TaxTMI 
TaxTMI 
2017 (5) TMI 79
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..... 2. The writ petitions are filed by three entities carrying on Resorts under timeshare arrangements; namely M/s.Mahindra Holidays and Resorts India Ltd. [for brevity "MHR"], M/s.Sterling Holiday Resorts (India) Limited ["SHR"] and The Goan Beach Resorts Pvt. Ltd ["GBR"]. 3. W.P.(C) No.20728 of 2015, which was referred to by the petitioners, challenge the penalty order issued against MHR for the years 2013-14 (Exhibit P3) and 2014-15 (Exhibit P4) and the notice of demand for 2013-14 (Exhibit P9) and 2014-15 (Exhibit P10) issued with respect to their Lake View Resorts at Chinnakkanal, Munnar. W.P.(C) No.20674 of 2015 is filed by MHR with respect to their resort at Poovar, Thiruvananthapuram; which was issued with Exhibits P4 and P5 notices, for the years 2013-14 and 2014-15, under Section 17A of the LT Act. W.P(C) No.32579 of 2015 is against two Resorts of MHR at Kumarakom and Ashtamudi, Chavara, wherein Exhibit P12 is an assessment order for the year 2012-13 and Exhibits P21 and P23 penalty orders under the LT Act for the years 2013-14 and 2014-15; all with respect to the resort at Kumarakom. Exhibit P25 is the notice for the year 2013-14 against the Resort at Ashtamudi, Chav....
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....y are charged; on which component the petitioners file returns and pay tax. The Resorts are not exclusively for members and when it is rented out to non-members, charges for accommodation is levied, for which also luxury tax is paid. There are also other renting out for marketing purposes and in-house accommodation, for which no charges are levied. 7. The memberships are categorised, as per the members' requirement, into colour coded seasons of Purple, Red, White and Blue; reflecting high-peak, peak, wet and dry seasons. The categorisation is also made, on the choice of the members as to the apartment type with the option of studio, one bedroom or two bedroom apartment. The membership is said to be a combination of preferred season and type of accommodation, opted for by the member for the specified period of 33/25/10 years available for specified days (a week) once in a year. The said membership given is not a privilege for accommodation alone; but entails a bundle of rights, like exchange and splitting up of holidays, carrying forward, pre-poning and post-poning the utilisation, transfer, bequeath and succession of memberships, gifting of holidays and also provision for st....
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....ges for accommodation for the single day spent on vacation. The member pays a lump sum amount to acquire the bundle of rights and it cannot be dissected into years, months or days. There can be no adoption of a measure of dissection as has been held in Vodafone International Holdings BV v. Union of India [(2012) 6 SCC 613]. 10. The LT Act contemplates levy of tax, on charges on a per-day basis, the rates varying with the increase of such charges. There is no levy on a lump sum payment sanctioned under the LT Act, as in a timeshare arrangement. The orders are challenged also on the basis of the measure employed, which is asserted to be on an artificial basis. The Assessing Officer and the Intelligence Officer have taken the room charges applicable for non-members to determine the charges for accommodation for members. There being no such machinery provision available in the LT Act, such computation would be illegal, is the argument. There are no charges for accommodation collected from the members, who stay at the Resorts free of charges, by virtue of their memberships. The classic decision in Govind Saran Ganga Saran v. CST [1985 Supp SCC 205] is relied upon to reiterate the com....
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....applied to non-members by the assessee. The rate/tariff applied was the current rates when the accommodation was provided and there is no estimation made. The occupancy and the rates are actual, as supplied by the assessee. 12. The provisions applicable to the State of Goa and Himachal Pradesh were read, to contend that the inclusion is in the nature of an explanation; which, as has been found in AIR 1967 SC 389 [Bihta Cooperative Development Cane Marketing Union Ltd. v. Bank of Bihar] and Sundaram Pillai v. Pattabhiraman [(1985) 1 SCC 591], is only to ensure removal of anomalies. The States of Goa and Himachal Pradesh probably intended, as an abundant caution, to efface any such presumed anomaly; while the State of Kerala asserts that there is no anomaly in the provisions as available in its LT Act and the timeshare arrangement given in Resorts would come under the definition of "Hotels". The facilities enjoyed would be "luxury provided in a Hotel" attracting the levy under the charging section ie: Section 4. As early as in 1989, in Express Hotels Pvt. Ltd. v. State of Gujarat [(1989( 3 SCC 677], it was found that tax on luxuries includes levy on services, which fall within the....
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.... definied as meaning a building or part of a building where residential accommodation is provided for a monetary consideration, as per clause (e) of Section 2. By sub-clause (ee) of Section 2, "luxury" is defined, as a commodity or service that ministers comfort or pleasure. Clause (f) of Section 2 further defines "luxury provided (inter alia) in a hotel..."; which means accommodation for residence or use and other amenities and services provided therein. Such definition is qualified, insofar as the same being applicable only when the amount of charges, for accommodation for residence (rent) and other amenities and services provided, excluding charges for food and liquor, are above a specified amount or more, per day. 15. The petitioners are having Resorts where residential accommodation is by way of a business and renting out of rooms is for monetary consideration. The Resorts maintained by the assessee within the State of Kerala, hence, comes within the definition of "Hotel". "Luxury" is defined as a commodity or service that ministers comfort or pleasure and that provided in a hotel is accommodation for residence or use and other amenities and services provided in a hotel. Th....
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....to the concept of timeshare arrangement, is the specific plea put forth. The petitioners place emphasis on the bundle of rights which a member is entitled to, on the membership being granted. This Court is of the opinion that the bundle or rights does not at all affect the fundamental aspect for which the membership is granted. There is also no separate fees to facilitate one or any of those rights. In a timeshare arrangement, even according to the petitioners, they are engaged in the business of selling vacation ownership. An attempt, albeit feeble, was made to argue that the transfer is akin to that of a transfer of a right in an immovable property. The members however cannot stay in one particular Resort repeatedly and there is a restriction in staying at a Resort for more than one time. There can, hence, be found no transfer of right in any immovable property, since there is no specification of the rights with respect to availing of holidays with reference to a particular property. The other rights which have been highlighted, being of exchange, bequeath, succession and so on and so forth, are with reference to that right to stay in a specified category of accommodation at a sp....
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....amages is paid. The enduring benefit to which the member is entitled can be measured by the liquidated damages existing at any time; which is the rent./tariff fixed by the assessee. 21. Shorn of all technicalities the entitlement a member gets, on being admitted into the timeshare arrangement is the accommodation at the resorts, the charges for which are not collected at the time of residence but are included in the membership fees and the annual subscription fees. The right to accommodation is also not fully left to the option of the member and is dependent upon the season opted, the type of room and the period for which the subscription is taken; which factors decide the membership fees as in the decision of fixation of room tariffs in any hotel at any place. The annual subscription fees [Clause 5] is for the purpose of overall maintenance of all the Resorts, is charged irrespective of whether in a given year the facility was actually availed or not. This again takes in the cost of maintenance of the resorts, to keep them in readiness for the members. The components of membership fees and annual subscription fees cannot be taken as a whole, to provide a measure to tax since th....
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....here could also be a down payment and payment by equated monthly installments with varied interest liability. It is also to be noticed that the actual tariff/rent gets enhanced over the years and the benefit accrued, by virtue of the membership, is to remain unaffected by the increasing tariff rates. Admittedly the tariff/rent collected from non-members have increased over the years and so has the membership fees increased manifold. The specification of season and type being same, the privilege of residence by a member who paid a lesser amount at an earlier point of time is identical to that enjoyed by a member inducted newly to the arrangement. But the liquidated damages paid will be at the applicable rate/tariff for that type of accommodation for that season at that location; which is the "per-day charges" taken as measure for applying the rates of tax prescribed under the LT Act by the Department; which is with authority flowing from the statute and cannot be faulted. 24. There could be a measure adopted on the basis of a split up of the total of the membership fees and the annual subscription fees, which would vary from person to person even when they enjoy the very same pri....
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....ecognised as revenue and offered for taxation in the year of its receipt. The assessee, during the first three years of its operation, recognised 40% of the revenue as income in the year of receipt and from the 4th year onwards recognised 60% of the receipt as income in the year of receipt. The balance amounts were equally spread over the period of membership, i.e., 25 or 33 years, since, according to the assessee, the obligation to the members remain spread over the period of membership and therefore, part of the fees are recognised as income in the subsequent years. The Tribunal accepted the assessee's contention that there is a continuing liability on the part of the assessee to provide accommodation and other incidental services attached to the accommodation (para 27). It was also held that the sale of timeshare unit is not as tangible as sale of goods and becomes tangible when the assessee fulfills its promise. It was found that recognising the entire receipt as income in the year of receipt can lead to distortion and that it was not justifiable to tax the entire income in a single year. 26. What comes out from the above is that the assessee itself has been treating the....
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....t be sufficient for including a timeshare arrangement. That alone cannot lead to a conclusion that without such an Explanation, the Kerala Act also could not include the timeshare arrangements in the definition of "Hotel".The Explanation neither defines nor control the charge to tax. 28. At the risk of repetition, the petitioner does not have a contention that the Resort owned by the petitioner does not come under the definition of "Hotel". The Resorts are assessed under the LT Act and have also been remitting such tax as collected from the non-members who are residing in their facility and for any facility other than accommodation enjoyed by the members too. The definition also, as seen above, takes in all residential accommodation by way of business provided for a consideration. The definition itself would amply include the petitioner. As to the luxury provided in a hotel, it is the accommodation for residence or use and the other amenities and services. It has been found that the timeshare arrangement fundamentally and essentially provides for the residence of the members for specified days, on specified seasons, in specified types of rooms. The rates are also clear from Sect....
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....he State of Kerala. In such circumstances, there can be no fault found in adopting the fixed room rent or tariff per day for the purpose of levying the tax. In this context, it is also to be noticed that the tax applied under the LT Act is one on the person who enjoys the accommodation and the assessee could collect such tax from the members. 31. The mere fact that advance payment was taken as membership fee cannot lead to a conclusion that the accommodation provided/offered to the member is free of cost. The assessee itself, as contended before the IT Appellate Tribunal, splits up the membership fees to the subsequent years to cover the obligation of providing for an accommodation for residence or use. U.K.Monu Timbers has no application, since it only dealt with the question of best judgment assessment that could be made in a penalty proceeding. There is no estimation made in the present case and the penalty is imposed on the actual occupation of the rooms, and the per-day charges of such rooms; as supplied by the assessee. 32. The observations in the penalty order that there is no legislation prevailing in India governing and regulating vacation ownership of timeshare and ....
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....s levied, the rate and the measure are evidently clear even in the timeshare arrangements. The assessee definitely had a right to collect such tax from the residents/members, and ought to have collected the same, for paying it up to the Department. The agreement between the assessee and the member to provide the privileges without reference to the increase in rates can apply only to the rates/tariff for the room and cannot apply in the case of a statutory levy. The collection of tax levied on luxury, taking the measure as the room tariff/rent, would not also lead to any violation of the terms of the agreement between the assessee and the member. The impugned order in W.P. (C) 34100 of 2016 also refers to the web-site of that assessee; wherein a caution is provided as to the liability of members to taxes. Even without such caution the statutory liability could be levied and collected by the assessee, to be paid over to the State. It is also admitted by the assessee that only room rent/tariff is not collected from the members at the time of residence and all other privileges which a member enjoys have a price and luxury tax too is collected. The measure employed by the assessee in de....
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....imed exemption. The Assessing Officer found it to be exigible at the rate of 4% and the impugned proceedings sought to assess the same at the rate of 12.5%. This Court found that the turnover having been disclosed and there being a bona fide debatable issue, there could not have been an imposition of penalty. This Court relied on Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax [(1980) 1 SCC 71], E.I.D. Parry (I) Ltd. v. Assistant Commissioner of Commercial Taxes [(2000) 2 SCC 321] and Sree Krishna Electricals v. State of Tamil Nadu and Another [(2009) 11 SCC 687] to find that no penalty proceedings can be initiated in the said case on the basis of a mere dispute in classification; which, according to the assessee, the Assessing Officer and Intelligence Officer fall under three different entries. A debatable issue of that nature could not lead to a presumption of any contumacious conduct on the part of the assessee or a finding of attempt to evade tax. This was specifically based on Section 67 of the Kerala Value Added Tax Act, 2003 [for brevity "KVAT Act"]. 37. The learned Senior Counsel appearing for the State would specifically refer to imposition of ....