TMI Blog2016 (3) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... liability of the person (other than an individual or HUF) making payment to deduct TDS at the time of making such payment. Question whether any part of the payment received by the hoteliers, who are members of FHRAI, from persons other than individuals and HUFs, can be construed as ‘rent’ within the meaning of Section 194-I of the Act is answered in the affirmative. The contention of the Petitioners that no part of the payment received by them as room charges falls within the ambit of 'rent' under Section 194-I of the Act is hereby rejected. The Court nevertheless clarifies that it will depend on the facts of every case, and the onus would be on the concerned hotel to show, whether the payment made by the customers to the hotel includes any payment that can be said to be outside the ambit of 'rent' as defined under Section 194-I of the Act. fall outside the ambit of Explanation to Section 194-I of the Act. - W. P. (C) 1924/1999, W. P. (C) 2130/1999 - - - Dated:- 23-3-2016 - S. Muralidhar And Vibhu Bakhru, JJ. For the Petitioners : Mr Lalit Bhasin, Advocate with Ms Ratna Dwivedi Dhingra and Ms Bhavna Dhami, Advocates. For the Respondent : Mr Ashok Manchanda, Seni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and twenty thousand rupees. Explanation - For the purpose of this section, - (i) rent means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of any land or any building ( including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee; (ii) where any income is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. 5. It is necessary to note that the definition of 'rent' in Section 194-I of the Act has since undergone a change. It now reads as under: 194-I. Any person, not being an individual or a Hindu undivided family, who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. 6. According to the Petitioners, initially even the Income Tax Department ( Department ) understood the above provision as not applying to the hotel industry and therefore, did not issue any orders or directions to any hotel in that regard. 7. The Central Board of Direct Taxes ( CBDT ) issued Circular No. 715 of 1995 which inter alia provided the following clarification: Question 20: Whether payments made to a hotel for rooms hired during the year would be of the nature of rent? Answer: Payments made by person other than individuals and HUF's for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under Section 194- I. Initial challenge to Section 194-I 8. East India Hotels Limited ( EIHL ) challenged the applicability of Section 194-I of the Act to hotels by filing Writ Petition No. 105 of 1995 in the High Court of Bombay. By an order dated 2nd February 1995, the Bombay High Court stayed the applicability of Section 194-I of the Act. Letters by way of clarifications were issued by the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le directing notice to issue in this writ petition a similar interim order was passed. 14. In the meanwhile, similar writ petitions were filed in the High Court of Madras challenging the applicability of Section 194-I of the Act to payments being made by the companies for hotel stay of their employees or others authorized by them. The aforesaid writ petitions were disposed of an order dated 23rd February 2001 with directions to CBDT to give a hearing to the Petitioners in the said writ petitions and other hotels and lay down proper guidelines for the assessing authority with regard to the scope of Section 194-I of the Act and the manner in which it is to be implemented. 15. Pursuant to the said order of the Madras High Court, a hearing was given to those Petitioners and the CBDT issued a Circular No. 5 of 2002 dated 30th July 2002 clarifying that the payment made to the hotel for hotel accommodation, whether in the nature of lease or license, was covered within the meaning of rent , so long such an accommodation was taken on regular basis. It was further clarified that wherein the agreement was in the nature of rate contract , it could not be said to be accommodation taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other facilities like restaurant, beauty salon, barber shop, health club, business centre service etc. It can at best be a licence fee. Reliance was placed on the decision in State of Punjab v. M/s. Associated Hotels of India Limited AIR 1972 SC 1131, Northern India Caters (India) Ltd. v. Lt. Governor of Delhi (1979) 1 SCR 557, Hotel and Restaurants Association v. Star India (P) Limited 2006 (12) SCALE 543 and The Federation of Hotels Restaurants Association of India v. Union of India AIR 2007 Del 137. (v) An analogy is sought to be drawn with the definition of 'landing charges' collected at airports which was interpreted in Japan Airlines Company Limited v. Commissioner of Income Tax (2015) 377 ITR 372 (SC) as including charges for landing and take-off services as well as parking of aircrafts collected by the Airport Authority of India. It was held not to merely mean charges for use of land but for services and facilities offered in connection with the aircraft operation at the airport. Likewise, the stay of a guest in a hotel room did not involve use of land or building alone within the meaning of Section 194-I of the Act. (vi) Circular No. 5 of 2002 is vague as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as it mandated deduction of TDS from the room charges where the giving of a room on hire was on regular basis. (ii) Further the challenge to the circular dated 8th August 1995 was made only after four years in 1999 and therefore the petitions should be held to be barred by laches. (iii) The definition of rent in Explanation to Section 194-I of the Act has the widest scope given the context in which it occurs. The ambit of the word rent was not meant to be confined to any particular type of 'agreement or arrangement' i.e., lease, sub-lease or tenancy. Reliance was placed on the decision of the Andhra Pradesh High Court in Krishna Oberoi v. Union of India (2002) 257 ITR 105 (AP) which in turn referred to the decisions in State of Punjab v. British India Corporation Limited AIR 1963 SC 1459 and Smt. Rajbir Kaur v. S. Chokasiri Co. AIR 1988 SC 1845. (iii) Relying on the decision in Indus Towers Limited v. Commissioner of Income Tax (2014) 364 ITR 114 (Del) it was urged that the Explanation to Section 194-I which defined rent was 'determinative'. It meant any payment by whatever name called. Referring to the decision in Bharat Sanchar Nigam Limited v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in 2005. The amended prayers included a challenge to Circular no. 5 of 2002 in particular. Consequently, this Court negatives the plea of the Department that these writ petitions are barred by laches. Interpreting the word 'rent' 23. The central issue as far as the present writ petitions are concerned is regarding the interpretation of the word rent occurring in Section 194-I of the Act. With the petitions having been amended in 2005, the challenge is to even the amended Section 194-I as it presently stands. 24. At the outset it requires to be noticed that Explanation to Section 194-I of the Act, as it stands, gives an exhaustive definition of the word rent . It begins by stating that rent means any payment, by whatever name called . The payment need not be only under a lease/sub-lease/tenancy . It could be under any other arrangement or agreement and such arrangement could permit the use either separately or together any land, building, land appurtenant to a building, machinery, plant, equipment, furniture, fittings whether or not any or all the above are owned by the payee. 25. The words any other preceding the word arrangement or agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CA did not exempt the two rooms from the operation of the DAMRCA. The order of the Rent Controller was, therefore, restored. In the appeal by Imperial Hotel, two questions that arose for determination were (i) whether the agreement created a lease or a license and, (ii) whether the said rooms can be said to be rooms within the meaning of Section 2(b) of DAMRCA. This was because Section 2 (b) of DAMRCA defined the premises to mean any building or part of a building which is, or is intended to be, let separately for use as a residence or for commercial use or for any other purpose but does not include a room in a dharamshala, hotel or lodging house. It was in this context the Court was called upon to answer the question what is the meaning of the expression a room in a, hotel. ? 28.3 The Court re-formulated that question by observing, as under: If a strictly literal construction is adopted, then a room in a hotel or dharamshala or lodging house means merely that the room is within, and part of, the building which is used as a hotel, dharamshala or lodging house. There may be a case where the entire building is not used as a hotel, dharamshala or lodging house, but only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude the payment received by a hotel for use by a customer of a room therein. The decision in Associated Hotels of India Limited v. R.N. Kapoor (supra), therefore, does not help the case of the Petitioners. 30.1 Turning to the next decision in State of Punjab v. M/s. Associated Hotels of India Limited (supra), it is seen that the question that arose in that case was whether the hotels were liable to pay sales tax in respect of meals served to the guests coming there for stay in hotels. It was stated that the bill raised on the customers was incapable of being split up into separate charges: for each of the amenities furnished and availed of by the customers. 30.2 The High Court held that the transaction was primarily one for lodging that the board supplied by the hotel amounting to an amenity considered essential in all properly conducted hotels and could not be said to constitute a sale every time a meal was served to such a resident visitor. It was this decision of the High Court that was challenged before the Supreme Court. 30.3 The Supreme Court held that in considering whether a transaction falls within the purview of sale tax, it becomes necessary at the threshold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, deliver or supply of goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. 32.2 After referring to the decision in Associated Cement Companies Limited v. Commissioner of Customs (2001) 4 SCC 593, the Supreme Court in Bharat Sanchar Nigam Limited v. Union of India (supra) conclusively held: 49. .... After the Forty-sixth Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying. Therefore when in 2005, C.K. Jidheesh v. Union of India (2005) 13 SCC 37 held that the aforesaid observations in Associated Cement Companies Limited (supra) were merely obiter and that Rainbow Colour Lab v. St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the word 'Article' has been defined in the Act. When the word is not so defined in the Act it may be permissible to refer to dictionary to find out the meaning of that word as it is understood in the common parlance. But where the dictionary gives divergent or more than one meaning of a word, in that case it is not safe to construe the said word according to the suggested dictionary meaning of that word. In such a situation the word has to be construed in the context of the provisions of the Act and regard must also be had to the legislative history of the provisions of the Act and the scheme of the Act. It is settled principle of interpretation that the meaning of the words, occurring in the provisions of the Act must take their colour from the context in which they are so used. 35. In State of Punjab v. British India Corporation (supra), the question before the Supreme Court was whether the payment received from the employees of the Respondent company on leave and license, was liable to be taxed under the Punjab Urban Immovable Property Tax Act 1940. The specific question was whether such payment was 'rent' within the meaning of the Rule 18(4) (ii) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial inconvenience to the 1st Petitioner, even then, that circumstance itself cannot be a valid or legal ground to take out the payments received by the payee from the patrons for use of the hotel rooms in pursuance of agreements between them from the purview of rent as defined in the Explanation to Section 194-I. If TDS results in hardship, financial burden on the recipient, the Parliament itself has made provision in Section 197 for obtaining certificate for deduction at lower rate or no deduction of Income Tax. Section 197 of the Income Tax Act relating to certificate for deduction of Income Tax at lower rate or for no deduction of Income Tax in appropriate cases has been amended to include income by way of rent within the scope of the said section. Therefore, it is open for the 1st petitioner to make necessary application under Section 197 if there is any justification or hardship for it to do so. In conclusion, we hold that the charges paid to the 1st petitioner-company by its customers like the respondents 4 and 5, for use and occupation of the hotel rooms should be regarded as rent within the meaning of Section 194-I. 38. Accepting the plea of the Department that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... templated by the parties is a service; the revenue contends that the use of the premises, and the right to access it, amounts to renting the premises. 39.2 Delving into the interpretation of Section 194-I of the Act, this Court observed: 26. What strikes instantly is that the definition is clear as to the nature of transactions it covers ( means ). Secondly, it is expansive in sweep ( any other...arrangement for the use, (either separately or together) any land, building, machinery or plant irrespective of ownership of the payee is covered. The Parliamentary intent was clear that transactions - the consideration for which otherwise may not be covered by rent - also ought to be within Section 194-I, by use of the expression other ... arrangement for the use . Whilst there is no doubt that the intention of the parties in the present case was to ensure that the use of technical and specialized equipment maintained by Indus should be resorted to; at the same time, there is no escape from the fact that the infrastructure is given access to, and in that sense, it is given for the use of the mobile operators. The towers in a sense are the neutral platform without which mobil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isaged in that provision. (iii) After the 46th amendment to the Constitution which inserted Article 366 (29A) the 'dominant purpose' test cannot form the sole basis for determining whether the payment received as consideration for the transfer of the right to use or enjoy a property is 'rent'. The context in which the word has been used, the particular statute in which it occurs and the legislative intent has to be taken into consideration in examining a narrower or a wider meaning has to be given to the word. (iv) Even where the room charges collected by a hotel from its customer is not confined to the use of the space but to a host of facilities and amenities such payment would still fall within the ambit of 'rent' under Section 194-I of the Act. Constitutional validity 41. Turning to the specific challenge to the constitutional validity of Section 194-I of the Act, it must be noted at the outset that the present petitions do not pertain to any particular assessment orders. The question whether any part of the consideration charged for the room by the hotel, includes payment for services that fall outside the ambit of the term 'rent' as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to decide whether it seeks to retain the hotel as an investment or as a business asset. The income therefrom could be taxed as business income if it is exploited as a business asset. Rental income can also be taxed under the head Income from other sources . This, however, does not affect the constitutional validity of the provision or the liability of the person (other than an individual or HUF) making payment to deduct TDS at the time of making such payment. The validity of the Circulars 44. Turning to the circulars in question, they cannot be said to have expanded the scope of Section 194-I of the Act. As explained in UCO Bank, Calcutta v. Commissioner of Income Tax, West Bengal (supra), where the circulars are not adverse to an Assessee, they cannot be considered as travelling beyond the powers of the CBDT under Section 119 of the Act. 45. In fact it is not understood how any portion of either Circular Nos. 105 of 1995 dated 8th August 1995 or Circular No. 5 of 2002 dated 30th July 2002 can be said to be prejudicial to hoteliers. There is no vagueness as to what constitutes hotel accommodation taken on 'regular basis'. In order to remove any ambiguity that m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of pre-determined rates during an agreed period. Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation taken on regular basis , as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of Section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate-contract agreements. 47. The Court accordingly holds that the Circulars, far from expanding the scope of Section 194-I serve to lend further clarity to the scope and ambit of the said provision and therefore, cannot be held to be ultra vires the Act. No instance has been pointed out to the Court to demonstrate how the said circulars have caused any hardship or confusion. Conclusion 48. The question whether any part of the payment received by the hoteliers, who are members of FHRAI, from persons other than individuals and HUFs, can be construed as rent within the meaning of Section 194-I of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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