Pandyan Hotels Ltd. Madurai v. The Commissioner Of Income Tax, Madurai

In the High Court of Judicature at Madras Dated: 19/11/2003 Coram The Hon'ble Mr. Justice R. Jayasimha BabuandThe Hon'ble Mr. Justice S.R. Singharavelu Tax Case No. 285 of 2001 Pandyan Hotels Ltd.Madurai. ... Appellant -Vs- The Commissioner of Income Tax,Madurai. ... Respondent Tax case appeal under Section 260 A of the Income Tax Act against theorder made by Income Tax Appellate Tribunal, Madras Bench 'C' in I.T.A. No:2838(MDS)/1992 dated 16.03.2001 for the assessment year 1988 -89. !For appellant : Mr. R. Srinivasan ^For respondent : Mr. J. NareshkumarSr. Standing Counsel forIncome-Tax Department :O R D E R (Order of the Courtwas made by R. Jayasimha Babu, J.) The assessee is a hotelier. As the charges levied for the rooms inthe hotel exceed the amount prescribed under the Tamil Nadu Tax on LuxuriesAct, 1981 (hereinafter referred to as the Act) and the assessee is a personwho provides luxury in a hotel as defined under Section 2 G of the Act, theassessee is required, under the provisions of the Act, to pay tax to theGovernment at the rates prescribed in the Act on the value of the luxuryprovided in the room. 2. The assessee is required by Section 6 of the Act to file a monthlyreturn in the prescribed form. It is assessed to tax under Section 7 at theend of the year. Along with the monthly returns, the hotelier is required topay the tax having regard to the period for which the rooms had been occupied by its customers. Failure to file returns or failure to pay the amountsresults in the imposition of penalties. 3. Under the scheme of the Act, a person, who occupies a room in a hotel wherein any luxury is provided, is not made liable for tax. Theoccupant of the room is not required to pay directly to the Government anyamount by way of luxury tax nor can any assessment be made on that occupantfor payment of tax. The only person who is required to make the payment isthe hotelier. The hotelier, however, under the provisions of the Act, isempowered to collect the amount of tax from the occupant of the room.However, it is not obligatory on the hotelier to charge the tax separately inthe hotel bill. It is permissible to collect a lumpsum from the occupant forthe rental of the room which can include the element of luxury tax.4. Whether or not the hotelier specifies the tax in the bill given toits customers, the hotelier is bound to discharge the liability for tax at therates prescribed in the Act. That the liability of the hotelier, is primaryis made clear by Sub-section 5 of Section 5 of the Act which reads thus," 5 (5) Where any proprietor fails or neglects to collect the tax payableunder this Act, the tax shall be paid by the proprietor as if the tax wascollected by the proprietor from the person to whom the luxury was providedand who was accordingly liable to pay the same." 5. The Act does not contemplate any assessment or demand being madeon the occupant. As already noticed, the hotelier is bound to pay the tax.Whether he chooses to collect the tax or does not collect the tax is entirelyfor him to decide. The amount of tax paid by the hotelier to the State wouldbe deductable from its income while computing the hotelier's assessable incomeunder the Income Tax Act as the discharge of such a statutory liability isclearly an admissible deduction. 6. The hotelier here seeks to put his case on a much higher plane.It is contended that the tax which the assessee is required to pay in terms ofthe Act is not an amount, even when it is an amount which had been charged toits customers and received from them which can be regarded as part of itstrading receipts. The argument is that there is diversion of income by overriding title when the assessee collects tax from it customers. 7. Though the argument so put forth is attractive nevertheless, 6. The hotelier here seeks to put his case on a much higher plane.It is contended that the tax which the assessee is required to pay in terms ofthe Act is not an amount, even when it is an amount which had been charged toits customers and received from them which can be regarded as part of itstrading receipts. The argument is that there is diversion of income by overriding title when the assessee collects tax from it customers. 7. Though the argument so put forth is attractive nevertheless, having regard to the scheme of the Act, the liability fastens solely on thehotelier assessee to pay the tax although the amount required to be paid byhim is an amount which is referred to in the Act as an amount which can be"collected" from it's customers, and in case of failure to collect, the amountis regarded as if it had been collected by the hotelier from the person towhom the luxury is provided. 8. While some other enactments like the Sales Tax Act, by notprohibiting the dealer for recouping the amount of tax paid by him to theState by collecting the same from its customers, permits such collection,under the scheme of this Act, the hotelier assessee is directed to collect andpay but in case of collection not being made, the liability to pay is notbrought to an end. Whether collection has or has not been made, if the roomwherein the luxury is provided had been occupied by a customer, the hotelier /assessee becomes liable for the payment of the tax. 9. The liability of the hotelier assessee to pay the State isabsolute, provided, the rooms had been occupied by the customers of theassessee. 10. Having regard to the scheme of the Act, it is not possible toaccept the argument that was put forth by the learned counsel for the assesseethat the position of the assessee is that of an agent of the Government whohas been directed to collect tax from its customers and remit the same to theGovernment and that the assessee's position is similar to that of one who isrequired to deduct tax at source on payment made by it to others. This is nota case where the assessee makes payments to any one. It is a case where theassessee receives an amount which it's customers must necessarily pay in orderto enjoy the services provided by the hotelier. The amount of luxury tax neednot be charged separately. If a customer were to inform the hotelier that heis not willing to pay the luxury tax which is paid by the hotelier, it is forthe hotelier to decide whether or not to provide such a person withaccommodation despite his refusal to pay the tax. It would be open to thehotelier to provide such a person with luxury in the hotel room and thereafterthe assessee itself pay the tax to the Government. The Act recognises asituation where the hotelier 'fails or neglects' to collect the tax from itscustomer. No part of the amount received by the hotelier from the occupant ofthe room for the use of the room � whether as an inclusive payment or with thetax element being shown separately can be regarded as not forming part of thetrading receipts of the assessee. 11. The question referred namely : " Whether on the facts and in the circumstances of the case, theTribunal is right in treating 'Luxury Tax' collected by the appellant as atrading receipt liable to be assessed as the income of the Appellant'sbusiness?" therefore, is answered against the assessee and in favour of the revenue. gp Index : YesWebsite : Yes To,1. The Assistant Registrar,Income Tax Appellate Tribunal,Rajaji Bhavan, III floor,Besant Nagar,Madras � 90. 2. The Secretary, Central Board of Revenue,New Delhi. 3. The Deputy Commissioner of Income-taxSpecial Range II,Madurai. 4. The Commissioner ofIncome Tax (Appeals) I,Madurai. 5. The Commissioner of Income Tax,Madurai.