Expenditure Tax-Interpretation. - Income Tax - 1844/1990

INSTRUCTION NO. 1844/1990 Dated: March 30, 1990 A number of instances of wrong interpretation of the Exp.Tax Act, 1987 have come to the notice of the board particularly with regard to computation of room rent to be considered for applying the provisions of the Act and also as to what constitutes chargeable expenditure within the purview of the Expenditure Tax Act. Some of the questions that have arisen are li sted below along with clarifications to enable proper and correct interpretation of the law: Question Clarification 1.Whether Luxury tax and such other taxes are includible incomputingthe "roomrent"? Luxury tax and such other taxes levied by State Governments are to be included in Computing the 'room rent' for the purpose of section 3 of Expenditure Tax Act. For example, a hotel charging room rent @ Rs.375 per day per individual and also collecting the luxury tax @7% of room rent would fall under the purview of the Expenditure Tax Act as the final charges for the room exceed Rs.400 per day per individual. However, while computing the tax on the chargeable expenditure, the luxury tax paid would not be includible and hence 'Expenditure Tax' on such room charges would be charged @20% of Rs.375. 2. Whether discount given to customers excludibleincal- culating 'room rent' Several hotels allow discount of certain percentage to their executives and regular customers. Allowing such discounts is stated to be customory and a normal practice. Such discounts given shall not be taken into account while considering the room rent u/s.2 of the Expenditure Tax Act for the purposes of deciding the applicability of Expenditure Tax Act and the hotel will be assessed under the Act if the room charges, irrespective of the discount, exceed Rs.400/-. 3. Are general charges added to room tarrif such as electricity, water, telephone, room service char-ges includible? Charges on account of general services rendered by the hotels will have to be included and added in room charges for considering the amount of 'room rent' for section 3 of the Expenditure Tax Act as well as for considering 'chargeable expenditure' u/s.5 of the Act. For example, charges for general telephone services provided by the hotels would form part of the room rent and are to be added to room charges. However, specific telephone calls made by the customer are not to be included for considering the amount of 'room charges u/s.2 of the Expenditure Tax Act, though it would be chargeable expenditure' u/s.5 of the Act. Therefore, if a hotel falls under the purview of Expenditure Tax on the basis of room rent, the expenditure incurred on telephone charges or any other services rendered would be chargeable to Expenditure Tax u/s.5 of the Act. 4. Whether rental cha-rges/hire charges constitute chargea- ble expenditure under the Expendi-ture Tax Act, 1987. Payments towards rent, lease or hire charges by the occupants of accomodation including shops, show-rooms located in the assessee-hotels are chargeable to expenditure-tax u/s.5 of the Act. However, as is clear from the provisions of sec.5 the expenditure incurred in any shop etc. which is not owned or managed by the assessee-hotel is not chargeable to Expenditure-tax. The above clarifications may be brought to the notice of all the officers assessing hotels in your region so as to ensure that the correct amount of expenditure-tax is levied, collected and paid to the Central Government.