THE COMMISSIONER OF INCOME TAX vs. M/S.MANALTHEERAM BEACH RESORT

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ITA/1033/2009HC KeralaKLHC01025794200925 October 2018Bench: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON11 pages
AI SummaryRemanded

What did the High Court hold?

The High Court agreed with the Tribunal that the Assessing Officer should have meticulously considered the manner in which charges for individual rooms were levied and how room rents cannot be clubbed together. However, the High Court disagreed with the Tribunal's observation regarding the assessee charging more per room than the published tariff. The Court held that it is for the assessee to establish that amounts were charged for services not falling under "chargeable expenditure" as defined in Section 5 of the Expenditure Tax Act, 1987. If not proven, it must be presumed to be room rent. The Tribunal also noted the lack of separate details for various receipts for assessment year 2001-02. The High Court found that the Tribunal's reduction of expenditure lacked a rational basis and statutory sanction. Citing the Supreme Court's judgment in Federation of Hotel and Restaurant Association of India v. Union of India, the Court emphasized the need to consider the aspect theory for levies under the Expenditure Tax Act and the Kerala Tax on Luxuries Act, 1976. Consequently, the High Court remanded the issue to the Tribunal for fresh consideration, untrammeled by any prima facie observations made regarding the Tax on Luxuries Act.

What were the facts?

The appeals by the Commissioner of Income Tax (Central) Kochi, concern assessment years 1999-2000 to 2001-2002, arising from a common order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench, dated September 4, 2008. The assessee, M/s. Manaltheeram Beach Resort, contended that assessments were made without verifying individual room rental details, treating all collections as taxable. The ITAT had previously noted that the Assessing Officer (AO) clubbed room rents collected under a group leader's name. The High Court observed that the Tribunal reduced the assessed expenditure without a rational basis or statutory sanction, despite agreeing that the AO should have considered individual room charges. The Court also noted the Tribunal's observation regarding charges exceeding published tariffs and the lack of separate details for various receipts for assessment year 2001-02.

What were the issues?

1. Whether the Tribunal erred in reducing the assessed expenditure without a rational basis or statutory sanction, despite agreeing that the Assessing Officer ought to have meticulously considered the manner in which charges for individual rooms were levied and how room rents cannot be clubbed together, under Section 5 of the Expenditure Tax Act, 1987? Assessee's Contention: The assessee contended that assessments were made without looking into the details available on record and treating the entire collection as taxable without verifying whether rental income from different rooms was below or above the taxable limit. Revenue's Contention: The Revenue, through the Commissioner of Income Tax, appealed the ITAT's order. The judgment does not explicitly record the Revenue's specific arguments beyond the fact that they are appealing the ITAT's reduction of assessed expenditure. However, the High Court's reasoning implies a disagreement with the Tribunal's method of reduction.

Which sections of the Income-tax Act were involved?

Section 5

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY ,THE 25TH DAY OF OCTOBER 2018 / 3RD KARTHIKA, 1940 ITA.No. 1033 of 2009 AGAINST THE ORDER/JUDGMENT IN OTHERS 6/2007 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 04-09-2008 APPELLANT/S: THE COMMISSIONER OF INCOME TAX KOCHI BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S.MANALTHEERAM BEACH RESORT CHOWARA PO, BALARAMAPURAM,THIRUVANANTHAPURAM BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.P.GOPINATH SRI.RAMESH CHERIAN JOHN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25.10.2018, ALONG WITH ITA.1102/2009, ITA.1130/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA No.1033/2009 & con. 2 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY ,THE 25TH DAY OF OCTOBER 2018 / 3RD KARTHIKA, 1940 ITA.No. 1102 of 2009 AGAINST THE ORDER/JUDGMENT IN OTHERS 8/2007 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 04-09-2008 APPELLANT/S: THE COMMISSIONER OF INCOME TAX (CENTRAL) COCHIN. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S.MANALTHEERAM BEACH RESORT CHOWARA P.O,BALARAMAPURAM,THIRUVANANTHAPURAM. BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATHA MENON SRI.RAMESH CHERIAN JOHN OTHER PRESENT: SRI PKR MENON SR COUNSEL FOR GOI TAXES THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25.10.2018, ALONG WITH ITA.1130/2009, ITA.1033/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA No.1033/2009 & con. 3 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY ,THE 25TH DAY OF OCTOBER 2018 / 3RD KARTHIKA, 1940 ITA.No. 1130 of 2009 AGAINST THE ORDER/JUDGMENT IN OTHERS /2007 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 04-09-2008 APPELLANT/S: THE COMMISSIONER OF INCOME TAX (CENTRAL) (CENTRAL),COCHIN BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S.MANALTHEERAM BEACH RESORT CHOWARA P.O. BALARAMAPURAM,, THIRUVANANTHAPURAM . BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.P.GOPINATH SRI.RAMESH CHERIAN JOHN OTHER PRESENT: SRI PKR MENON SR COUNSEL FOR GOI TAXES THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25.10.2018, ALONG WITH ITA.1102/2009, ITA.1033/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA No.1033/2009 & con. 4 ITA Nos.1033/2009,1102/2009 &1130/2009 J U D G M E N T The appeals arise from a common order of the Tribunal. In fact we notice that the Tribunal had considered four assessment years from 1998-99 to 2001-2002. The appeal is only as against three years from 1999-2000 to 2001-2002. The issue arose under the Expenditure Tax Act, 1987. The assessee before the Tribunal contended that assessments have been made without looking into the details available on record and treating the entire collection of the assessee as taxable without verifying whether the rental income from different rooms are below or above the taxable limit. The Tribunal found that the room rents were collected in the name of a group leader and hence the Assessing Officer clubbed all the rent together as payable by one individual. However, without looking into the facts, the Tribunal on a

ITA No.1033/2009 & con. 5 suggestion made to the representative of the assessee that the appeals would be disposed of on a fair basis reduced the expenditure assessed without any rational basis and without applying any uniform proportion to the reduction made. We are unable to find any fair basis on which such reduction was made much less any statutory sanction for the same. 2. We agree with the finding of the Tribunal that the Assessing Officer ought to have meticulously considered the manner in which the charges for individual rooms were levied and how the room rents cannot be clubbed together. However, we have a different view on the observation made by the Tribunal with respect to the assessee having charged more per room, in excess of the chargeable rate; which we assume is the published tariff. It is then for the assessee to establish that the amounts were charged for services that do not come under the “chargeable expenditure”. If that cannot be proved then definitely it has to be presumed to be

ITA No.1033/2009 & con. 6 room rent itself. The Tribunal also noticed that for the assessment year 2001-02 there is no separate details furnished as to the room rent collected and also as to receipt of charges for ayurveda treatment, restaurant receipts, yoga receipts miscellaneous receipts and cultural receipts etc. The Tribunal would have to further decide which of these heads are covered under the “chargeable expenditure” as spoken of in Section 5 of the Expenditure Tax Act, 1987. Many of these heads have been included under the the Kerala Tax on Luxuries Act,1976 wherein the levy is on the “charges for luxury”. 3. We also have to notice the judgment of the Hon'ble Supreme Court in Federation of Hotel and Restaurant Association of India v. Union of India ((1989) 3 SCC 634) wherein the challenge came with respect to the levy of expenditure tax and luxury tax on the very same component. The Hon'ble Supreme Court found on the basis of the

ITA No.1033/2009 & con. 7 aspect theory, that those are levies on different aspects which the Center and the State levied under the respective legislative powers available to them. These aspects would have to be definitely considered by the Tribunal when deciding as to what is includable under expenditure as defined under the Expenditure Act, and reference could also be made to the authorities under the Tax on Luxuries Act, which are aplenty. Without such an exercise, there can be no reduction on a fair basis as has been attempted by the Tribunal. We hence remand the issue to be considered afresh by the Tribunal after looking into the law and the facts as available in the respective years. 4. The appeals are allowed without any observation on merits, but remanding back for fresh consideration which consideration be made untrammeled by any observations made on a reference to the Tax on Luxuries Act made herein above which are only prima facie in nature. We made this

ITA No.1033/2009 & con. 8 reservation since we have not compared the charge and the nature of the facilities/services covered under the two enactments; lest we pre-empt such a consideration first by the statutory authority. There shall be no order as to costs.

Sd/- K. Vinod Chandran, Judge Sd/- Ashok Menon, jma Judge

ITA No.1033/2009 & con. 9 APPENDIX OF ITA 1033/2009 PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER ANNEXURE B TRUE COPY OF THE ORDER OF CIT (APPEALS) ANNEXURE C TRUE COPY OF THE ORDER OF THE ITAT ANNEXURE D TRUE COPY OF THE CIRCULAR NO.5/2008 DATED 15.05.2008

ITA No.1033/2009 & con. 10 APPENDIX OF ITA 1102/2009 PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DT.29.12.2006 ANNEXURE B TRUE COPY OF THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DATED 24.09.2007 ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 04.09.2008 ANNEXURE D TRUE COPY OF THE CIRCULAR NO.5/2008 DATED 15.05.2008

ITA No.1033/2009 & con. 11 APPENDIX OF ITA 1130/2009 PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DT 30.03.2006 ANNEXURE B TRUE COPY OF THE ORDER OF CIT (APPEALS) DATED 24.09.2007 ANNEXURE C TRUE COPY OF THE ORDER OF THE ITAT DT 04.09.2008 ANNEXURE D TRUE COPY OF THE CIRCULAR NO. 5/2008 DATED 15.05.2008

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