1993 (9) TMI 165 - AT - Income Tax

Luxury tax not part of 'room charges' under Expenditure Tax Act, 1987. Tribunal rules in favor of assessee.

The Tribunal held that luxury tax should not be included in 'room charges' for the purposes of the Expenditure Tax Act, 1987. It concluded that luxury tax ... Expenditure Tax Act Issues Involved: Applicability of the Expenditure Tax Act, 1987; Inclusion of luxury tax in 'room charges'; Interpretation of 'room charges' under Section 2(10) of the Expenditure Tax Act; Principles of statutory interpretation; Validity of CBDT circulars.Issue-wise Detailed Analysis:1. Applicability of the Expenditure Tax Act, 1987:The main issue in these appeals is whether the Expenditure Tax Act, 1987 applies to the assessee, a hotel, based on the room charges exceeding Rs. 400 per day per individual. The Assessing Officer included luxury tax in the room charges, thus making the composite sum exceed Rs. 400. The CIT(A) upheld this view, considering luxury tax as part of the room tariff. The Tribunal had to determine if luxury tax should be included in room charges for the purposes of the Act.2. Inclusion of Luxury Tax in 'Room Charges':The assessee argued that luxury tax should not be included in 'room charges' as defined in the Act. The Tribunal examined the nature and character of luxury tax, concluding that it is a tax imposed by the State for a public purpose and not a fee for services rendered. The Tribunal stated, 'Luxury tax is thus an impost truly described as a tax and not a fee charged for any services rendered or promised.' Therefore, luxury tax cannot be considered part of room charges.3. Interpretation of 'Room Charges' under Section 2(10) of the Expenditure Tax Act:The Tribunal analyzed the definition of 'room charges' under Section 2(10), which includes charges for furniture, air-conditioner, refrigerator, radio, music, telephone, television, and 'such other services as are normally included by a hotel in room rent.' The Tribunal emphasized that 'such other services' must be services normally included in room rent and not taxes like luxury tax. The Tribunal concluded, 'The luxury tax therefore cannot be treated as part of room charges on plain reading of the provision defining room charges.'4. Principles of Statutory Interpretation:The Tribunal considered the principles of ejusdem generis and the rule that a taxing statute must be strictly construed. The Tribunal noted, 'The expression ejusdem generis --' of the same kind or nature '-- signifies a principle of construction where by words in a statute which are otherwise wide but are associated in the text with more limited words are, by implication, given a restricted operation.' Applying this principle, the Tribunal concluded that 'such other services' in Section 2(10)(b) must refer to services similar to those listed in Section 2(10)(a) and cannot include luxury tax.5. Validity of CBDT Circulars:The Tribunal rejected the applicability of CBDT circulars that included luxury tax in room charges, stating, 'A circular cannot even impose on the taxpayer a burden higher than what the Act itself, on a true interpretation, envisages.' The Tribunal emphasized that the interpretation of laws is the exclusive domain of the courts and that circulars cannot override the statutory provisions.Conclusion:The Tribunal concluded that the lower authorities were incorrect in applying the provisions of the Expenditure Tax Act to the assessee by including luxury tax in room charges. The Tribunal set aside the assessments for all three years and held that the assessee is not liable to pay the expenditure tax. The appeals of the assessee were allowed.