GUJARAT JHM HOTELS LTD vs. DIRECTOR GENERAL OF INCOME TAX (EXEMPTION)
What did the High Court hold?
The High Court held that the respondent authority had overstepped its jurisdiction and applied extraneous considerations. The Court noted that under Section 80-IA(4)(iii), the Central Government specifies the place, and the prescribed authority (the respondent) is only required to verify if the conditions stipulated in Rule 18BBC(2)(a), (b), and (c) are met. The petitioner had provided certificates from the Director of Tourism, Gujarat, and the Department of Tourism, Government of India, confirming compliance with the conditions. The respondent's reasoning regarding Surat not being a place requiring pilgrimage promotion, the low percentage of Parsi visitors, and the high room rent were found to be irrelevant and extraneous to the prescribed criteria. The Court found that the petitioner had fulfilled all necessary conditions. Consequently, the impugned order dated March 31, 1997, was quashed and set aside, and the respondent was directed to pass appropriate orders granting the benefit within six weeks. The petition was allowed.
What were the facts?
Gujarat JHM Hotels Ltd. (the petitioner) filed a Special Civil Application challenging an order dated March 31, 1997, passed by the Director General of Income Tax (Exemption), Calcutta (the respondent). The petitioner sought approval for its hotel in Surat under Section 80-IA(4)(iii) of the Income Tax Act, 1961, and Rule 18BBC of the Income Tax Rules, 1962, to avail tax benefits. The petitioner claimed its hotel met the criteria, including being located in a place of pilgrimage and having fewer than 300 rooms of 3-star category and above. Despite submitting certificates from the Gujarat Government's Directorate of Tourism and the Government of India's Department of Tourism, the respondent rejected the application. The respondent's reasons for rejection included that Surat is an industrial town, not requiring additional benefits for tourism promotion, that Parsi visitors constituted only 3% of turnover, and that the room rent was exorbitant for pilgrims.
What were the issues?
1. Whether the petitioner's hotel, located in Surat, qualifies as being in a 'place of pilgrimage' or a place requiring infrastructure development for tourism, as stipulated under Section 80-IA(4)(iii) of the Income Tax Act, 1961, for the purpose of tax exemption. 2. Whether the respondent, as the prescribed authority, acted within its jurisdiction and applied the correct criteria when rejecting the petitioner's application for approval under Section 80-IA(4)(iii) and Rule 18BBC. Assessee's arguments: The petitioner contended that Surat is a place of pilgrimage, particularly for Parsis, and that it fulfilled all conditions under Section 80-IA(4)(iii) and Rule 18BBC, including the room capacity limit. They argued that the respondent ought to have granted approval, especially given the certificates from the Directorate of Tourism, Gujarat, and the Department of Tourism, Government of India. Revenue's arguments: The respondent argued that the petitioner's hotel did not fulfill the 'pilgrimage test' and did not genuinely promote pilgrimage. They maintained that Surat, being an industrial town with existing tourism infrastructure, did not need the additional benefit. The respondent also cited the high room rent and the low percentage of Parsi visitors as reasons for rejection, asserting that the application was rightly rejected based on the authority's order dated March 31, 1997.
Which sections of the Income-tax Act were involved?
Section 80-IA(4)(iii), Rule 18BBC
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
Date : 30/06/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE H.B. ANTANI) The petitioner is a Public Limited Company having its registered office and business at Surat. The petitioner challenges the order passed by the Director General of Income Tax [Exemption], Calcutta dated 31.03.97 by which the petitioner was not given the benefit under section 80-1A (4) (iii) of the Income Tax Act, 1961 [the Act, hereinafter]. It is submitted that the petitioner is running a hotel in Surat and the respondent is the prescribed authority who approves Hotels for the purpose of section 80-1A (4) (iii) of the Act read with rule 18BBC of the Income Tax Rules, 1962 [the Rules, hereinafter]. If the petitioner hotel is approved by the respondent under the aforesaid provisions, then the petitioner will get relief at the specified rate in respect of the profit earned from the hotel. The petitioner made an application for approval of its hotel under the aforesaid provisions. The relevant portion of the section and the rule are quoted hereunder: “80-IA (1). Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or.... to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the SCA/4192/1997 3/12 percentage specified in sub-section (5) and for such number of assessment years as is specified in sub- section (6). (2). xxx xxx xxx xxx xxx xxx xxx xxx (3). xxx xxx xxx xxx xxx xxx xxx xxx (4). This section applies to business of any hotel, where conditions (i), (ii), (v) and either of the conditions (iii) or (iv) are fulfilled, namely:- (i). the business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of a building previously used as a hotel or of any machinery or plant previously used for any purpose. (ii).The business of the hotel is owned and carried on by a company registered in India with a paid-up capital of not less than five hundred thousand rupees; (iii).The business of the hotel, located in a hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may having regard to the need for development of infrastructure for tourism in any place and other relevant considerations specify for the purpose of this clause, starts functioning at any time during the period beginning on the 1st day of April 1990 and ending on the 31st day of March, 1994. (iv). The business of the hotel -
SCA/4192/1997 4/12 (1). located in any place, or (2). located in a place other than a place referred to in clause (iii) of this sub-section, starts functioning at any time during the period beginning on the 1st day of April 1991 and ending on the 31st day of March, 1995; (v). the hotel is for the time being approved by the prescribed authority”. Rule 18BBC reads as under: 18BBC. Prescribed authority for approval of hotels located in certain areas. (1). For the purpose of clause (v) of sub-section (4) of section 80-1A, the prescribed authority, (a). in relation to hotels located in an area or place referred to in clause (iii) of that sub-section, shall be the Director General (Income Tax Exemption) who shall grant approval on the concurrence of the Director General in the Directorate General of Tourism, Government of India; (b). in relation to hotels located in any place referred to in clause (iv) of that sub- section, shall be the Director General in the Directorate General of Tourism, Government of India. (2). For the purpose of clause (iii) of sub-section (4) and the first proviso of clause (ii) of sub-section (5) of section 80-1A, a hotel shall be approved by the prescribed authority if the SCA/4192/1997 5/12 following conditions are fulfilled, namely:- (a). such hotel is located in an area or place specified under clause (iii) of the said sub-section (4).; (b). there are not more than 300 hotel rooms of 3-star category and above in the aggregate, in areas or places specified under clause (iii) of the said sub-section (4) within the jurisdiction of the revenue sub-division in which the hotel is located; (c). in case the hotel is located in a place where there is need for development of infrastructure for tourism, such place has been specified by the Central Government under clause (iii) of the said sub-section (4) on the recommendations of the Department of Tourism.” As per the say of the petitioner, the petitioner made an application for exemption as the petitioner Hotel is located at a place of pilgrimage as required under section 80-1A (4) (iii) of the Act since the Hotel is situated at Surat which is an important place of pilgrimage to various sections of the society, more particularly Parsis. It is also the case of the petitioner that the condition of not having more than 300 hotel rooms of 3 star category and above is also fulfilled in the present case. The petitioner has also sent a certificate to the respondent issued by the Director, Tourism, Gujarat Government dated 18.06. 96. It is also the case of the petitioner that the petitioner has also sent a certificate issued by the Department of SCA/4192/1997 6/12 Tourism, Government of India dated 11.07. 96. It is pertinent to note that clause (v) of sub-section (4) of section 80-IA requires that the Hotel is to be approved by the prescribed authority and since the application made by the petitioner was meeting with all the requirements as provided for in the provisions quoted above, the respondent ought to have granted approval on concurrence of the Director General of Tourism, Government of India. The petitioner's representative appeared before the respondent on 8th November 1996. The petitioner thereafter addressed a letter dated 15th November 1996. Meanwhile, the respondent addressed a letter dated 18.11.1996 requesting the petitioner to furnish certain details. There upon the petitioner provided all necessary information to the respondent and also wrote various letters thereafter. However, by order dated 31.03.97, the respondent rejected the application for approval of the Hotel under section 80-1A (4) (iii) of the Act . The relevant portion of reasons assigned by the respondent in rejecting the application are quoted below:
“4. The only issue to be decided upon now is as to whether this hotel, which is claiming benefit under the “Pilgrimage Test” does/did really promote pilgrimage and as to whether Surat is a place which could be considered as requiring approval for Notification for promotion of pilgrimage.
It is a well-known fact that Surat is an important
industrial
town,
having
existent infrastructure/tourism facilities, to promote Industrial and Tourism Development. As such a place
SCA/4192/1997 7/12 like Surat does not require the conferring of an additional benefit of under section 80-1A (4) (iii). Second, it has been reported by the C.I.T vide his Report dated 12.2.97 that barely 3% of the turnover of travellers / persons in this hotel account for the Parsi visitors. Even in respect of these 3% Parsi travellers, it has not been established that they are travellers who had not gone to Surat for the sake of business. Third, the Room rent charged by the Hotel is also at Rs.4,200/- per day, which is very exorbitant from the view-point of a pilgrim, even if he is a Parsi. For all Parsis cannot afford 5-Star comfort. At such high rates, it cannot promote pilgrimage tourism. Fourth, no Tariff or Rent concession has been offered for Parsi tourists specifically. Fifth, no rooms have been specifically reserved for such Parsi Tourists. On this account also, it is held that this Hotel does not promote pilgrimage tourism. Notifying such a hotel U/s 80-1A (4) (iii) would not serve the purpose visualised herein.
Keeping in view these facts the hotel does not deserve benefit of Section 80-1A (4) (iii) of the I.T. Act. The application filed by the applicant is rejected/filed”. It is submitted by the learned advocate for the petitioner that whoever wants exemption must fulfill all the conditions as laid down under the Act and the Rules, and if conditions are fulfilled, then the exemption is required to be given. In the order passed by the respondent, it is not stated by the respondent that the SCA/4192/1997 8/12 petitioner has not fulfilled any of the conditions as laid down under the Act and the Rules. The respondent, on the contrary, considered irrelevant and extraneous factors while rejecting the application preferred by the petitioner. Even the provisions contained in the Act as well as the Rules were not interpreted by the respondent in proper perspective. Thus, the petitioner being aggrieved by the order dated 31.03.97 passed by the respondent, is constrained to file the present petition, praying for quashing and setting aside the said order. Learned advocate submitted that since the petitioner has fulfilled all the conditions laid down under the Act as well as the Rules, the petitioner's application ought to have been allowed, and necessary direction be issued to the authority to grant benefit as provided under section 80-1A (4) (iii) of the Act. As against the aforesaid submissions, learned counsel representing the respondent vehemently submitted that as conditions prescribed under section 80-1A (4) (iii) of the Act as well as rule 18BBC of the Rules were not fulfilled by the petitioner, the application preferred by the petitioner was rejected by the authority. Learned advocate submitted that since the Hotel of the petitioner was not fulfilling the required pilgrimage test and it did not really promote pilgrimage, the authority has rightly rejected the application of the petitioner. It is also considered by the authority that since Surat is an important industrial town having infrastructure and tourism to promote industrial and tourism development, at a place like Surat, it is not required to confer the benefit under section 80-1A (4)
SCA/4192/1997 9/12 (iii) of the Act to the petitioner Hotel. It is also considered by the respondents that the room rent charged by the Hotel is Rs.4200/- per day which is very exorbitant from the point of view of pilgrimage and even if there are Parsi pilgrims, all Parsi pilgrims cannot afford such a high rate. On these grounds the application was rejected. Thus, the learned advocate submitted that considering the reasonings assigned by the authority in its order dated 31.03.97, the writ petition does not call for any interference, and the same is liable to be dismissed. This Court has heard Mr. Manish J Shah, learned Counsel of the petitioner and Ms. Mauna Bhatt, learned advocate for the respondent at length and in great detail. This Court has also considered the averments made in the petition and has also gone through the annexures relied upon by the petitioner. This Court has also perused the affidavit in reply filed on behalf of the respondent by Tejinder Singh, Deputy Commissioner of Income Tax. The respondent authority appears to have taken upon itself to equate itself with the Central Government. The provisions of Section 80-1A (4) (iii) of the Act provide for the Central Government to specify a hotel for the purposes of the said clause while the prescribed authority enters the picture only in clause (v) of sub- section (4) of Section 80-1A of the Act. Similarly, under Rule 18BBC (1)(a) of the Rules, the prescribed authority shall grant approval on the concurrence of the Director General in the Directorate General of Tourism, Government of India. Therefore, under sub-rule (2) of SCA/4192/1997 10/12 Rule 18BBC, the prescribed authority is only required to consider whether the conditions stipulated in clauses (a), (b) and (c) of the said sub-rule stand satisfied. The prescribed authority has no further discretion once the conditions are shown to have been satisfied. The petitioner firm made an application to the respondent for granting approval of its Hotel at Surat under section 80-1A (4) (iii) of the Act . Director of Tourism, Government of Gujarat has issued certificate dated 18th June 1996 for the purpose of grant of approval under section 80-1A (4) (iii) of the Act to the effect that the hotel complies with the conditions stipulated for grant of the said benefit. Even the Government of India, Department of Tourism has issued a certificate to the effect that the Hotel is on the approved list of the Department of Tourism w.e.f. 23.3.94 in relation to sections 80-HHD and 80-1A (4) (iii) of the Act. The petitioner has also made a representation to the respondent and has also furnished all the relevant details called for from the petitioner. However, the respondent authority, by its order dated 31.03.97, rejected the application of the petitioner for conferring benefit under section 80-1A (4) (iii) of the Act . A bare perusal of the documents furnished by the petitioner vis-a-vis section 80-1A (4) (iii) of the Act and rule 18 BBC makes it very clear that the petitioner has fulfilled all the necessary conditions for grant of the approval. The reasons assigned by the authority in the impugned order, and reproduced by us hereinabove, are absolutely irrelevant and extraneous. The authority has only considered that the petitioner does not fulfill the SCA/4192/1997 11/12 pilgrimage test without dealing with the two certificates issued by the prescribed authorities. Once the prescribed authorities grant certificates, if the respondent authority wants to reject the same, then valid and justifiable reasons must be given for the same. Rejecting the application on merely considering the fact whether Surat is a place which could be considered as requiring approval for notification for promotion of pilgrimage, is an extraneous consideration to the provisions of the Act and the Rules and the benefit cannot be refused to the petitioner on the aforesaid flimsy ground. In view of the fact that the petitioner has fulfilled all the conditions laid down under the relevant provisions of the Act and the Rules, in our considered view, the order passed by the respondent is not just and proper, and is, therefore, liable to quashed and set aside.
In view of the above discussion, the impugned order dated 31.03.97 Annexure 'J' passed by the respondent is quashed and set aside. The petitioner is held entitled to all consequential relief as prayed for, and the respondent authority shall pass appropriate orders regarding the same within six weeks from the date of receipt of the writ of this order. Registry to issue the writ forthwith. The petition is allowed accordingly. Rule is made absolute accordingly. No order as to costs.
SCA/4192/1997 12/12 [D.A.MEHTA , J.] [H.B.ANTANI, J.] mathew
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