Expenditure Tax-Compliance of the provisions by hotels. - Income Tax - 1843/1990

INSTRUCTION NO. 1843/1990 Dated: March 30, 1990 A survey of some of the major hotels falling within the purview of the Expenditure Tax Act, 1987 was carried out in a number of cities in 1989. The inquiry revealed that most of the hotels surveyed were not complying with the provisions of the Act. Some of the violations noticed were : 1. The hotels were not collecting and depositing the Expenditure-tax even though these hotels were covered by the provisions of the Expenditure-Tax Act. 2. Expenditure Tax was being collected by the hotels but was not being deposited in the accounts of the central government. 3. Sometimes the hotels collected the expenditure-tax but did not deposit the full amount of expenditure-tax by the due date. 4. Some hotels which were claiming that the expenditure-tax act was not applicable to them were charging room rent @ Rs.400 or more per day individual on one or more than one occasion. 5. Taxes levied by the State Govt were not being included for computing the amount under the head room rent for the purposes of sec.3 of the act. 6. The general service charges normally includable in room rent, were excluded for considering the value of room rent for the purposes of sec.3 of the Expenditure-Tax Act. 7. In the hotels where the room rents were more than Rs.400 per day per individual the amount was brought down to less than Rs.400 per day per individual by offering special discounts to the customers. All the above categories of hotels obviously fall within the scope of the Expenditure -tax Act. 2. With a view to ensuring proper collection and deposit of expenditure-tax it has been decided that survey of large hotels which are likely to fall under the purview of Exp.-tax Act should be conducted from time to time u/s.133 A of the I.T.Act. The object should be to ensure that no hotel assessable under the Exp.Act escapes the provisions of the act. 3. Another aspect which would require examination is cases of fraud. Recent survey of a case revealed that the hotel which was not falling under the purview of Expenditure tax Act was collecting amounts from customers as Exp.tax which was appropriated by the hotel. While a comprehensive survey of all hotels to check this fraud in all such cases may not be possible it would be desirable if some cases are selected at random and surveyed to ensure that hotels are not collecting Expenditure tax and misappropriating it.