High Court of KeralaDivision Bench2018-09-14Original Petition dismissed; costs to the petit...

M/S. AQUATICS CLUB, THRISSUR v. STATE OF KERALA & ORS.

Case / Petition Number:O.P.(TAX) No.7 of 2016-Q

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: K. Vinod Chandran
Ashok Menon
Judgment Date: 2018-09-14
Court Decision / Holding: Original Petition dismissed; the Tribunal’s order upheld; taxation for 2005-06 to 2010-11 under the Kerala Tax on Luxuries Act remains intact; costs to be borne by the petitioner.
Final Disposition: Original Petition dismissed; costs to the petitioner.

Parties to the Case

Appellants / Petitioners

M/S.AQUATICS CLUB, ARISTO ROAD, MISSION QUARERS, THRISSUR-680 005, REPRESENTED BY ITS SECRETARY, SANTHOSH JOHN MANILA

Respondents

THE COMMERCIAL TAX OFFICER (LUXURY TAX), DEPARTMENT OF COMMERCIAL TAXES, POTHOLE, THRISSUR-680 004
THE DEPUTY COMMISSIONER (APPEALS)-I, COMMERCIAL TAXES, SALES TAX COMPLEX, THEVARA, ERNAKULAM-682 015
THE KERALA AGRL. INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDL.BENCH, PALAKKAD-678 004, REPRESENTED BY ITS ASSISTANT SECRETARY
THE STATE OF KERALA, REPRESENTED BY THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, THRISSUR-680004
THE INSPECTING ASSISTANT COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, POTHOLE, THRISSUR-680004

Legal Representation & Advocates

Counsels for Petitioners

• SRI.JOSE JOSEPH

Counsels for Respondents

• SRI.V.K.SHAMSUDHEEN (Senior Government Pleader)

Case Synopsis & Summary

This is a Kerala High Court (Ernakulam) judgment dated 14 September 2018 in O.P.(Tax) No.7 of 2016 (Q) by Judges K. Vinod Chandran and Ashok Menon. The petitioner, Aquatics Club, Thrissur, challenges the Kerala Tax on Luxuries Act, 1976 assessments for the years 2005-06 to 2010-11 (assessments made under the Act by the Commercial Taxes Department and taxed as luxury tax). The club, operating since 1985 but not registered under the Act, sought registration in 2011-12. The Assessing Officer levied tax using audited statements; the first appellate authority remanded to determine the break-up of rent under the Act’s slabs but found the total rental income understated by the AO. The Tax Tribunal reversed the FAA’s relief, maintaining the higher taxable turnover and upholding interest under Section 10(2). The petitioner argued that guest-fees and miscellaneous income should be excluded, as guests pay small per-person amounts and no proper vouchers existed in earlier years; they contended Section 10(2) could not apply to pre-2009 years. The State contended that guest fees and related income were taxable turnover and that Section 10(2) could apply to earlier years, citing a Full Bench decision. The High Court dismissed the petition, upholding the Tribunal’s order. The matter turns on the adequacy of records and statutory interpretation of taxability under the Act, with costs against the petitioner.

Provisions of Law Cited

Kerala Tax on Luxuries Act, 1976Section 10(2) of the Kerala Tax on Luxuries Act, 1976Kerala General Sales Tax ActSection 23(3A) of the Kerala General Sales Tax Act

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioner contends that the tax base under the Act should not include guest fees or miscellaneous income, as these are charged per guest and often below the taxable threshold of Rs. 150. The club argues that guest fees are for use of facilities and that no documentary vouchers or ledgers were produced before the AO; hence inclusion of such receipts is improper. They further contend that Section 10(2) of the Act, introduced in 2009, cannot be applied to earlier years (2005-06 to 2008-09). They urge re-examination on remand with proper substantiation, and challenge the Tribunal’s reliance on prior year documents. Finally, they insist that the matter should be decided with appropriate evidence and not by overbroad presumptions.

Contentions of Respondents

The State argues that guest fees and miscellaneous income constitute taxable turnover under the Act and that there was no defect in the AO’s computation given the substantial guest-fee receipts. It relies on the principle that non-registration does not bar tax liability and cites State of Kerala v. Western India Cosmetic & Health (Full Bench) to justify levy under Section 10(2) and, where appropriate, Section 10(1). It asserts that the Tribunal correctly reversed the FAA’s relief and the petition lacks legal merit, as insufficient day-books and vouchers were produced by the petitioner and the records demand taxability under the Act.

Cited Precedents (1)

Case Name	Citation	Treatment	Explanation
State of Kerala v. Western India Cosmetic & Health	[(2010) 18 KTR 414 (Ker.)]	Positive	Cited by the State to support the legality of levying tax on earlier years under Section 10(2); the Full Bench decision is followed as supportive precedent.

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Extracted Judgment Text

Exact text extracted from official judgment records.

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **FRIDAY ,THE 14TH DAY OF SEPTEMBER 2018 / 23RD BHADRA, 1940** ## **O.P(TAX).No.7 of 2016** **AGAINST THE ORDERS IN T.A.NOS.46, 47, 48, 49, 50 & 51 OF 2015 DATED 26.08.2015 OF THE KERALA AGRICULTURAL INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDL. BENCH, PALAKKAD. [ASSESSMENT YEARS 2005-06 to 2010-2011]** ## **PETITIONER/S:** **M/S.AQUATICS CLUB, ARISTO ROAD, MISSION QUARERS, THRISSUR-680 005, REPRESENTED BY ITS SECRETARY, SANTHOSH JOHN MANILA. BY ADV. SRI.JOSE JOSEPH.** ## **RESPONDENT/S:** |**1**|**THE COMMERCIAL TAX OFFICER (LUXURY TAX),**| |---|---| ||**DEPARTMENT OF COMMERCIAL TAXES, POTHOLE,**| ||**THRISSUR, PIN-680 004.**| |**2**|**THE DEPUTY COMMISSIONER (APPEALS)-I,**| ||**COMMERCIAL TAXES, SALES TAX COMPLEX, THEVARA,**| ||**ERNAKULAM-682 015.**| |**3**|**THE KERALA AGRL. INCOME TAX AND**| ||**SALES TAX APPELLATE TRIBUNAL,**| ||**ADDL.BENCH, PALAKKAD-678 004,**| ||**REPRESENTED BY ITS ASSISTANT SECRETARY.**| |**4**|**THE STATE OF KERALA,**| ||**REPRESENTED BY THE DEPUTY COMMISSIONER,**| ||**COMMERCIAL TAXES, THRISSUR-680004.**| |**5**|**THE INSPECTING ASSISTANT COMMISSIONER,**| ||**DEPARTMENT OF COMMERCIAL TAXES, POTHOLE,**| ||**THRISSUR-680004.**| ||**BY SENIOR GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN**| **THIS ORIGINAL PETITION (TAX) HAVING BEEN FINALLY HEARD ON 14.09.2018, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **- 2 -** **O.P.(TAX) NO.7 OF 2016-Q** ## **JUDGMENT** **A club is before this Court challenging the order of the Tribunal for the assessment years 2005-06 to 2010-2011 under the Kerala Tax on Luxuries Act, 1976 [for brevity "Act of 1976"].** **2. The assessee had been carrying on its activities from the year 1985; but, however, did not take registration under the Act of 1976. The petitioner sought for registration in the assessment year 2011-12, when the Assessing Officer [for brevity "AO"] issued notice for non-registration and also for non-payment of tax under the Act of 1976 for the years 2005-06 to 2010-11. The assessments made in accordance with that, for the various years, are produced as Exhibits P1 to P6. The AO directed the assessee to produce the books of accounts and other documents, but only certain documents directed to be produced were furnished to the AO. The AO, relying on the audited statement filed, computed the tax due for the various years and levied tax under the Act of 1976. The assessee was before the first appellate authority, who remanded the matter to ascertain the break-up of the rent collected as per the different slabs available under the Act of 1976. However, the total rental income of the petitioner was found to be far lesser than that computed by the AO. The** **O.P.(TAX) NO.7 OF 2016-Q - 3 -** **first appellate authority deleted the guest fees and miscellaneous income as found from the audited statements. The first appellate authority also deleted the interest levied under Section 10(2) of the Act upto 2008. The State was before the Tribunal, which reversed the order of the first appellate authority insofar as the reduction made to the total taxable turnover as also the deletion of interest levied under Section 10(2).** **3. The assessee is before us, challenging the order of the Tribunal and seeking to sustain the order of the first appellate authority. The learned Counsel for the assessee first pointed out the essential defect in the computation made by the AO insofar as including guest fees and miscellaneous income in the taxable turnover. A table, as seen from the memorandum of Original Petition, is extracted below:** |**Assessment**<br>**year**|**Taxable rent**<br>**determined by the**<br>**assessing authority**|**Taxable rent as per**<br>**accounts.**| |---|---|---| ||**Rs.**|**Rs.**| |**2005-06**|**7,21,941/-**|**5,83,821/-**| |**2006-07**|**5,24,114/-**|**4,29,600/-**| |**2007-08**|**4,24,167/-**|**2,85,180/-**| |**2008-09**|**5,26,333/-**|**2,67,500/-**| |**2009-10**|**6,89,535/-**|**4,93,945/-**| |**2010-11**|**15,09,295/-**|**9,46,400/-**| **O.P.(TAX) NO.7 OF 2016-Q - 4 -** **The submission of the assessee is that the taxable rent as per the accounts alone can be brought to tax, since the guest fees are being levied on individual guests brought in by the members. The guest fees, upto the year 2014 was Rs.50/- per guest and then it was enhanced to Rs.100/- per guest. There were receipts issued individually to such guests, copies of two such receipts are produced as Exhibit P8. It is the submission that the guest fees are for the use of various facilities in the club, like swimming, shuttle court and so on and so forth and the fees levied on an individual being lower than the taxable limit of Rs.150/-, cannot be reckoned for the purpose of levying tax under the Act of 1976. It is also contended that Section 10(2) of the Act having been brought in, in the year 2009, could not have been applied for the earlier assessment years.** **4. We have to specifically notice that, but for the two copies of receipts produced at Exhibit P8, the assessee did not attempt to prove before any of the lower authorities as to the payment of guest fees made individually by the guests who used facilities in the club. On a perusal of the assessment orders, it is very pertinent that no receipts, day books or ledger books were produced by the assessee before the AO. Substantial amounts were received as guest fees, coming to almost Rupees one lakh or more and there was no** **O.P.(TAX) NO.7 OF 2016-Q - 5 -** **break-up made specifically before the AO. The AO, in such circumstances, was perfectly right in adopting the guest fees as taxable turnover under the Act of 1976. Very same reasoning can be applied in the case of miscellaneous income, for which also there is no evidence produced or any break-up claimed. We also notice that the Tribunal has specifically referred to the contentions raised before it and stated in its order that the argument notes did not specifically deal with any guest fees not being subject to the levy under the Act of 1976. We find that the issue has not been agitated before any of the fact finding authorities in a proper manner, producing substantiating documents, and in such circumstances there is no ground for a re-consideration by the AO. The learned Counsel has urged, since there is a remand made the said question also may be directed to be reconsidered. The assessee had not produced the vouchers, day books or the ledger accounts before the AO when directed so to do. There was no attempt made to advance such a contention or substantiate the same and at this stage it would be a futile exercise. We do not think it is appropriate at this stage, especially when the assessee has failed to raise such contentions and substantiate the same by producing materials before any of the fact finding authorities, to direct such reconsideration. On a mere afterthought the assessee cannot** **O.P.(TAX) NO.7 OF 2016-Q - 6 -** **have the luxury of a reconsideration.** **5. The further contention is with respect to Section 10(2) of the Act of 1976. As submitted by the learned Senior Government Pleader, the levy is perfectly permissible even for the earlier assessment years, as has been held in the case of Section 23(3A) of the Kerala General Sales Tax Act by a Full Bench of this Court in** _**State of Kerala v. Western India Cosmetic & Health**_ **[(2010) 18 KTR 414 (Ker.]. The learned Senior Government Pleader submits that even without invocation of sub-section (2), sub section (1) would suffice, since the interest levy is as against the petitioner who has not registered in accordance with the Act of 1976.** **The Original Petition would stand dismissed, leaving the parties to suffer their respective costs.** ## **Sd/-** **K.VINOD CHANDRAN** **JUDGE** **Sd/-** **ASHOK MENON** **JUDGE** **O.P.(TAX) NO.7 OF 2016-Q - 7 -** ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** |**EXHIBIT P1**|**TRUE COPY OF THE ASSESSMENT ORDER UNDER THE**| |---|---| ||**KTL ACT FOR THE YEAR 2005-2006 DATED**| ||**30/3/2012.**| |**EXHIBIT P2**|**TRUE COPY OF THE ASSESSMENT ORDER UNDER THE**| ||**KTL ACT FOR THE YEAR 2006-2007 DATED**| ||**30/3/2012.**| |**EXHIBIT P3**|**TRUE COPY OF THE ASSESSMENT ORDER UNDER THE**| ||**KTL ACT FOR THE YEAR 2007-2008 DATED**| ||**30/3/2012.**| |**EXHIBIT P4**|**TRUE COPY OF THE ASSESSMENT ORDER UNDER THE**| ||**KTL ACT FOR THE YEAR 2008-2009 DATED**| ||**30/3/2012.**| |**EXHIBIT P5**|**TRUE COPY OF THE ASSESSMENT ORDER UNDER THE**| ||**KTL ACT FOR THE YEAR 2009-2010 DATED**| ||**30/3/2012.**| |**EXHIBIT P6**|**TRUE COPY OF THE ASSESSMENT ORDER UNDER THE**| ||**KTL ACT FOR THE YEAR 2010-2011 DATED**| ||**30/3/2012.**| |**EXHIBIT P7**|**TRUE COPY OF THE MINUTES OF THE EXECUTIVE**| ||**COMMITTEE OF THE PETITIOENR CLUB DATED**| ||**10/6/2014.**| |**EXHIBIT P8**|**TRUE COPY OF RECEIPTS FOR COLLECTION OF**| ||**GUEST FEE DATED 24/11/2012, 20/1/2013 AND**| ||**9/4/2015.**| |**EXHIBIT P9**|**TRUE COPY OF THE INCOME AND EXPENDITURE A/C.**| ||**FOR THE PERIOD ENDED ON 31/3/2006.**| |**EXHIBIT P10**|**TRUE COPY OF THE PROFIT & LOSS A/C. FOR THE**| ||**PERIOD ENDED 31/3/2007.**| |**EXHIBIT P11**|**TRUE COPY OF THE PROFIT & LOSS A/C. FOR THE**| ||**PERIOD ENDED 31/3/2008**| |**EXHIBIT P12**|**TRUE COPY OF THE PROFIT & LOSS A/C. FOR THE**| ||**PERIOD ENDED 31/3/2009**| |**EXHIBIT P13**|**TRUE COPY OF THE PROFIT & LOSS A/C. FOR THE**| ||**PERIOD ENDED 31/3/2010**| **O.P.(TAX) NO.7 OF 2016-Q** ## **- 8 -** **EXHIBIT P14 TRUE COPY OF THE PROFIT & LOSS A/C. FOR THE PERIOD ENDED 31/3/2011 EXHIBIT P15 TRUE COPY OF THE ORDER OF THE 2ND RESPONDENT IN STA 71/2012 DATED 20/1/2015. EXHIBIT P16 TRUE COPY OF THE ORDER OF THE 2ND RESPONDENT IN LTA 68/2012 DATED 20/1/2015. EXHIBIT P17 TRUE COPY OF THE ORDER OF THE 2ND RESPONDENT IN LTA 67/2012 DATED 20/1/2015. EXHIBIT P18 TRUE COPY OF THE ORDER OF THE 2ND RESPONDENT IN LTA 66/2012 DATED 20/1/2015. EXHIBIT P19 TRUE COPY OF THE ORDER OF THE 2ND RESPONDENT IN LTA 69/2012 DATED 20/1/2015. EXHIBIT P20 TRUE COPY OF THE ORDER OF THE 2ND RESPONDENT IN LTA 70/2012 DATED 20/1/2015. EXHIBIT P21 TRUE COPY OF THE AIT & ST APPELLATE TRIBUNAL TA 46/2015 DATED 26/8/2015. EXHIBIT P22 TRUE COPY OF THE AIT & ST APPELLATE TRIBUNAL TA 47/2015 DATED 26/8/2015. EXHIBIT P23 TRUE COPY OF THE AIT & ST APPELLATE TRIBUNAL TA 48/2015 DATED 26/8/2015. EXHIBIT P24 TRUE COPY OF THE AIT & ST APPELLATE TRIBUNAL TA 49/2015 DATED 26/8/2015. EXHIBIT P25 TRUE COPY OF THE AIT & ST APPELLATE TRIBUNAL TA 50/2015 DATED 26/8/2015. EXHIBIT P26 TRUE COPY OF THE AIT & ST APPELLATE TRIBUNAL TA 51/2015 DATED 26/8/2015. EXHIBIT P27 TRUE COPY OF THE NOTICE DATED 11/2/2016 ISSUED BY THE 5TH RESPONDENT** ## **RESPONDENT'S EXHIBITS:- NIL** ## **Vku/-** ## **[ true copy ]**