2012 (5) TMI 566 - HC - VAT and Sales Tax

Whether the rent realized by a club for the rooms and cottages let out to its members and their guests is exigible to tax under the Kerala Tax on Luxuries Act, 1976 ? Held that - The expression by way of business used in section 2(e) to the Act is not to be understood in the commercial sense of the term and that only common parlance meaning need be attributed to the expression. Therefore, in the context of the Act, the expression business only means that which activity one is seriously or principally concerned with. If the expression is so understood, it has to be held that letting out rooms and cottages on rent to their members or their guests, an activity carried on by the club in terms of its by laws, is a business activity of the club. The provision of Section 4(2A) renders members of clubs also liable for tax at the rate as indicated therein and the tax liability of the members is in addition to the liability of the clubs under section 4 of the Act. Therefore, this provision will not be of any assistance to the petitioner. W.P. dismissed.

Summary

Issues:
Whether the rent realized by a club for rooms and cottages let out to members and guests is taxable under the Kerala Tax on Luxuries Act, 1976.

Analysis:
The case involves the Trivandrum Club, a registered society, challenging pre-assessment notices proposing luxury tax assessment for letting out rooms and cottages. The club argued that the Act does not apply to social clubs and that they provide accommodation only to members and guests, not as a business. The respondents contended that the club qualifies as a "hotel" under the Act due to letting out rooms. The court clarified that the dispute is solely about tax liability for rooms and cottages.

The court analyzed the relevant sections of the Act, emphasizing that hotels providing residential accommodation for monetary consideration are liable for luxury tax. The definition of "hotel" includes establishments providing accommodation by way of business. The court noted that even if a building is part of a club and provides accommodation for consideration, it qualifies as a hotel under the Act.

The court dismissed the club's argument that accommodating only members and guests exempts them from being classified as a hotel. It highlighted that the Act does not differentiate based on the type of guests accommodated. The court also clarified that providing accommodation for monetary consideration constitutes a business activity, regardless of the guests' identity.

Regarding a specific provision for clubs in section 4(2A) of the Act, the court explained that it imposes an additional tax on club members and does not absolve clubs from their tax liability under section 4. Therefore, this provision does not support the club's position.

Ultimately, the court found no illegality in the assessment orders and dismissed the writ petition, upholding the club's liability for luxury tax on rooms and cottages let out to members and guests.