2005 (10) TMI 56 - HC - Income Tax

Hotel Receipt Tax (HRT) Considered Trading Receipts with Deduction Allowed

The court held that the hotel receipt tax (HRT) collected constituted trading receipts. However, the assessee was allowed a deduction of the HRT amount. ... Hotel receipt tax (HRT) - At the instance of the assessee. '(1) Whether, Tribunal was right in law in holding that the amount of hotel receipt tax (HRT) collected by the petitioner-company constituted trading receipts? – At the instance of the Revenue. (2) Whether, Tribunal was right in holding that the assessee was entitled to a deduction in respect of the hotel receipt tax?' - (HRT) tax collected by the assessee will have to be held as treated as trading receipt. This view shall also be in consonance with the text of section 21 of the Hotel Receipts Tax Act. The assessee will, thus, be entitled to claim deduction of the amount of hotel receipts tax to extent it was paid to discharge their liability under the Hotel Receipts Tax Act - we have no hesitation to answer the first question in favour of the Revenue and the second question in favour of the assessee Issues Involved:1. Whether the amount of hotel receipt tax (HRT) collected by the assessee constituted trading receipts.2. Whether the assessee was entitled to a deduction of Rs. 84,95,504 in respect of the hotel receipt tax for the assessment year 1982-83.Issue-wise Detailed Analysis:1. Trading Receipts:The primary issue was whether the hotel receipt tax (HRT) collected by the assessee constituted trading receipts. The assessee, engaged in running a chain of 5-star hotels, collected HRT under the Hotel Receipts Tax Act, 1980. The collected amount was credited to a separate account and shown under other liabilities in the balance sheet, not routed through the profit and loss account. The Assessing Officer considered the HRT collected as trading receipts, relying on the Supreme Court's decision in Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 542. This view was upheld by the Commissioner of Income-tax (Appeals), who noted that the HRT was collected along with sales in the regular course of business, thus constituting trading receipts. The Tribunal also affirmed this view, stating that the HRT collected was not subject to diversion by overriding title and was in the nature of trading receipts.2. Deduction of Hotel Receipt Tax:The second issue was whether the assessee was entitled to a deduction of Rs. 84,95,504 in respect of the HRT for the assessment year 1982-83. The assessee had challenged the constitutional validity of the HRT Act before the Supreme Court, which stayed the operation of the Act during the pendency of the writ petition. Despite this, the Tribunal held that a liability had arisen during the accounting year when the taxable event (receipt of room rent) occurred, and thus, the liability was to be allowed as a deduction. The Supreme Court's later decision in Elel Hotels and Investments Ltd. v. Union of India [1989] 178 ITR 140 (SC) upheld the validity of the HRT Act, confirming the assessee's liability to collect and pay HRT from the inception of the Act.Submissions and Precedents:- The assessee's counsel argued that the collected tax should be treated as a receipt and deductible from the profits and gains of the business, relying on the Supreme Court's decisions in Jonnalla Narashimharao and Co. v. CIT [1993] 200 ITR 588 and Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363.- The Revenue's counsel argued that since the assessee collected the amount but did not pay it to the Government, it should be taxed as trading receipts, citing the Madras High Court's decision in CIT v. Hotel Srilekha P. Ltd. [2001] 250 ITR 573.Court's Consideration and Conclusion:The court found that the facts of the present case were similar to those in Jonnalla Narashimharao and Co. [1993] 200 ITR 588, where amounts collected as 'rusum' were deductible as business expenditure despite not being remitted to the treasury. The court also noted that the liability to pay HRT was inbuilt in the Supreme Court's interim order, which mandated payment irrespective of tax collection from customers. Thus, the HRT collected was treated as trading receipts, and the assessee was entitled to claim a deduction for the amount paid to discharge the liability under the HRT Act.Final Judgment:The court answered the first question in favor of the Revenue, confirming that the HRT collected constituted trading receipts. The second question was answered in favor of the assessee, allowing the deduction of the HRT amount. The reference was answered accordingly, with no order as to costs.