M/S Lotus Club Warriam Road, Kochi v. State of Kerala and Others

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **WEDNESDAY, THE 8TH DAY OF AUGUST 2018 / 17TH SRAVANA, 1940** **AGAINST THE ORDER/JUDGMENT IN WP(C) 10312/2013 of HIGH COURT OF KERALA DATED 31-05-2013** ## **APPELLANT(S)/PETITIONER** **M/S. LOTUS CLUB WARRIAM ROAD, KOCHI 682 016 REPRESENTED BY ITS HONORARY SECRETARY, MR.BABU MATHER.** **BY ADVS.SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.GOPINATH SRI.P.BENNY THOMAS SRI.K.JOHN MATHAI** ## **RESPONDENT(S)/RESPONDENTS:** ## **1. STATE OF KERALA** **REPRESENTED BY THE SECRETARY TO GOVERNMENT, REVENUE DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM 695 001.** **2. DEPUTY COMMISSIONER (APPEALS), COMMERCIAL TAXES, ERNAKULAM, KOCHI 682 015.** ## **3. COMMERCIAL TAX OFFICER** **OFFICE OF THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, ERNAKULAM KOCHI 682 015.** **4. KERALA AGRICULTURAL INCOME TAX & SALES TAX APPELLATE TRIBUNAL, ERNAKULAM, KOCHI - 682 015.** ## **BY SRI.V.K.SHAMSUDHEEN, SR.GOVERNMENT PLEADER** **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 08-08-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** jg-29/8 K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------W.A.No.1075 of 2013 ------------------------------------------Dated this the 8[th] day of August, 2018 **==> picture [120 x 9] intentionally omitted <==** ## Vinod Chandran, J. The issue raised in the above Writ Appeal is no longer res integra being covered by the decision of a Division Bench of this Court in 2012 (3) KLT 682 [Trivandrum Club v. Sales Tax Officer (Luxury Tax)] . The only distinction on facts is that the petitioner Club herein is located in Kochi. Even then, the learned counsel for the petitioner would contend that the Division Bench has wrongly arrived at the conclusion that a club could be charged with luxury tax on the renting of rooms it does at its premises. The learned counsel would argue for referring the matter to a Larger Bench for fresh consideration. 2. On the provisions under the Kerala Tax on Luxuries Act, 1976 ('Act', for short) it is asserted that a Club would not fall under the definition of ‘hotel’ and hence the charge under Section 4 would be limited to the renting out of hall, auditorium or kalyanamandapam attached to such Clubs. Sub-Section WA 1075/13 -2- (2A) of Section 4 being the levy per member at the rate of Rs.100 is the only levy that could be permitted validly under the Act, is the argument. The appellant does not dispute either of the levies under subsections (1) reference to renting out of halls etc. and (2A) of Section 4. The challenge is on the levy of renting of rooms in a hotel as available in the first limb of Section 4(1). 3. The learned counsel has placed reliance on the following decisions to buttress his contentions, all of which propound the very same principle: 1985 (suppl) SCC 205 [Govind Saran Ganga Saran v. Commissioner of Sales Tax and Others] ; (1998) 1 SCC 384 [Commissioner of Wealth Tax, Gujarat-III, Ahmedabad v. Ellis Bridge Gymkhana]; (1999) 8 SCC 667 [Mathuram Agrawal v. State of Madhya Pradesh]; (1961) 12 STC 122 [State of Bombay v. Automobile & Agricultural Industries Corporation, Bombay]; (2017) SCC Online SC 1562 [Assistant Commissioner, Commercial Taxes & Ors. v. LIS (Registered)]; 2001 (247) ITR 821 [Vikrant Tyres Ltd. v. First Income-Tax Officer]; and WA 1075/13 -3- ## (2015) 1 SCC 1 [Commissioner of Income Tax (Central)I, New Delhi v. Vatika Township Private Limited]. 4. Govind Saran Ganga Saran (supra) was a case in which the issue agitated was the levy of State tax on cotton yarn, which was notified as a declared goods. The Central Sales Tax Act provided two conditions insofar as declared goods; the maximum levy being restricted at 3% and it being confined to one single point. The State sought to tax the intrastate sale of cotton yarn for which there was no specific charge created in the State sales tax enactment. The Honourable Supreme Court dilated upon the concept of taxation and found it to have four components being (1) the character of the imposition, (2) the person on whom the levy is imposed, (3) the rate at which the tax is imposed and (4) the measure or value to which the rate is applied. Therein finding no specific levy for the intrastate sales, the Honourable Supreme Court set aside the levy on the assessee. 5. In Ellis Bridge Gymkhana (supra), the question was whether the Wealth Tax Act could be made applicable to Clubs. The charging section therein WA 1075/13 -4- being Section 3, applied the levy in respect of the net wealth on every individual, Hindu Undivided Family and Company at the rates specified in the Schedule. The Honourable Supreme Court held that there could be no levy on any other person for reason of the levy being confined to the three sets of assessees in the charging section. It has to be noticed that a Club was not specifically included in the charging Section. 6. Mathuram Agrawal (supra) was a case in which there was a levy of property tax on the measure of the annual rental value, and the schedule provided rates only for those properties whose annual rental value exceeds Rs. 1,800/-. After the Table of rates there was also a provision exempting the buildings having annual rental value less than Rs.1800/- with a proviso that if a person owning such exempted building owns another building, the aggregate rental value of all the buildings shall be taken for the purpose of this clause. The appellants before the Honourable Supreme Court had a number of properties taken independently being exempted from taxation; but together, the rental value being above Rs.1800/-. The Honourable Supreme WA 1075/13 -5- Court held that there is no tax liability on the appellant finding that it is not possible to accede any intention or governing purpose beyond what is stated in plain language. It was held that the economic results sought to be obtained by making the provision cannot at all be relevant in interpreting the fiscal statute unless there is a charge expressed unambiguously. Though the State had intended taxation by aggregation of buildings having rental value less than Rs.1800/-, there was no rate provided. There could be no levy imposed on a person having a number of such exempted buildings, taxable by mere aggregation and taking an average made applicable to each. This would lead to absurd results by which a small property being aggregated to one having huge rental value being liable to tax far in excess of its rental value. 7. Automobile & Agricultural Industries Corporation (supra) was a case in which the dealer who was licensed under the Bombay Sales Tax Act, 1953 was dealing in special goods and was also liable to collect and pay to the State, special tax as also general tax. The dealer collected the same from its customers and on WA 1075/13 -6- a return being filed separately for the two taxes, the Assessing Officer forfeited the amounts collected for the reason of the dealer not being registered under the Act. The Honourable Supreme Court looked at the provision which enabled collection of tax from the purchasers and found it to be applicable to registered dealers or a licensed dealer. Though the failure to register would attract the consequences as per the Act, being licensed the dealer was entitled to collect tax which could not have been forfeited, was the finding. 8. LIS (Registered) (supra) was a case in which the State sought to tax the respondent therein under the Kerala Tax on Paper Lotteries Act, 2005 bringing the respondent under the definition of a promoter under the Act. The respondent had been merely purchasing lotteries for its constituents, the prize money in which was distributed among the members. There was no reason for bringing the party within the definition of a promoter was the specific finding of the Honourable Supreme Court. 9. Vikrant Tyres Ltd. (supra) was also a case in which the Honourable Supreme Court declared WA 1075/13 -7- 'it is settled principle in law that the courts while construing revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other, meaning thereby that no tax or levy can be imposed on a subject by an Act of Parliament without the words of the statute clearly showing an intention to lay the burden on the subject. In this process, the courts must adhere to the words of the statute and the so-called equitable construction of those words of the statute is not permissible.' The principle has been reiterated by the Constitution Bench in Vatika Township Private Limited (supra). 10. Based on the above precedents, we have to first look at the decision of this Court in Trivandrum Club (supra). Therein the Division Bench had specifically noticed the contention raised by the appellant that unless accommodation is provided in the building as part of business against collection of rent, the building cannot be called hotel. The Division Bench found that the definition of hotel under the Act has a wider meaning, especially noticing the WA 1075/13 -8- Explanation covering even guest houses run by the Government or a Company or a Corporation. The definition of 'hotel' is as under: “2(e) “Hotel” means a building or part of a building where residential accommodation is by way of business provided for a monetary consideration and includes a lodging house. Explanation.- A guest house run by the Government or a company or a corporation established by or under any law or any other agency shall be deemed to be a hotel within the meaning of this clause.” 11. The definition of hotel as used in the Act cannot be understood as in the common parlance or in normal connotations. A hotel necessarily is understood as a place where there is lodging and boarding which under the definition of the enactment has been expanded to any place where accommodation is provided for a monetary consideration. The definition clause as per the Act brings within Section 2(e) any building, where residential accommodation is by way of a business provided for a monetary consideration and includes a lodging house. The Explanation also is not restrictive and only brings within the definition any guest house run by a Government or a Company or a Corporation; WA 1075/13 -9- wherein normally the accommodation would be provided only to its own employees, however at a reduced rent. 12. We have also to notice the definition of luxury provided in a hotel, house-boat, hall, auditorium or kalyanamandapam or place of like nature, which is accommodation for residence or use and other amenities provided therein the rate of charges of which exceeds a certain amount. The levy is also on the rate of charges of accommodation for residence and other amenities and services provided, excluding charges of food and liquor. The further contention raised by the petitioner is based on the specific reference to Clubs in Section 4, but its absence in sub-Sections (e) and (f) of Section 2. Section 4 being the charging section provides for a levy on the luxury provided in a hotel, house-boat, hall, auditorium or kalyanamandapam or place of like nature which is sufficient to levy tax on the clubs who rent out rooms for accommodation or lets its premises out and provides services and amenities therein. On an abundant caution the legislature included those attached to such places only to have more clarity regarding the renting out of auditoriums, WA 1075/13 -10- halls and kalyanamandapams attached to hotels and clubs as also to tax any renting out of rooms for accommodation attached to a hall, auditorium or kalyanamandapam. There can be no device found in the inclusion of clubs in Section 4 to seek exclusion from the levy on luxury as defined in the Act, provided in a hotel, which includes a club which provides residential accommodation as a business for monetary consideration. 13. What is sought to be taxed is not the renting of rooms for accommodation alone, but also the renting of auditorium, kalyanamandapam or hall and the amenities and services provided therein excepting service of food and beverages. Section 4 understands this distinction and levies and collects tax on the luxury provided in a hotel, house boat, hall, auditorium or kalyanamandapam. Consciously, aware of 'luxury' including renting of rooms as also use of auditoriums and kalyanamandapams and the other amenities and services provided, the inclusive levy is on the renting of hall, auditorium or kalyanamandapam attached to hotels and clubs and renting of rooms attached to a hall, auditorium or kalyanamandapam. The WA 1075/13 -11- mere inclusion of club in the charging section and its exclusion from the definition of hotel or of luxury cannot at all be found to be significant insofar as the claim of the assessee to exempt them from such levy. 14. The further contention is on the levy under sub-section (2A) of Section 4. The levy is on every member of a club, who has more than two facilities as specified in the Explanation to the sub-section. The power to levy such membership can be traced to Entry 62 of List-II of the Seventh Schedule to the Constitution, whereby any club having more than two facilities in the Explanation and its membership can be safely assumed to be a luxury. This does not mean that the luxury as provided in a club is taxed comprehensively by subsection (2A). In this context, we have to notice that the clubs when they rent out rooms within its premises or rent out kalyanamandapams, halls or auditoriums, it is not restricted to their members alone. Even from the members a rent is received, though at times a reduced rate and the other amenities and services are also priced. The levy under sub-sections (1) and (2A) of Section 4 are quite distinct and different and can both WA 1075/13 -12- be traced to Entry 62 of List II of Schedule VII of the Constitution of India. Looking at Govind Saran Ganga Saran (supra) and the concepts of taxation it dilated upon, we have to notice that under sub-Section (1) of Section 4 the character of the imposition is the tax on luxury as permitted by Entry 62, List-II of the Seventh Schedule. The luxury is specifically defined under sub-Section (f) and so is the charge created by Section 4(1). The incidence of tax is the enjoyment of such luxury, by the renting of rooms or halls, etc. The person on whom the levy is imposed is that person who enjoys the luxury the liability to collect being on the hotel, hall, kalyanamandapam or auditorium. The rate is also crystal clear from Section 4(2) and measure is the charge at which such renting of rooms or use of such premises is made and the charge for the other amenities and services provided in the specified premises. As far as Section 2A is concerned, the levy is conceded to by the petitioner. We do not think that there is any cause for doubting the propositions as laid down in Trivandrum Club (supra). We, hence, respectfully WA 1075/13 -13- following the decision of the Division Bench, dismiss this Writ Appeal. No order as to costs. Sd/K.VINOD CHANDRAN JUDGE Sd/ASHOK MENON JUDGE jg