1998 (12) TMI 59 - HC - Income Tax

Summary

Issues Involved:
1. Constitutional validity of section 5 of the Expenditure-tax Act, 1987.
2. Applicability and interpretation of sections 3 and 5 of the Expenditure-tax Act.
3. Legality of assessment orders and levy of tax under the Act.
4. Maintainability of writ petitions in the presence of alternative statutory remedies.

Summary:

1. Constitutional Validity of Section 5:
The petitioner-corporation initially challenged the constitutional validity of section 5 of the Expenditure-tax Act, 1987, claiming it to be illegal, arbitrary, and beyond the scope of the Act. However, the learned counsel for the petitioner-corporation did not pursue this ground during the hearing.

2. Applicability and Interpretation of Sections 3 and 5:
The primary contention revolved around the interpretation of sections 3 and 5 of the Act. The petitioner-corporation argued that the term "at the time of incurring such expenditure" in section 3 should mean on a particular day and not for the entire financial year. They contended that the tax should only apply to rooms with charges above Rs. 400 or Rs. 1,200 per day per individual, and not to the entire receipts of the hotel. The court concluded that the Act should apply to all hotels where room charges for any unit of residential accommodation are Rs. 400 or more, or Rs. 1,200 or more, per day per individual. However, the tax is levied on the expenditure incurred by the customer who occupies such rooms, not on the entire receipts of the hotel.

3. Legality of Assessment Orders and Levy of Tax:
The petitioner-corporation challenged the assessment orders for various years, arguing that the levy on the entire receipts of the hotel was illegal. The court held that the levy on the total receipts of the hotel as chargeable expenditure could not be sustained. The assessing authorities were directed to reassess and redetermine the tax due in accordance with the court's interpretation, focusing on the expenditure incurred by customers occupying rooms with charges above the specified rates.

4. Maintainability of Writ Petitions:
The respondents argued that the writ petitions were not maintainable due to the availability of alternative statutory remedies under the Act. The court, however, decided to entertain the writ petitions, noting that the issues raised were matters of statutory interpretation affecting the jurisdiction of the assessing authority. The court emphasized that dismissing the petitions on the ground of alternative remedies would not be justified, especially given the prolonged pendency of the cases.

Conclusion:
The court allowed the writ petitions, quashing the assessment orders and directing the assessing authorities to reassess the tax due based on the court's interpretation. The interim orders were vacated, and no costs were awarded.