2008 (11) TMI 628 - HC - VAT and Sales Tax

Whether section 4 of the Luxuries Act levying tax on the luxuries provided in a hotel in respect of every room under occupation by any person is applicable to the clubs having rooms rented for accommodation for its members is covered by the Luxuries Act? Held that - The definition of the term hotel as provided under the Act is not susceptible for any different meaning. It is not even suggested by the counsel for the State that the clubs while providing accommodation is doing a business so as to attract the charging section under section 4 of the Luxuries Act. The action instituted by the respondents in attempting to cover the clubs, which are the petitioners before this court, within the purview of the Luxuries Act is without jurisdiction and any action taken pursuant to such coverage will become void ab initio. Hence, all the writ petitions will stand allowed.

Issues Involved:
1. Applicability of the Tamil Nadu Tax on Luxuries Act, 1981, to clubs.
2. Interpretation of the term "hotel" under the Luxuries Act.
3. Doctrine of mutuality and its application to clubs.
4. Comparison with similar cases and judgments.
5. Legislative intent and statutory interpretation.

Issue-wise Detailed Analysis:

1. Applicability of the Tamil Nadu Tax on Luxuries Act, 1981, to clubs:
The primary issue in these writ petitions is whether section 4 of the Luxuries Act, which levies tax on luxuries provided in a hotel, applies to clubs that rent rooms to their members. The clubs argue that they render services to their members without any profit margin, invoking the "doctrine of mutuality."

2. Interpretation of the term "hotel" under the Luxuries Act:
The court examined the definitions in the Luxuries Act, specifically section 2(f) which defines "hotel" as a building where residential accommodation is provided by way of business for monetary consideration, including a lodging house. The court referred to the case of Sri Palani Dhandayuthabani Devasthanam v. Commercial Tax Officer, where it was determined that the term "business" as defined in the Tamil Nadu General Sales Tax Act, 1959, could not be applied to the Luxuries Act due to differing legislative intents.

3. Doctrine of mutuality and its application to clubs:
The court discussed the doctrine of mutuality, which posits that transactions between a club and its members are not considered commercial transactions. The case of Cosmopolitan Club v. Tamil Nadu Taxation Special Tribunal was referenced, where the Supreme Court remanded the matter to determine the exact relationship between the club and its members concerning the supply of food and drinks.

4. Comparison with similar cases and judgments:
The court considered the judgment of the Karnataka High Court in Bangalore Golf Club v. Assistant Commissioner of Luxury Taxes, which held that the Karnataka Luxuries Tax Act did not apply to clubs as they were not considered "hotels." The court noted that the Karnataka Legislature subsequently amended the definition to include clubs, but no such amendment was made in Tamil Nadu.

5. Legislative intent and statutory interpretation:
The court emphasized that the term "hotel" under the Luxuries Act must be interpreted strictly. It rejected the argument that clubs providing accommodation should be considered "hotels" or "lodging houses" under the Act. The court highlighted the importance of a business motive in the definition of "hotel" and concluded that clubs do not fit this definition as their primary activity is not commercial lodging.

Conclusion:
The court held that the action by the respondents to cover clubs under the Luxuries Act was without jurisdiction and void ab initio. The writ petitions were allowed, and any tax collected from the clubs was ordered to be returned within eight weeks. The court clarified that the question of unjust enrichment did not arise as the tax was collected from club members, not the general public.

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