2013 (1) TMI 606 - HC - VAT and Sales Tax

Kerala Tax on Luxuries Act 1976 - Levy and demand of luxury tax - Whether liability for luxury tax on room rentals and other charges for accommodation and facilities provided therein is applicable only for hotels and not on a club to pay luxury tax on the room rent - Whether luxury tax is payable for the rent and other charges collected from guests occupying rooms and cottages attached to the club - Whether the cottages and rooms attached to the club answer the description of hotel within the meaning of Section 2(e) attracting liability for luxury tax - Club is specifically made liable for luxury tax for luxury provided to the members which is at the rate of 100/- per member per year payable u/s 4(2A) Held that - The cottages and rooms attached to clubs answer the description of hotel attracting tax u/s 4(2) (a). In fact even though hotels are run as a business activity for earning profit for the purpose of levy of luxury tax there is nothing to indicate that the hotel should in fact make profit from the sales and all what is required to prove is that the rooms are rented out in excess of the charges provided in the Act attracting liability for luxury tax. The principle is same for cottages and rooms attached to clubs by virtue of the wide meaning of hotel contained in the definition clause and in the charging section All clubs are not providing cottages and guest rooms to their members or to guests. However there are ever so many big clubs which extensively provide accommodation to their guests and to members of affiliated clubs. Such of the clubs which do not have rooms cottages auditorium or kalyanamandapam will be liable to luxury tax only on membership u/s 4(2A). On the other hand those clubs which provide accommodation in cottages rooms auditorium kalyanamandapam or halls for use of members or guests will be liable to pay luxury tax not only for every member u/s 4(2A) but will also be liable for luxury tax as provided u/s 4(1)(i) Therefore confirm the levy of luxury tax for the rent and other charges collected for cottages and rooms by the Club In favour of revenue

Summary

Issues:
- Challenge to levy and demand of luxury tax on rent and other charges collected by the club from guests staying in A/C cottages, A/C rooms, and non A/C rooms.
- Interpretation of the term "hotel" under the Kerala Tax on Luxuries Act, 1976.
- Determination of liability for luxury tax on room rentals and other charges for accommodation provided by the club.
- Analysis of the provisions of Section 4(1) and Section 4(2)(a) of the Act in relation to the club's liability for luxury tax.
- Consideration of whether the cottages and rooms attached to the club qualify as a "hotel" under the Act.
- Assessment of whether the club's provision of accommodation constitutes a business activity for the purpose of attracting luxury tax.
- Examination of the club's liability for luxury tax on membership fees and charges for hall, auditorium, and kalyanamandapam versus charges for rooms and cottages provided to members and guests.
- Confirmation of the judgment upholding the levy of luxury tax on rent and charges for cottages and rooms by the club.

Analysis:
The judgment of the Kerala High Court involved a dispute regarding the levy and demand of luxury tax on rent and charges collected by a club from guests staying in various types of rooms. The club contested the imposition of luxury tax on these charges, arguing that as a club, it should not be liable for such taxes applicable to hotels. However, the court examined the definitions and provisions of the Kerala Tax on Luxuries Act, particularly focusing on the term "hotel" and the criteria for luxury tax liability on accommodation charges.

The court deliberated on whether the cottages and rooms provided by the club could be classified as a "hotel" under the Act. The club maintained that its provision of accommodation was not a business activity, as it primarily catered to members and guests of affiliated clubs. However, the court emphasized the broad definition of "hotel" under the Act, which encompassed various types of establishments providing residential accommodation for a monetary consideration.

Furthermore, the court analyzed the charging provisions of the Act, concluding that the club's provision of accommodation, including cottages and rooms, fell within the scope of liability for luxury tax. The court highlighted that the club's ability to generate profit from renting out accommodation did not exempt it from luxury tax obligations, as long as the charges exceeded the thresholds specified in the Act.

Additionally, the court differentiated between the club's liability for luxury tax on membership fees and charges for specific facilities like halls and auditoriums versus charges for rooms and cottages provided to members and guests. It clarified that clubs offering accommodation facilities were subject to luxury tax not only on membership fees but also on charges for accommodation services, as outlined in the relevant sections of the Act.

Ultimately, the court upheld the judgment confirming the levy of luxury tax on rent and charges for cottages and rooms by the club, dismissing the writ appeal. The detailed analysis provided by the court elucidated the legal interpretation and application of the Act's provisions in determining the club's liability for luxury tax on accommodation services, ensuring compliance with the statutory framework.