Renaissance Palarivattom, Ernakulam v. Commercial Tax Officer (Luxury Tax), Class Towers; Deputy Commissioner (Appeals), Commercial Taxes, Thevara, Ernakulam; Sales Tax Appellate Tribunal, Addition Bench, Ernakulam; State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **WEDNESDAY, THE 24TH DAY OF JUNE 2020 / 3RD ASHADHA, 1942** **OP (TAX).No.1 OF 2017(Q)** **AGAINST THE ORDER IN TA 80/2014 OF AGRL.INCOME TAX AND SALES TAX APPELLATE TRIBUNAL,ADDITIONAL BENCH,ERNAKULAM** ## **PETITIONER/S:** **THE RENAISSANCE PALARIVATTOM, ERNAKULAM,KOCHI-682025. REPRESENTED BY SRI.P.N.KRISHNADAS, MANAGING PARTNER) RESIDING AT POLAKULATH HOUSE, PALARIVATTOM, KOCHI-25.** **BY ADVS. SRI.K.N.SREEKUMARAN SMT.V.P.SEENA DEVI** ## **RESPONDENTS:** **1 COMMERCIAL TAX OFFICER (LUXURY TAX) CLASS TOWERS, OLD RAILWAY STATION ROAD ERNAKULAM-682018 2 DEPUTY COMMISSIONER (APPEALS), COMMERCIAL TAXES, THEVARA,ERNAKULAM-682016. 3 SALES TAX APPELLATE TRIBUNAL ADDITIONAL BENCH, ERNAKULAM-682016. (REPRESENTED BY ITS SECRETARY). 4 STATE OF KERALA REPRESENTED BY THE SECRETARY TO TAXES, GOVT. SECRETARIAT,THIRUVANANTHAPURAM-695001. SENIOR GOVT.PLEADER SRI.MOHAMMED RAFIQ** **THIS OP TAX HAVING BEEN FINALLY HEARD ON 24.06.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** O.P.(Tax)No.1/17 -2- ## **“CR”** ## **JUDGMENT** ## **T.R.RAVI, J.** The original petition has been filed by the assessee who is a hotelier providing accommodation for residence and is registered under the Kerala Tax on Luxuries Act, 1976 (hereinafter referred to as 'the Act'). For the year 2006-07, the assessment was initially completed vide order dated 30.08.2009 and tax was paid accordingly. On subsequent verification of records, the Assessing Officer noted that a sum of Rs.8,99,059/- being the differential amount received on conversion of foreign currency received towards rentals and services, has escaped assessment. The Officer proceeded to complete assessment to the best of judgment by adding the above amount to the turnover and issued Ext.P1 assessment order. The petitioner challenged Ext.P1 in appeal before the Deputy Commissioner (Appeals), Ernakulam. The appeal was allowed as per Ext.P2 order, finding that the loss or profit arising from the floating value of currency in the exchange market does not come within the purview of Kerala Tax on Luxuries Act. The Revenue challenged Ext.P2 before the Sales Tax Tribunal and by Ext.P3 order, the Tribunal allowed the appeal finding that the O.P.(Tax)No.1/17 -3- foreign currency received can only be linked to the luxury provided in the hotel particularly since the petitioner is not a person involved in the currency exchange or in the business in money transfer. The Tribunal also found that any income derived incidentally or ancillary to the main business, will form part of the turnover of the main business of the assessee, attracting levy of tax. Aggrieved by Ext.P3 order of the Tribunal, the assessee has come up with this original petition. 2. Heard Sri K.N.Sreekumaran, counsel for the petitioner and Senior Government Pleader Sri Mohammed Rafiq on behalf of the Revenue. 3. The petitioner contends that under Section 2(f) of the Kerala Tax on Luxuries Act, luxury provided in a hotel takes in only the charges for accommodation for residence and other amenities and services and hence, the benefit accrued to the hotelier on account of variation in the price of the currency in the exchange market cannot be included in the definition of luxuries and brought to tax. He submits that the foreign currency paid against the invoices raised on the customer would be based on the exchange rate prevailing on the date of checking out of rooms. According to him, the margin money received on the conversion of the foreign O.P.(Tax)No.1/17 -4- currency on a later date when the market price is more beneficial, cannot be termed as luxury charges. He further contends that the finding of the Tribunal that any income derived which is ancillary to the main business will form part of the turnover is against the provisions of the Tax on Luxuries Act, particularly since the Act does not contain any provisions akin to those in the Sales Tax Act defining sale in the course of business. 4. The Senior Government Pleader on the other hand submits that since the foreign exchange has been received, as charges for the luxury provided, the entire foreign exchange received including the differential amount which can be earned, on conversion into Indian rupee, has to be treated as the turnover for the purpose of taxing under the Act. He relies on the judgment of the Madras High Court in **Commissioner of Income Tax v. Pentasoft Technologies Ltd.** reported in **[(2012) 347 ITR 578].** 5. Under Section 4(2) of the Act, luxury tax shall be levied and collected in respect of a hotel, for charges for accommodation for residence and other amenities and services provided in the hotel, excluding food and liquor at such rates depending upon the charges levied. Section 4B of the Act requires every proprietor of a O.P.(Tax)No.1/17 -5- hotel having not less than five rooms to get registered under the Act. Section 5 of the Act requires every proprietor who is liable to pay luxury tax under the Act to submit return in such manner and within such period as may be prescribed. Rule 3(5) of the Kerala Tax on Luxuries Rules requires the assessees to submit monthly returns on or before the tenth day of every month to the Assessing Authority, showing the transactions relating to the preceding month and remit the amount of tax due thereon. The returns are to be submitted in Form 1. Since the tax is an indirect tax, the luxury tax shall be collectable from the person enjoying the luxury. Such tax is levied at the time the person enjoying the luxury continues in accommodation or checks out of the hotel and an invoice is raised against him. Under the Scheme of the Act and the Rules, the tax collected in a month is made over to the State within the tenth of the next month. Such collection of tax and payment into the State Treasury does not depend on whether a hotelier who has received his charges in foreign currency has converted the same into Indian currency or not. As such, we are of the opinion that, the income earned by a person who has received foreign currency, at the time of conversion of the same into Indian currency, cannot be treated as charges for providing luxuries includible as taxable turnover O.P.(Tax)No.1/17 -6- under the Act. Neither the definition of “luxuries” under the Act nor the Scheme of taxation under the Act, permit such taxation. What is relevant for the purpose of calculation of the luxury tax is the value of the foreign currency at the time when the payment for the charges is made by the customer. Any income earned by merely retaining the foreign currency and exchanging it on a future date, by the person who received it, can never be related to and included as the charges paid for the luxury on an earlier date. 6. The judgment in **Pentasoft Technologies** (supra) relied on by the Senior Government Pleader, was rendered in a case arising under the Income Tax Act, which is a direct tax. The Tribunal, in that case, was dealing with the the question whether, the gain attributable for the diminution value of rupee was allowable as a deduction under Section 10A of the Income Tax Act. Section 10A of the Income Tax Act permits deduction of such profits and gains as are derived by an undertaking from the export of article for a period of ten consecutive assessment years. The above benefit is a benefit available for persons starting new establishments or undertakings in free trade zones, etc. We do not think that the said decision can be applied to the case of an assessee under the Kerala Tax on Luxuries Act. The differential O.P.(Tax)No.1/17 -7- amount earned as a result of exchange of foreign currency may partake the character of income in the hands of the petitioner, but the same cannot be treated as charges for the luxury provided. 7. The order of the Tribunal is not in accordance with law and is liable to be set aside. We do so and uphold Ext.P2 order of the Appellate Authority. The original petition is allowed, however, without any order as to costs. Sd/- **K. VINOD CHANDRAN JUDGE** Sd/- **T.R. RAVI JUDGE** dsn O.P.(Tax)No.1/17 -8- ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **EXHIBIT P1 TRUE COPY OF ASSESSMENT ORDER FOR 2006-07 DATED 22.09.2011 UNDER THE KTL ACT ISSUED BY THE 1ST RESPONDENT. EXHIBIT P2 TRUE COPY OF THE APPELLATE ORDER DATED 28.1.2014 ISSUED BY THE 2ND RESPONDENT. EXHIBIT P3 TRUE COPY OF THE APPEAL MEMORANDUM FILED ON BEHALF OF THE 4TH RESPONDENT BEFORE THE 3RD RESPONDENT.** **EXHIBIT P4 TRUE COPY OF THE ORDER DATED 8.2.2017 IN TA NO.80/2014 OF THE 3RD RESPONDENT.**