2017 (1) TMI 1014 - HC - VAT and Sales Tax

Assessment u/s 17(10), 21(5) and 20 of the Luxury Tax Act - Under assessment of tax - renting of lawn - escapement of tax on lawn on account of non-disclosure - assessee contended that no tax is leviable for renting of the lawn because the lawn is separate, it has separate access and merely because there is one profit and loss account or a separate receipt has been issued of renting of the lawn, there is no reason to levy luxury tax when renting of lawn is not a luxury taking into consideration the definition under the Act. Held that - it does not make any difference whether there is a separate entrance/access or there is no interference of the hotel vis a vis the lawn as long as it is within the same boundary wall in the ownership of the respondent. Admittedly, the assets, namely Hotel and Lawn are owned and possessed by the assessee. On perusal of the definition of hotel as given in subclause (g) supra, a hotel includes residential accommodation along with lawns , therefore, once a lawn having been prescribed as a part of the hotel, the assessee was certainly liable to pay Luxury Tax on giving lawns on hire to the various persons for marriage and for diverse other purposes. The definitions of business , luxuries provided in the hotel and turnover , even prior to the amending Act of 2007 which is under consideration, in my view envisages and make it amply clear that lawns are included in the Explanation (ii) of sec.2(1)(i) for the purposes of levy of Luxury Tax in a hotel, therefore, lawn being part of hotel or even rooms, it should mean to cover up such lawns as well. The definition of business is also wide enough as observed earlier, that it includes in connection with or ancillary to should cover the renting / giving on hire of the lawn. The lawn having been prescribed in sub-clause (g), (i), has certainly got a definite meaning for the purposes of levy of tax under the Act, and in my view, the Tax Board is unjustified in holding that receipts by way of renting of lawn could not be covered prior to 9.3.2007. The Tax Board has not even adverted to the various sub-clauses of sec. 2 as referred to hereinbefore, and without adverting to the plain and simple meaning, has held that the liability of assessee is only after 9.3.2007, which in my view is wholly perverse. The amendment which has been brought into force from 9.3.2007 as given hereinabove, only covers such owners or other entities other than even hotels who have developed lawns and is renting / giving on hire such lawns for organising parties, wedding ceremonies or functions and the definition of business has been enlarged, so also definition of hotel has also been enlarged to cover or any place where residential accommodation or a space for the purposes of organising parties/ceremonies or functions has been added, which makes it clear that insofar as luxury hotels like the assessee, is concerned, it is unaffected by the luxury as admittedly the room rent is exceeding ₹ 1000/- or more even prior to 9.3.2007. Thus, in my view, the finding of taxability of renting of lawn by the assessee is found in order. Consequently, levy of interest is also upheld, being automatic and goes with the levy of tax. Imposition of penalty - Held that - it is not a case of imposition of penalty as material was available before the AO even during the course of the return originally having been submitted. The assessee had a reasonable apprehension and bona fide belief that insofar as renting of lawns is concerned, it will affect only on and from 9.3.2007 and this being a debatable issue, at-least penalty in my view is not leviable - penalty withheld. Decided partly in favor of assessee as regards setting aside of penalty - tax and interest upheld.

Summary

Issues Involved:
1. Reopening of assessment.
2. Tax liability on renting of lawns prior to the amendment on 09.03.2007.
3. Deletion of tax, interest, and penalty by the Rajasthan Tax Board.

Detailed Analysis:

1. Reopening of Assessment:
The assessment was reopened under Section 17(10) of the Rajasthan Tax on Luxuries (Hotel & Lodging Houses) Act, 1990, based on a survey revealing that the respondent hotel had received income from renting lawns for events, which was not disclosed for luxury tax purposes. The Assessing Officer (AO) issued a notice and framed the assessment, including tax, interest, and penalty. The Deputy Commissioner (Appeals) [DC(A)] upheld the reopening, stating fresh material justified it. The Rajasthan Tax Board also upheld the reopening but ruled in favor of the respondent on the merits. The court noted that the respondent did not file a cross-objection against the reopening, and thus, the issue could not be considered further.

2. Tax Liability on Renting of Lawns Prior to the Amendment on 09.03.2007:
The respondent argued that renting lawns was not a luxury under the Act before the amendment on 09.03.2007. The Tax Board agreed, stating the amendment applied only after 09.03.2007. However, the court found that the definitions of "business," "hotel," and "luxuries provided in a hotel" were broad enough to include renting lawns even before the amendment. The court emphasized that the respondent, being a luxury hotel, was liable for luxury tax on renting lawns as part of its business income, regardless of separate access or receipts. The court reversed the Tax Board's decision, holding that the tax liability existed prior to the amendment.

3. Deletion of Tax, Interest, and Penalty by the Rajasthan Tax Board:
The court upheld the imposition of luxury tax and interest, stating that the definitions in the Act covered renting lawns, making the respondent liable for tax. However, the court agreed with the Tax Board's deletion of the penalty. It reasoned that the issue was debatable, and the respondent had a bona fide belief that the tax on renting lawns applied only after the amendment. Therefore, the penalty was not justified.

Conclusion:
The court reversed the Rajasthan Tax Board's decision regarding the tax liability and interest, holding that the respondent was liable for luxury tax on renting lawns even before the amendment on 09.03.2007. However, the court upheld the deletion of the penalty, considering the respondent's bona fide belief and the debatable nature of the issue. The petitions were partly allowed, with no order as to costs.