2003 (11) TMI 48 - HC - Income Tax

Assessee is a hotelier - provides luxury in a hotel luxury tax - It is a case where the assessee receives an amount which its customers must necessarily pay in order to enjoy the services provided by the hotelier. The amount of luxury tax need not be charged separately. If a customer were to inform the hotelier that he is not willing to pay the luxury tax which is paid by the hotelier, it is for the hotelier to decide whether or not to provide such a person with accommodation despite his refusal to pay the tax. It would be open to the hotelier to provide such a person with luxury in the hotel room and thereafter the assessee itself pay the tax to the Government Thus, Tribunal is right in treating luxury tax collected by the appellant as a trading receipt liable to be assessed as the income of the appellant s business

Summary

Issues:
Interpretation of the Tamil Nadu Tax on Luxuries in Hotels and Lodging Houses Act, 1981 regarding liability for luxury tax payment by hoteliers and collection from customers.

Analysis:
The judgment addressed the liability of hoteliers to pay luxury tax under the Tamil Nadu Tax on Luxuries in Hotels and Lodging Houses Act, 1981. The Act mandates hoteliers to pay tax on the luxury provided in rooms where charges exceed the prescribed amount. Hoteliers are required to file monthly returns and pay taxes based on room occupancy, with penalties for non-compliance. The Act places the primary tax liability on hoteliers, allowing them to collect tax from customers but not obligating them to show it separately on bills.

The court emphasized that the liability to pay tax rests solely on the hotelier, regardless of whether the tax is collected from customers. The Act does not impose tax liability on room occupants, making the hotelier responsible for tax payment. The judgment highlighted that the hotelier's tax payment is deductible from their income under the Income-tax Act, as it constitutes a statutory liability.

Furthermore, the court rejected the argument that collecting tax from customers results in income diversion by overriding title. It clarified that the hotelier's liability to pay tax is absolute, linked to room occupancy, and not contingent on tax collection from customers. Unlike other statutes allowing dealers to recoup taxes from customers, the Act mandates hoteliers to collect and pay taxes, with non-collection not absolving the tax liability.

The judgment concluded that luxury tax collected by hoteliers constitutes a trading receipt and is assessable as business income. It rejected the contention that hoteliers act as agents of the government in tax collection, emphasizing that the hotelier's position is distinct from a tax deduction scenario. The court affirmed that any amount received from customers for room usage, whether inclusive of tax or not, forms part of the hotelier's trading receipts, affirming the Revenue's position in the case.