1993 (3) TMI 198 - AT - Income Tax

Summary

Issues Involved:
1. Definition of "hotel" under the Expenditure Tax Act.
2. Inclusion of rental income from shops and offices in "chargeable expenditure."
3. Inclusion of sales from Baker's Basket and catering services to Indian Airlines in "chargeable expenditure."
4. Treatment of service charges collected by the hotel.
5. Treatment of discounts allowed to customers.

Issue-Wise Detailed Analysis:

1. Definition of "hotel" under the Expenditure Tax Act:
The assessee contended that the Commissioner (Appeals) erred in equating the business of the hotel under the Income-tax Act with the definition of a hotel under section 2(6) of the Expenditure Tax Act. The Tribunal noted that the definition of "hotel" in section 2(6) is inclusive and not exclusive, indicating a broader interpretation to encompass various allied services and facilities integral to a Five Star hotel. The Tribunal emphasized that the definition should be approached from a broader perspective, considering the type, nature, and status of the hotel and the services it provides to both international and national tourists.

2. Inclusion of rental income from shops and offices in "chargeable expenditure":
The assessee argued that rental income from letting out shops and offices should not be included in "chargeable expenditure." The Assessing Officer and the Commissioner (Appeals) included such income within the chargeable expenditure under sections 5(1)(a) and 5(1)(c) of the Expenditure Tax Act. The Tribunal upheld this inclusion, relying on the Delhi High Court's judgment in R.L. Jain v. Union of India, which held that payments for accommodation on hire or lease in a hotel constitute chargeable expenditure. The Tribunal concluded that rental income from shops and offices is part of the hotel business and falls within the ambit of chargeable expenditure under section 5(1)(c).

3. Inclusion of sales from Baker's Basket and catering services to Indian Airlines in "chargeable expenditure":
The assessee sought exclusion of sales from Baker's Basket and catering services to Indian Airlines from chargeable expenditure. The Assessing Officer and the Commissioner (Appeals) included these items within chargeable expenditure under section 5(1)(b). The Tribunal agreed, stating that clause (b) covers any expenditure incurred in or payments made to the hotel for food or drink, whether provided at the hotel or outside. The Tribunal noted that catering services to Indian Airlines and sales from Baker's Basket are integral to the hotel business and should be included in chargeable expenditure.

4. Treatment of service charges collected by the hotel:
The assessee contended that service charges collected on behalf of employees should not be included in chargeable expenditure. The Assessing Officer and the Commissioner (Appeals) included service charges within chargeable expenditure, as they were uniformly levied and formed part of the bills issued to customers. The Tribunal upheld this inclusion, stating that service charges are part and parcel of the expenditure incurred by customers in the hotel. The Tribunal emphasized that the distribution of service charges to employees is irrelevant for the purpose of expenditure tax, as the criterion is the chargeable expenditure incurred by customers.

5. Treatment of discounts allowed to customers:
The assessee claimed that discounts allowed to customers should reduce the chargeable expenditure. The Assessing Officer and the Commissioner (Appeals) rejected this claim, stating that expenditure tax was already charged on the gross bill before allowing discounts. The Tribunal disagreed, stating that discounts allowed at the time of bill settlement reduce the expenditure incurred by customers and should be deducted from chargeable expenditure. The Tribunal directed the Assessing Officer to allow deductions for discounts actually allowed at the time of bill settlement, as the net bill represents the net expenditure incurred by customers.

Conclusion:
The Tribunal upheld the inclusion of rental income from shops and offices, sales from Baker's Basket, catering services to Indian Airlines, and service charges within chargeable expenditure. However, it allowed the deduction of discounts allowed to customers from chargeable expenditure. The appeals were partly allowed.