1989 (9) TMI 96 - HC - Income Tax

Summary

Issues:
- Taxability of expenditure paid by hotel business operators for accommodation
- Interpretation of the Expenditure-tax Act, 1987 provisions
- Tax liability on accommodation hire or lease charges in hotels
- Exemption of tax on expenditure incurred in shops not owned or managed by the hotel

Analysis:
The High Court of Delhi addressed the issue of taxability under the Expenditure-tax Act, 1987 concerning hotel business operators in Delhi. The petitioners, who run businesses in various hotels, contended that the money paid by them for accommodation should not be subject to tax under the Act. The court examined Section 4, the charging section, which imposes tax on chargeable expenditure. The definition of "chargeable expenditure" in Section 2(4) includes expenditure related to accommodation, food, drink, and other services provided by the hotel. Section 5 specifically outlines different types of chargeable expenditure, including accommodation hire or lease charges, which are subject to tax.

The court emphasized that tax liability is determined by Sections 5 and 7 of the Act. It clarified that not all expenditures incurred in a hotel are taxable, but only those falling under the categories specified in Section 5. The court noted that the petitioners obtained accommodation in the hotels, making payments for such accommodation fall under chargeable expenditure as per Section 5(c) of the Act. Despite arguments that shops are not integral to hotel operations, the Act mandates tax payment on accommodation charges under Section 5(a) and (c), irrespective of the shop's necessity.

Furthermore, the court rejected the contention that expenditure incurred in shops not owned or managed by the hotel should be exempt from tax. While acknowledging that the petitioners may pass on the tax burden to customers, the court emphasized that Section 5 explicitly exempts only expenditure incurred in shops not owned or managed by the hotel from taxation. Ultimately, the court dismissed the petition, finding no merit in the arguments presented by the petitioners and upheld the taxability of expenditure paid for accommodation in hotels under the Expenditure-tax Act, 1987.