker's basket are effected outside the hotel and that such expenditure is not incurred by the customer in the hotel as defined in the E.T. Act. (17) The learned CIT(A) erred in interpreting the provisions of E.T. Act beyond the intent of law, provisions of the law and by relying on extraneous factors not connected with such interpretation. (18) The learned CIT(A) erred in not appreciating that the activities of the hotel undertaking cannot be equated with all the activities carried on by the company owning the hotel. (19) The appellant craves leave to add or to withdraw or to modify any of the grounds of appeal at the time of hearing. " 4. However, at the time of hearing, the learned counsel for the assessee has withdrawn ground No. 16 relating to sales at Baker's basket. 5. The appellant company is an assessee-hotel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rental income from hiring shops or office premises fell under sub-sections (a) and (c) of section 5(1). The stand taken by the Assessing Officer was that the lease rent or hire charges of shop or office premises of the hotel complex are covered by the definition of chargeable expenditure, even if they do not form an integral part of the hotel. Similar, reasoning is applied by the Assessing Officer for sale proceeds of Baker's Basket and flight kitchen. As regards service charges, the case of the Assessing Officer was that the assessee has uniformly levied at 10% from all the customers and they were shown as part and parcel of the price of accommodation, food, drink etc. and Expenditure Tax has also been charged at the rate of 10% on the amounts of the bills which included the service charges and which revealed that the assessee itself has considered service charges as part and parcel of the expenditure incurred by the customers. The Assessing Officer also repelled the contention of the assessee to exclude such service charges from the computation of chargeable expenditure. The fact that it was collected on behalf of the employees was not enough reason to exclude this amount from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax purposes. The point made out by him was that such rental income from shops or offices was considered as business income of hotel and not as property income of the landlord of the building. He also pointed out that as per assessee's own claim made before the Government of India, Ministry of Tourism in its application that it has various facilities which would entitle it to be considered as Five-Star category. Thus, according to the assessee's own showing, Five Star facilities were made available in the assessee's hotel as part of its hotel business, vide the description of various services in clauses (a) to (i) of para 15 of the impugned order of the Commissioner (Appeals). The Commissioner (Appeals) referred to the definition of hotel contained in section 2(6) of the Expenditure Tax Act, 1987 which is an inclusive definition to include not only a hotel as generally understood, but also to include a building or a part of building where residential accommodation is, by way of business, provided for a monetary consideration. The assessee has let out a part of the building on hire or lease to various shops and offices as part of its hotel business which is evident from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the bills and fell within the ambit of chargeable expenditure. There was also no evidence of diversion of service charges at source by way of overriding title, vide para 24 of the impugned order. 16. Coming to the discount claimed by the assessee, the Commissioner (Appeals) noticed that discount has been allowed after the assessee had already charged expenditure tax on the total bill and also collected expenditure tax on the gross amount of the bill before allowing any discount and therefore, there could be no grievance on the part of the assessee. Therefore, he confirmed the action of the Assessing Officer that the gross amount of the bill should be considered for the purpose of levy of expenditure tax and not net amount of the bill, vide para 25 of the impugned order. 17. The Commissioner (Appeals) also held that there is no ambiguity in the statutory language employed in sections 2(6), 3(1) and 5 of the Expenditure Tax Act and as the legislative intent is clear on a plain reading of the aforesaid provisions, resort to any interpretative process to unfold the legislative intent would become impermissible. The observations of the Courts were relied upon to bring home this po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made over to the staff and only 15% thereof is offered for taxation in the hands of the hotel. However, admittedly the assessee has charged expenditure tax on the gross bill issued including the service charges of 10% over the expenditure on accommodation or food and drinks. In this connection, an agreement between the workers and the employer existed by way of settlement under section 12(iii) of Industrial Disputes Act, 1947. Demand No. 16 made by the workers pertained to service charges. It was settled that the departmental managers who are presently entitled to service charges at the rate applicable to Grade 1 shall now be entitled to service charges at the rate applicable to Grade 4 with effect from service charge for the month of November 1982. The Managing Director's letter dated 20-9-1972 contained in the paper compilation pages 10 to 12 shows that out of the total amount of service charges collected during the month, 15% will be retained by the management to cover breakages, pilferage etc., and the balance 85% will be distributed to 4 categories of staff ranging from 17% to category IV employees and 30% to category X employees. Fourthly, discount has been allowed on pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure in terms of section 5(1)(c). Reliance was also placed on the C.B.D.T.'s Instruction No. 1844 Item No. 4 which has been extracted by the Commissioner (Appeals) in his appellate order. He pointed out that such rentals were also shown by the assessee as business income for the purpose of Income-tax assessment. 20. Again in respect of catering services rendered to Indian Airlines flight kitchen he urged that there is no dichotomy between the Hotel Blue Diamond and such catering services. According to him clause (b) of section 5(1) would cover such catering services because such clause covers provision of food or drink whether at the hotel or outside the hotel. He would urge that even services outside the survey number in which the hotel building is situated could also be covered by clause (b) of section 5(1). Regarding service charges collected by the assessee, he pointed out that clause (a) and clause (b) of section 5(1) would apply as they formed part and parcel of the bills issued and even the assessee has charged expenditure tax on the gross bill including service charges so included. As regards discount allowed to the customers, he discounted the discount theory urged by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort the Act). Section 3 of the Act also covers the chargeable expenditure incurred in a restaurant. Section 4 deals with the rates of levy of Expenditure Tax on chargeable expenditure incurred in a hotel or a restaurant. Section 5 of the Act is more important because it defines the scope of the chargeable expenditure incurred in hotel and also in restaurant which are similar in scope. 24. Before considering the scope of section 5 of the Act, it is necessary to conjure up in the mind a circle drawn from a centre and the circle is divided into several segments formed by straight lines drawn from the centre to the circumference and each segment representing a distinct and different nature of services rendered or facilities provided. While the centre represents the residential accommodation and the restaurant facilities provided by the hotel, the segments may represent book stall, left luggage room, a barber shop, a travel agency, a beauty parlour, money changing facility, safe deposit facility, florist, store selling toilet, requisite, and medicines etc. The size of the circle varies with the status of the Hotel as regards the number of star services provided. 25. Sub-section (1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion that clause (c) of section 5(1) covers the case of persons who carry on business in such hotels in shops taken by them either on hire or on licence basis. As a corollary, any payment made to the hotel in respect of any accommodation in such hotel taken on hire or lease basis amounted to chargeable expenditure for which the assessee is responsible to deduct expenditure tax and pay the same to the credit of the Government of India. In our view, the ratio of the Delhi High Court applies squarely to the rent charged from shops, offices and thus constitute chargeable expenditure within the meaning of section 5(1)(c) of the Act and not section 5(1)(b) as held by the Commissioner (Appeals). 26. Coming to clause (b) of section 5(1) it covers any expenditure incurred in or payments made to hotel in connection with provisions of food or drink by the hotel itself whether at the hotel site or outside hotel or provided by any other person at the hotel. This clause also extends the sphere of activity beyond the confines of hotel as defined by section 2(6) so as to cover the expenditure incurred in or payment made to hotel for provision of food and drink outside hotel or by any person pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r words, clause (d) pertains to the various Star services rendered in various segments of the circle. It is to be noted that this clause is inclusive and the words "other services" contemplate any kind of other services made available in the hotel complex which all go to make up the Five Star services, except the four exceptions contained in clauses (i) to (iv) thereof with which we are not concerned. It is also significant to note that the word "at" appearing in clause (d) in contra-distinction to the word "in" appearing in clause (i) and clause (c). The scope of services rendered at the hotel is wider than the scope of services rendered in the hotel, so to say. In other words, services rendered outside the hotel but within the circle of hotel complex are also covered by clause (d) if they are essential and integrated and recognised by the Tourism Development Corporation of India and various State Departments which all go to make up Five Star facilities. 28. As regards service charges, admittedly, the service charges of 10% are uniformly collected both in respect of accommodation provided as well as food and drinks supplied to the customers. Thus, it has become part and parcel of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax, such net receipt is accounted for as business receipts. There could be no different treatment for Income-tax and Expenditure Tax especially when what goes out of the pocket of the customers constitutes chargeable expenditure which is only the net expenditure and not the gross expenditure incurred by him. Here the case of assessee has merit and therefore, its claim that the discount allowed is to be reduced from the chargeable expenditure has force and therefore, it has to be upheld. We are not concerned here with the aspect of collection of Expenditure Tax even on discount allowed. 30. Section 7 of the Expenditure Tax Act deals with collection and recovery of expenditure tax and this section is also helpful to resolve the issues involved in these appeals. Clause (a) of section 7(1) specifies that in respect of any services mentioned in clauses (a) to (d) of sub-section (1) of section 5 provided by the hotel the person who carries on business of such hotel shall be responsible to collect the expenditure tax at the rates specified in clause (a) of section 4. Clause (b) of section 7(1) refers to services specified in sub-clauses (b) and (d) of clause (1) of section 5 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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