TaxTMI 
TaxTMI 
2016 (3) TMI 880
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the name 'Park Hotel'. ASPHL offers a number of facilities and amenities to its guests. It is stated that the charges for a room in the hotel includes not only charges for use and occupation of the room but also for water, electricity, air-conditioning, telephone facility, and various other items or amenities provided for guests in the room. The room tariff charge is therefore stated to be "a composite charge for all the above and not merely for occupying the room alone." 3. Writ Petition (Civil) No. 2130 of 1999 is by the Federation of Hotel & Restaurant Associations of India ('FHRAI') (Petitioner No. 1), M/s Asian Hotels Limited ('AHL') (Petitioner No. 2) and Mr. Sushil Gupta, (Petitioner No. 3) who is the Managing Director ('MD') and a shareholder of AHL. FHRAI is stated to be an apex body of hotels and restaurants in India and formed to protect their interests. Section 194-I as enacted and at present 4. Section 194-I of the Act was inserted with effect from 1st June 1994. The said provision, as it existed at the time of the filing of these petitions, reads as under: 194 - I. "Any person, not being an individual or a Hindu undivided family, who is responsible for p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and eighty thousand rupees: Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section : Provided also that no deduction shall be made under this section where the income by way of rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in clause (23FCA) of section 10, owned directly by such business trust. Explanation.-For the purposes of this section,- (i) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,- (a) land; or (b) building (including factory building); or (c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the present writ petitions was a Circular No. DEL/056/99 dated 12th March 1999 received from Indian Association of Tour Operators along with a copy of letter dated 2nd February 1999 issued by the Deputy Commissioner of Income Tax ('DCIT') clarifying that the tour operators/travel agents were required to deduct TDS under Section 194-I of the Act while making payments to the hotels on behalf of foreign tourists. The tour operators informed the hotels that they would be deducting TDS @ 20% for the year 1998-99 from the payments made to the hotels wherever the payments had crossed the limit of Rs. 1.20 lakhs in any financial year. 11. The Petitioners stated that by an administrative letter of the DCIT, a tax liability was being imposed on foreign guests in a hotel. It was accordingly contended that the Department was enlarging the scope of Section 194-I and that this was legally impermissible. Further, a distinction was being sought to be drawn between Indian and foreign guests when the provision itself did not envisage it. According to the Petitioners this was also contrary to the stay order granted by the Bombay High Court. 12. Writ Petition (Civil) No. 2130 of 1999 was listed o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with the hoteliers. However, in issuing the impugned circulars the Department has overlooked the above definition and has erroneously classified 'rent' into rate charged and accommodation taken on regular basis. (ii) The occupant of a room in a hotel, whether a foreigner or an Indian, is not a tenant as explained by the Supreme Court in Associated Hotels v. R.N. Kapoor (1960) 1 SCR 368. He is at best a licensee. (iii) The words 'any payment' appearing in the Explanation to Section 194-I of the Act must be read consistent with the word 'rent' in the main body of Section 194-I of the Act. Further, the words 'any other agreement or arrangement' in the definition of 'rent' has to be ejusdem generis and therefore read together with the preceding words 'any lease, sub-lease or tenancy' in the definition. A reference was made to the definition of 'other' as defined in Stroud's Judicial Dictionary of Words and Phrases (Fourth Edition) which states that the word 'other' "always implies something additional" and that "where general words follow particular ones, the rule is to construe them as applicable to persons ejusdem generis". (iv) The room tariff is a composite charge which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 194-I of the Act being violative of Article 14 read with Article 19 (1) (g) of the Constitution inasmuch as it seeks to treat made by individual foreign guests of a hotel, who may be making payments through a tour operator, different from Indian individual gests who may be making such payment directly. Apart from making an irrational and unreasonable classification, it is urged that it imposes an unreasonable restriction of the right to carry on business under Article 19 (1) (g) of the Constitution, It has further been urged in the grounds in the writ petitions that Section 194-I equates room charges with rent when plainly room charges were not restricted to use of the space in the room but was a composite charge for a host of amenities and facilities provided, and inasmuch as it treats unequals equally it violates Article 14 of the Constitution. Further the income earned by the Petitioners through their hotels has been assessed under the head 'profits and gains from business and profession' and not under the head 'income from house property' and therefore Section 194-I cannot apply to room charges collected from guests at the hotels. 19. The above submissions w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e that the word 'any other' preceding the words 'agreement or arrangement' had to interpreted in the widest possible manner Laches 20. On the issue of laches this Court would like to observe that the Department may be justified in pointing out that there was a delay of four years in the Petitioners approaching this Court to challenge the Circular No. 715 of 1995, the fact also remains that the Hotel Restaurant Association (Western India) had also challenged Section 194-I of the Act in the Bombay High Court by filing Writ Petition (Civil) No. 1917 of 1995. Likewise EIHL, a member of FHRAI had also challenged it by filing Writ Petition No. 105 of 1995 in the High Court of Bombay. These writ petitions were disposed of as withdrawn by orders dated 21st March 2009 in Writ Petition (Civil) No. 1917 of 1995 and 24th March 2009 in Writ Petition (Civil)_ No. 105 of 1995. 21. Further, till such time, the tour operators were not asked by the Department by its letter dated 2nd February 1999 requiring them to deduct the TDS on the payments made to the hotels for the bookings made by the individuals/clients, there was no reason for the members of the FHRAI to have any grievance. In fact pursu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pe of Section 194-I of the Act. It envisages 'rent' as any payment for the use of land or building or machinery or plant or equipment or furniture or fittings. Merely because the room charges might also comprise charges for the facilities provided would not take it out of the ambit of 'rent' in terms of Section 194-I of the Act. Discussion of case law 27. The Court next proceeds to discuss the decisions cited by Mr. Bhasin in support of his submissions. 28.1 In Associated Hotels of India Limited v. R.N. Kapoor (supra) the question as to what constitutes 'rent' arose under the Delhi and Ajmer-Merwara Rent Control Act, 1947 ('DAMRCA'). There the Respondent had occupied two rooms in the Imperial Hotel, New Delhi run by the Appellant therein, described as Ladies' and Gents' Cloak rooms. The Respondent carried on his business there as a hair dresser. The document executed between the parties was one between a licensor and licensee. The Respondent was to pay an annual rent of Rs. 9,600 in four quarterly instalments. Later by a mutual agreement, this was reduced to Rs. 8,400. On an application made by the Respondent for standardization of rent under Section 7 (1) of DAMRCA, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the "expression 'room' in the composite expression 'room in a hotel' must take colour from the context or the collocation of words in which it has been used; in other words, its meaning should be determined noscitur a sociis". It was then stated that a room in a hotel must fulfil two conditions, namely (i) it must be part a hotel in the physical sense and (2) its user must be connected with the general purpose of the hotel of which it is a part. The mere fact that the people not resident in the hotel might also be served by the hair dresser would not alter the position that it was still an amenity for the residents in the hotel. Accordingly, it was held that two rooms which were given on hire did not fall within the meaning of 'premises' in Section 2 (b) of DAMRCA and therefore, the Respondent was not entitled to ask for the standardization of the rent. 29. The Court does not agree with Mr. Bhasin that on the strength of the above decision in Associated Hotels of India Limited v. R.N. Kapoor (supra), the word 'rent' in the present case must be restricted to payment received under a lease, sub-lease or tenancy. That would be contrary to the legislative intent that is app....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the performance of which meals are served as part of, and incidental to that service, such amenities being regarded as essential in all well conducted modern hotels." It was therefore held that the Revenue was not entitled to split up the transaction into two parts, one of service and the other of sale of food stuffs and to split up also the bill charged by the hotelier as consisting of charges for lodging and charges for food stuffs served to guests with a view to bring the latter under the Act." 31 Turning to the next decision in Northern India Caters India Limited v. Lt. Governor of Delhi (supra), the question there arose under the context of Bengal Finance (Sales Tax) Act, 1941. The decision followed the decision in State of Punjab v. Associated Hotels of India Limited (supra) and it was held that since it was a composite charge levied by the hotelier on those residing therein, the Revenue was not entitled to split up the transaction into two parts. The legal position after the 46th Amendment 32.1 It requires to be noticed at this stage that the above legal position was overturned by the 46th amendment to the Constitution by which Article 366 (29A) was introduced. The effec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....minant nature' test is no longer the sole determinant of whether a transaction can be said to be 'sale' within the meaning of Article 366 (29-A) of the Constitution. This is a useful principle to be kept in view while interpreting the word 'rent' in Section 194-I of the Act as well, since that word need not, in the context in which it occurs, need not be circumscribed by what is the dominant feature of the underlying transaction, be it a lease, a tenancy, a sub-lease or any other 'agreement or arrangement' Contextual interpretation 34. Contextual interpretation has been favoured by the Courts when the question arose as regards the meaning to be attributed to particular words. For e.g., in Union of India v. Motilal Padampat Sugar Mills Co. (P) Limited (supra), in the context of Section 41 (1) (c) of the Indian Railways Act 1890, it was held that word 'rates' occurring thereunder could not be given the narrow meaning so as to exclude charges made or levied by the railway for all other services. In Commissioner of Income Tax, Bangalore v. Venkateswara Hatcheries (P) Limited (supra) the Court was considering the word 'produce' and 'article' occurring in Se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ason given was: "exclusive possession itself is not decisive in favour of a lease and against a mere licence, for, even the grant of exclusive possession might turn out to be only a licence and not a lease where the grantor himself has no power to grant the lease. In the last analysis the question whether a transaction is a lease or a licence "turns on the operative intention of the parties" and that there is no single, simple litmus-test to distinguish one from the other. The "solution that would seem to have been found is, as one would expect, that it must depend on the intention of the parties. Decisions on Section 194-I of the Act 37. The Court now turns to the decision of the Andhra Pradesh High Court in Krishna Oberoi v. Union of India (supra) which was called upon to answer the very question that arises in these petitions. The Court there was asked to give a declaration that "the charges paid/payable to the petitioner-company by its customers on account of room charges are not in the nature of rent within the meaning of Section 194-I of the Act." The Court noted Circular dated 8th August 1995 which clarifies that Section 194-I would apply to payments made for accommodatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so, even accepting the contention of Sri Kodandram, that die relationship between the 1st petitioner and its corporate customers is a kind of licence-arrangement and not a leasing-arrangement as correct, the payment made by such licensees could validly be treated as "rent" within the meaning of that term for the purpose of Section 194-I. There is no controversy that the payments have to be made by the corporate customers of the 1st petitioner under agreements entered into between them and for the use of the building owned by the 1st petitioner. Therefore, the consideration paid to the 1st petitioner by its customers under the agreements for the use and occupation of the hotel rooms squarely falls within the term "rent" as defined under the Explanation." 39.1 In Indus Towers Ltd. v. Commissioner of Income Tax (supra), the Court concurred with the above decision in Krishna Oberoi (supra). The Court formulated the question that arose as under: "20. The crucial question which has to be decided is whether the activity, i.e. provision of passive infrastructure by Indus to the mobile operator constitutes renting within the extended definition under Explanation to Section 194-I or whethe....
X X X X Extracts X X X X
X X X X Extracts X X X X
...."renting" at all, is incorrect; equally, the revenue's contention that the transaction is one where the parties intended the renting of land (because of the right to access being given to the mobile operators) is also incorrect. The underlying object of the arrangement or agreement (in the MSA) was the use of the machinery, plant or equipment, i.e. the passive infrastructure. That it is necessary to house these equipment in some premises is entirely incidental." Summation of the legal position re: 'rent' under Section 194-I 40. In view of the legal position explained in the above decisions, with which the Court concurs, it holds as under: (i) The word 'rent' in Section 194-I of the Act has to be interpreted widely and not confined to payments received towards a 'lease, sub-lease or tenancy' or transactions of such like nature. (ii) given the context of the said provision which is intended to cover a wide range of transactions as is evident from the words "any other agreement or arrangement" it is evident that the principles of ejusdem generis or noscitur a sociis cannot be invoked to narrow the scope of those words. The words "any payment" occurring in definition of 're....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ges the person making the payment, who is neither an individual nor an HUF, to deduct TDS at the prescribed rates, deposit it under Rule 30 of Income Tax Rules, 1962 ('Rules') and issue TDS certificate to the hotel concerned under Rule 31 of the Rules. In terms of Section 199 such deduction is treated as payment of tax on behalf of the hotel and credit is given in the assessment to the hotel for the TDS deducted on the production of certificate furnished under Section 203. Consequently, the hotel does not suffer any prejudice or inconvenience. Further, the hotel can under Section 197 of the Act apply to have the TDS deducted at a lower rate. The Petitioners have been unable to point out what in the above scheme of the Act renders Section 194-I either arbitrary or unreasonable so as to attract Articles 14 or 19 (1) (g) of the Constitution. The challenge to the constitutional validity of the said provision must fail. 43. The Revenue is right in its contention that applicability of Section 194-I does not depend upon whether the income of the hotel from room charges is assessed under "profits and gains of business or profession" or "income from house property". Section 194-I i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 194-I, the meaning of 'rent' has also been considered. "'Rent' means any payment, by whatever name called, under any lease ........ or any other agreement or arrangement for the use of any land....." (emphasis supplied). The meaning of 'rent' in Section 194-1 is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on 'regular basis'. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on 'regular basis'. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement." 46. What a 'rate contract' is has also been clarified in the same Circular in para 3 as under: '3. However, often, there are instances, where corporate employers, tour operators and travel agents enter into agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers. Such agreements, usually entered int....