ACCOMMODATION SERVICES

[Dr. Sanjiv Agarwal]

Service tax has been imposed on short term accommodation services rendered to any person by hotel, inn, guest house, club or campsite or by whatever name called, by the Finance Act, 2011 wef. notified date. The gross amount charged to such person or guest, subject to exemptions shall be chargeable to service tax.

Meaning of Various Terms 

Various terms used in the scope of taxable services are explained herein under –

Accommodation

The term ‘accommodation’ has not been defined in service tax provisions.

To accommodate means to provide lodging or sufficient space. According to Oxford English Dictionary, the term ‘accommodation’ means a room, group of rooms or building in which some one may live or stay; lodgings; the available space for occupants in a building,

Following pronouncements also explain the term ‘accommodation’ - 

Accommodation means a building or part of building which is used for residential or non-residential purposes, but not as a factory or for industrial purposes. Sitaram Shasan v. Johrimal, AIR 1972 All 317, 319. [U.P. (Temporary) Control of Rent and Eviction Act (3 of 1947), S. 2(a)]

A land surrounded on three sides by boundary walls cannot be said to be an accommodation within meaning of the Act. Mewa Lal v. Tara Mani, AIR 1973 All 165, 168. [U.P. (Temporary) Control of Rent and Eviction Act (3 of 1947), Sec. 2]

Agarage which is a permanent roofed structure and which is part of a building would come within the purview of ‘accommodation’. R.N. Gupa v.  Sarla Khandelwal, AIR 74 All 376, 377. [U.P. (Temporary) Control of Rent and Eviction Act (1947), Sec. 2(a)]

The world “accommodation” cannot simply mean premises in which a person and his family are personally lodging. The accommodation must be such that it is reasonable for the applicant and his family to continue to occupy it, having regard to the general circumstances prevailing in relation to housing in the area of the housing authority to whom he has applied R.v.  Hillington London Borough Council, (1985) 3 All ER 734, 739 (CA). [Housing Persons) Act, 1977, Ss, 1, 17]

House accommodation, residential or non residential in any cantonment in the State of Uttar Pradesh, including any gardens, grounds or out-houses appurtenant to the building or any part thereof, any furniture supplied by the landlord for use in the house or any part thereof, and any fittings affixed to the building or any part thereof for the more beneficial enjoyment thereof [U.P. Cantonments Control, (Rent & Eviction) Act (10 of 1952), Sec. 3 (a)].

The word ‘accommodation’ includes both residential as well as non-residential purposes. Prem Narayan Barchhiha v. Hakimuddin Saifi, (1999) 6 SCC 381, para 14: AIR 1999 SC 2450. [M.P. Accommodation Control Act (41 of 1961), S. 12(1) (f)].

Hotel

The terms ‘hotel’ has not been defined in service tax provisions.

According to Oxford English Dictionary, hotel means an establishment providing accommodation, meals and other services for travelers and tourists, by the night.

Hotel includes a refreshment room, a boarding house, a lodging house, a coffee house and a café.[Protection of Civil Rights Act (22 of l955), S. 2(aa)] . ‘Hotel’ includes a building or part of a building where residential accommodation is, by way of business, provided for a monetary consideration. [Hotel Receipts Tax Act (54 of 1980), S. 2(6) and Expenditure Tax Act (35 of 1987), S.2(6)]

Ordinarily a hotel connotes the business carried on by a person though sometimes the term is also used with regard to premises but it is only owing to their association with the original business carried on by them. Where a person purchased the materials and gardens in which a hotel had been run, held, that the ­vendee did not purchase the goodwill of the business or the right to use the name in which the hotel business had been carried on and that the vendee could continue the business under the original name at some other place. (133 IC 891: 32 PLR 542 : AIR 1931 Lah 650. See also 15 Born 530).

A hotel is a place where the proprietor makes it his business to furnish food or lodging, or both, to travelers or other persons.                                                      .,­

A commercial establishment offering lodging to travelers and sometimes to permanent residents, and often having restaurants, meetings rooms, stores, etc, that are available to the general public.

Guest House

The term ‘guest house’ has not been defined in the service tax provisions. Oxford English Dictionary defines guest house as a private house offering accommodation to payment guests. Guest mean a person staying at a hotel or guest house.

‘Guest-house’ is a building, separate from a main house or establishment, for the housing of guests. (Random House Dictionary).

A house intended for use, in the case of a company, only by its directors, or, in the case of a firm, only by its partners, etc., is a residential accommodation but not a guest-house. CIT v. Aruna Sugars Ltd., [1979 -TMI - 36934 - MADRAS High Court].

According to Wikipedia, a guest house [also guesthouse) is a kind of lodging. In some parts of the world, a guest house is similar to a hostel, bed and breakfast, or inn whereas in other parts of the world [such as for example the Caribbean), guest houses are a type of inexpensive hotel-like lodg­ing. In still others, it is a private home which has been converted for the exclusive use of guest accommodation. The owner usually lives in an entirely separate area within the property and the guest house may serve as a form of lodging business.

Inn

The term ‘inn’ has not been defined in the service tax provisions. Oxford English Dictionary defines Innas a pub, typically one in the country, in some cases providing accommodation; a house providing accommodation, food and drink, especially  for travelers, -- denoting a house of residence for students.

Innis a public house for lodging etc. for travelers. An inn is the same thing as a hotel and consists of a house in which travelers, passengers, wayfaring-men, and other such like casual guests, are accommodated with victuals and lodgings and whatever they reasonably desire, for themselves and their horses, at a reasonable price, while on their way (V R. v. Luellin,,­12 Mod. 455). An inn is a house where a traveler is furnished, as a regular matter of business, with food and lodging while on his journey or a house of entertainment for travellers. The definition of inn in the English Innkeepers Liability Act, 1863, 26 & 27 Vict. C. 41 is "any hotel, inn, tavern public house or other place of refreshment, the keeper of which is now by law responsible for the goods and property of his guests." It would be open to a Court to find that many hotels do not hold themselves out as taking in all persons coming to them as travellers, according to the Custom of England" and so do not come under the classification of "Inns" [per ESHER, MR., Lamond v. Richard, (1897) I QB 541 : 66 LJQB 319. A steamer carrying passengers upon the water, and furnishing them with rooms and entertainment, will be construed to be an 'inn,' within the rules of law relating to the duties of the proprietors of inns to their guests. A restaurant where meals are furnished is not an inn or tavern.

An inn is a place restored to by travellers for lodging and accommodation; a place provided for the lodging and entertainment of travellers. The term does not include a saloon to which a person repaired temporarily to obtain a meal; nor can it include restaurants, since mere restaurants or eating houses are wanting in some of the requisites necessary to constitute them inn, as no lodging places are provided therein. (Advanced Law Lexicon – P. Ramanatha Aiyar, 2005).

According to Wikipedia, inns are generally establishments or buildings where travellers can seek lodging and, usually, food and drink. They are typically located in the country or along a highway.

Club

The term ‘club’ has not been defined in the service tax provisions. Oxford English Dictionary defines club as an association dedicated to a particular interest or activity; premises of such an association; an organization offering members, social amenities, meals and temporary residence.

Except a proprietary club or an investment club, it may be defined as a society of persons associated together, not for the purpose of trade, but for social reasons, the promotion of politics, sport, art, science or literature, or for any other lawful purpose; but trading, activities will not destroy the nature of a club if they are merely incidental to the club's purposes.-- Halsbury, 4th Edn., Vol. 6, para 201, p. 56.

Clubs are associations of a peculiar nature; they are societies the members of which are perpetually changing and the feature which distinguishes them from other societies is that no member as such becomes liable to pay to the funds of the society or to anyone else any money beyond the subscriptions required by the rules of the club to be paid so long as he remains a member. Balakrishna Patru v. Bala Subudhi, AIR 1949 Pat 184, 189.

Section 65 (25a) of Finance Act 1994 also defines ‘club or association’ as follows –

“club or association” means any person or body of persons providing services, facilities or advantages, for a subscription or any other amount, to its members, but does not include-

(i) any body established or constituted by or under any law for the time being in force; or

(ii) any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or

(iii) any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or

(iv) any person or body of persons associated with press or media”

According to Wikipedia, a club is an association of two or more people united by a common interest or goal.

Camp-site

The word ‘campsite’ is not defined under the Finance Act 1944. According to Oxford English Dictionary,  camp means a place with temporary accommodation of huts, tents, or other structures, used by soldiers, refugees or traveling people; a complex of buildings for holiday accommodation with recreational facilities i,e, temporary lodges.  

A campsite (also known as a camping pitch) is a place used for overnight stay in the outdoors. The term ‘campsite’ generally means an area where an individual, family, group, or military unit might camp. There are two types of campsites - an impromptu area (as one might decide to stop while back­-packing or hiking’ and a dedicated area with improvements and various facilities.

A campground is a group of dedicated campsites with common amenities. Dedicated campsites usually have some amenities. Common amenities may include one or more of the following -,

(i) Fireplaces or fire pits in which to build campfires (this can be a circle of rocks, a metal enclosure, a metal grate, a concrete spot, or even just a hole).

(ii) Road access for vehicles, a gravel or concrete pad to park a vehicle

(iii) Picnic tables and chairs

(iv) Marked spaces indicating a boundary for one camper or a group of campers

(v)  Reservations to ensure there will be available space to camp

Taxable Services

Taxable service has been defined in section 65 (105) (zzzzw) of the Finance Act 1994 as under –

“Any service provided or to be provided to any person by a hotel, inn, guest house, club or campsite, by whatever name called, in relation to providing of accommodation for a continuous period of less than three months”.

This newly inserted clause by Finance Act 2011, specifies that services provided by hotel, club, campsite etc. in relation to accommodation provided for a continuous period of less than three months shall be a taxable service.

The scope of services is limited to accommodation in such hotel, etc. for a continuous period of less than three months implying that any accommodation resulting in continuous accommodation for a period of three months or more shall not be taxable under this clause. The stay could be any period from a day to 89 days (assuming three calendar months of 30 days each) and such stay could be continuous or for broken stays. For example, if one stays in a hotel for 2 days, 6 days, 8 days, 4 days and 5 days during different days within a block period of three months, all such stays would be taxable. However, if one has taken a paying guest accommodation, say for a period of six months in an inn or campsite etc, it would not be taxable under this category. Any continuous stay of three months or more is not within the scope of this taxable service. According to definition, it may not be taxable under this clause.

Following are the basic ingredients of taxable services in relation to accommodation services –

1) Accommodation services can be provided to any person

2) Service should be in relation to accommodation of persons

3) Service should be provided by / accommodation must be at any of the following –

(i) Hotel

(ii) Inn

(iii) Guest house

(iv) Club, or

(v) Campsite

Such places may also be known by any other name such as resort, motel, service apartments etc.

4) Accommodation must be provided for a continuous period of less than three months.   

5) Accommodation for a period of three months or more are not covered in the scope of taxable services.

The Government’s intention has been to cover into service tax ambit the accommodation services keeping in mind that the impact is predominantly on sections of society that have ability to pay.

Actual levy of service tax shall be restricted to cases where the declared accommodation tariff is of Rs. 1000 per day per room or higher. Once this criteria is met, service tax would be levied irrespective of trade or tariff discounts given to guests.

CBEC Clarifications  

CBEC has vide Circular No. DOF. No. 334/3/2011-TRU dated 28.2.2011 clarified as follows –

‘Short – term accommodation

Short term accommodation is provided by hotels, inns, guest houses, clubs and others and at camp-sites. This service is proposed to be taxed where the continuous period of stay is less than 3 months.

Value of Taxable Services

Service tax be leviable un the gross amount paid or payable for the value of taxable services subject to abatement of 50 per cent from the value of taxable services, thus service tax being effectively @ 5 percent education classes.

Actual levy will be restricted to accommodation with declared tariff of Rs 1,000 per day or higher by an exemption notification. Once this requirement is met, tax will be chargeable irrespective of the fact that actually the amount charged from a particular customer is less than Rs 1,000. The tax will also be charged on the gross amount paid or payable for the value of the service.

Finance Minister has announced 50% abatement from the value of service. Details of the exemption will be announced at the time when the levy is operationalized after the enactment of the Finance Bill’.

Value of Taxable Services

Service tax be leviable on the gross amount paid or payable for the value of taxable service subject to abatement of 50 per cent from the value of taxable services. Thus service tax shall be effectively @ 5 per cent plus education cesses.

Person Liable

Any hotel, guest house, club etc providing accommodation services for short term to guests are liable to pay service tax.