1973 (7) TMI 104 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of 50% of apartment and board receipts as sales of food and drinks.
2. Deductibility of air-conditioning and telephone charges from taxable turnover.
3. Jurisdiction of the Tribunal to consider issues not raised before the Appellate Assistant Commissioner.
4. Applicable tax rate on the taxable turnover.

Detailed Analysis:

1. Taxability of 50% of Apartment and Board Receipts as Sales of Food and Drinks:
The assessees, M/s. Spencer and Company Limited, had been including 50% of the receipts from apartment and board as taxable turnover representing the sale of food and drinks. This practice was consistent from the assessment year 1949-50 onwards. However, for the assessment years 1958-59 to 1963-64, they sought to deduct specific amounts related to air-conditioning and telephone charges from the total receipts. The assessing authority rejected this deduction, and the Appellate Assistant Commissioner upheld this decision, stating that the assessees had not shown any break-up figures in the bills for these facilities but had made a consolidated charge.

2. Deductibility of Air-Conditioning and Telephone Charges from Taxable Turnover:
The assessees argued that the enhanced rates for air-conditioned rooms should be deducted from the taxable turnover. However, both the assessing authority and the Appellate Assistant Commissioner disallowed this claim. The Tribunal, however, allowed the deduction of these charges, following the decision in State of Punjab v. Associated Hotels of India Ltd., which was confirmed by the Supreme Court in State of H.P. v. Associated Hotels of India Ltd. The Supreme Court held that the transaction of providing lodging and serving meals was indivisible and essentially one of service, not subject to sales tax.

3. Jurisdiction of the Tribunal to Consider Issues Not Raised Before the Appellate Assistant Commissioner:
The State contended that the Tribunal acted without jurisdiction in giving relief on a turnover not disputed before the Appellate Assistant Commissioner. The court agreed, citing previous decisions, including Richardson & Cruddas Ltd. v. State of Madras, which held that the Tribunal could not consider issues not raised before the lower appellate authority. The court emphasized that the assessees had not disputed the inclusion of 50% of the receipts as sales of food and drinks before the assessing or appellate authorities. Therefore, the Tribunal overstepped its jurisdiction in entertaining this issue.

4. Applicable Tax Rate on the Taxable Turnover:
For the assessment year 1958-59, the assessees were originally taxed at 2.5% on the taxable turnover. The court noted that it had been established in several cases that a 2.5% tax rate on sales of food and drinks in a hotel was discriminatory, and only a 2% rate was applicable. The Tribunal had also recognized this fact, and the State did not dispute this finding. Therefore, the court held that the taxable turnover for the year 1958-59 should be taxed at 2% instead of 2.5%.

Conclusion:
The petitions were partly allowed. The court modified the Tribunal's order to restrict the relief to the deduction of air-conditioning and telephone charges from the taxable turnover. The taxable turnover returned by the assessees, excluding air-conditioning and telephone charges, was liable to tax at 2% for the assessment year 1958-59. No costs were awarded.