HILLWOOD FURNITURE PVT. LTD. vs. COMMISSIONER OF INCOME TAX

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR & THE HONOURABLE DR. JUSTICE KAUSER EDAPPAGATH TUESDAY, THE 31ST DAY OF OCTOBER 2023 / 9TH KARTHIKA, 1945 OP (TAX) NO. 7 OF 2020 AGAINST THE ORDER TA 65/2017 OF S.T.A.T.ADDITIONAL BENCH, ERNAKULAM PETITIONER/APPELLANT: REGIONAL SPORTS CENTRE KADAVANTHARA, KOCHI-682020, REPRESENTED BY ITS SECRETARY SHRI. S.A.S.NAVAZ IRS(RETD.). BY ADVS. ANIL D. NAIR SRI.R.SREEJITH SMT.TELMA RAJU SRI.SANGEETH JOSEPH JACOB RESPONDENT/RESPONDENT: STATE OF KERALA REPRESENTED BY ITS PRINCIPAL SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM-693001. OTHER PRESENT: SR GP V K SHAMSUDHEEN THIS OP TAX HAVING COME UP FOR ADMISSION ON 31.10.2023, ALONG WITH OP (TAX).8/2020 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:2:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR & THE HONOURABLE DR. JUSTICE KAUSER EDAPPAGATH TUESDAY, THE 31ST DAY OF OCTOBER 2023 / 9TH KARTHIKA, 1945 OP (TAX) NO. 8 OF 2020 AGAINST THE ORDER TA 35/2014 OF S.T.A.T.ADDITIONAL BENCH, ERNAKULAM PETITIONER/APPELLANT: REGIONAL SPORTS CENTRE KADAVANTHARA, KOCHI-682 020, REPRESENTED BY ITS SECRETARY SHRI.S.A.S. NAVAZ, IRS (RETD.). BY ADVS. ANIL D. NAIR SMT.TELMA RAJU SRI.SANGEETH JOSEPH JACOB SRI.R.SREEJITH RESPONDENT/RESPONDENT: STATE OF KERALA REPRESENTED BY ITS PRINCIPAL SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM-695 001. BY ADV SR GP V K SHAMSUDHEEN THIS OP TAX HAVING COME UP FOR ADMISSION ON 31.10.2023, ALONG WITH OP (TAX).7/2020 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:3:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR & THE HONOURABLE DR. JUSTICE KAUSER EDAPPAGATH TUESDAY, THE 31ST DAY OF OCTOBER 2023 / 9TH KARTHIKA, 1945 OP (TAX) NO. 9 OF 2020 AGAINST THE ORDER TA 12/2018 OF S.T.A.T.ADDITIONAL BENCH, ERNAKULAM PETITIONER: REGIONAL SPORTS CENTRE KADAVANTHRA,KOCHI-682020, REPRESENTED BY ITS SECRETARY SHRI.A.S.NAVAZ.IRS(RETD.). BY ADVS. ANIL D. NAIR SRI.SREEJITH R.NAIR SRI.SANGEETH JOSEPH JACOB SMT.TELMA RAJU RESPONDENT: STATE OF KERALA REPRESENTED BY ITS PRINCIPAL SECRETARY TO GOVERNMENT, TAXES DEPARTMENT,SECRETARIAT, THIRUVANANTHAPURAM-695001. BY ADV SR GP V K SHAMSUDHEEN THIS OP TAX HAVING COME UP FOR ADMISSION ON 31.10.2023, ALONG WITH OP (TAX).7/2020 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:4:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR & THE HONOURABLE DR. JUSTICE KAUSER EDAPPAGATH TUESDAY, THE 31ST DAY OF OCTOBER 2023 / 9TH KARTHIKA, 1945 OP (TAX) NO. 10 OF 2020 AGAINST THE ORDER TA 62/2014 OF S.T.A.T.ADDITIONAL BENCH, ERNAKULAM PETITIONER: REGIONAL SPORTS CENTRE KADAVANTHARA, KOCHI-682020, REPRESENTED BY ITS SECRETARY SHRI.S.A.S.NAVAZ. IRS (RETD.) BY ADVS. ANIL D. NAIR SRI.R.SREEJITH SMT.TELMA RAJU SRI.SANGEETH JOSEPH JACOB RESPONDENT: STATE OF KERALA REPRESENTED BY ITS PRINCIPAL SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECERTARIATE, THIRUVANANTHAPURAM-693001. BY ADV SR GP V K SHAMSUDHEEN THIS OP TAX HAVING COME UP FOR ADMISSION ON 31.10.2023, ALONG WITH OP (TAX).7/2020 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:5:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR & THE HONOURABLE DR. JUSTICE KAUSER EDAPPAGATH TUESDAY, THE 31ST DAY OF OCTOBER 2023 / 9TH KARTHIKA, 1945 OP (TAX) NO. 11 OF 2020 AGAINST THE ORDER TA 11/2018 OF S.T.A.T.ADDITIONAL BENCH, ERNAKULAM PETITIONER: REGIONAL SPORTS CENTRE KADAVANTHARA, KOCHI-682 020 REP.BY ITS SECRETARY SHRI.S.A.S NAVAZ. IRS (RETD) BY ADVS. ANIL D. NAIR SRI.R.SREEJITH SMT.TELMA RAJU SRI.SANGEETH JOSEPH JACOB RESPONDENT: STATE OF KERALA REP. BY ITS PRINCIPAL SECRETARY TO GOVERNMENT TAXES DEPARTMENT, SECRETARIATE, THIRUVANANTHAPURAM-693 001 BY ADV SR GP V K SHAMSUDHEEN THIS OP TAX HAVING COME UP FOR ADMISSION ON 31.10.2023, ALONG WITH OP (TAX).7/2020 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:6:- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR & THE HONOURABLE DR. JUSTICE KAUSER EDAPPAGATH TUESDAY, THE 31ST DAY OF OCTOBER 2023 / 9TH KARTHIKA, 1945 OP (TAX) NO. 12 OF 2020 AGAINST THE ORDER TA 66/2017 OF S.T.A.T.ADDITIONAL BENCH, ERNAKULAM PETITIONER: REGIONAL SPORTS CENTRE KADAVANTHARA, KOCHI-682020. REPRESENTED BY ITS SECRETARY SHRI S A S NAVAZ, IRS (RETD). BY ADVS. ANIL D. NAIR SRI.SREEJITH R.NAIR SMT.TELMA RAJU SRI.SANGEETH JOSEPH JACOB RESPONDENT: STATE OF KERALA REPRESENTED BY ITS PRINCIPAL SECRETARY TO GOVERNMENT , TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM-693001. BY ADV SR GP V K SHAMSUDHEEN THIS OP TAX HAVING COME UP FOR ADMISSION ON 31.10.2023, ALONG WITH OP (TAX).7/2020 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:7:- J U D G M E N T Dr. A.K.Jayasankaran Nambiar, J.

It is submitted by the learned counsel on either side that the issues arising in these O.P. (Tax) cases have already been considered by this Court in the decision reported in Madhavaraja Club (M/s.) v. Commercial Tax Officer (Luxury Tax) Palakkad [2023 (2) KHC 413]. Paragraphs 11, 12, 13, 14 and the operative portion of the said judgment reads as follows: “11. The legal position that emerges for our purposes is that, in the case of members’ clubs, by virtue of the doctrine of mutuality that applies, the supply of goods/ services/amenities/luxuries by the club to its members will not attract the levy of tax because there is no supply effected by one person to another for consideration. The absence of two distinct persons to a transaction viz. a supplier/provider of goods/ services/ amenities/ luxuries and a recipient thereof, makes the transaction a supply to oneself, which cannot be taxed under the statute. It is also significant that under the KTL Act, there is no express provision, save Section 4 (2A) thereunder, that provides for a levy of tax on the providing of a luxury by a members’ club to its members. In

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:8:- the absence of such an express provision, the doctrine of mutuality that otherwise governs the transaction between a members’ club and its members will continue to insulate the club and its members from the levy of luxury tax, save under Section 4 (2A) thereof. 12. DISCUSSION & FINDINGS: In the light of the aforesaid discussion, we must now deal with the specific contentions of the learned Government Pleader, relying on the decisions of the division bench of this court in M/s Lotus Club v. State of Kerala & Ors – 2018 KHC 923: [Neutral Citation Number: 2018/KER/40520] and M/s Madhavaraja Club v. The Commercial Tax Officer (Luxury Tax) & Ors – 2013 KHC 806 [Neutral Citation Number: 2013/KER/9816], that in the former judgment, this court has clearly held that the incidence of tax is on the person enjoying the luxury and hence, although the luxury is provided to a member of the club by the club itself, the doctrine of mutuality will have no application, and that in the latter judgment, another division bench of this court has, in the appellant’s own case under the KTL Act for an earlier assessment year, clearly held that the doctrine of mutuality is not apposite in the context of the KTL Act. We have gone through the said judgments cited by the learned government pleader. In Lotus Club, the Division Bench essentially followed an earlier division bench judgment of this Court in Trivandrum Club v. Sales Tax Officer (Luxury Tax) – [2012 (3) KLT 682] that unambiguously held that under the KTL Act, the charging section recognised the club as the person liable to luxury tax. The Division Bench therefore recognised the club as the person on whom the incidence of tax fell. Since the later division bench in Lotus Club did not find any cause for doubting the propositions laid down in

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:9:- Trivandrum Club and dismissed the appeal preferred by Lotus Club by following the decision in Trivandrum Club, we cannot read the observations of the Division Bench in Lotus Club as having laid down the proposition that the incidence of tax under the KTL Act is on the person enjoying the luxury and not on the ‘proprietor’ who provides the luxury. 13. The reliance placed by the learned Government Pleader on the decisions in Godfrey Philips India Limited v. State of UP – [(2005) 2 SCC 515] and State of Karnataka & Ors v. Drive-in Enterprises – [(2001) 4 SCC 60] in support of his contention that the incidence of luxury tax is on the enjoyment of luxury and not on the providing of luxury is also misplaced. The said decisions considered the issue of legislative competence of the respective legislatures while imposing the levy of luxury tax. It was in that context that the Supreme Court found that the levy of luxury tax was on the enjoyment of the luxury and hence, even if the incidence of tax was on the ‘turnover of stock of luxuries’ or on the ‘admission of cars/motor vehicles inside the drive in theatre’, as the case may be, in pith and substance, the levy of tax was on a luxury and therefore within the competence of the respective legislatures to levy, as Entry 62 of List II under the Seventh Schedule to the Constitution authorised the levy of “Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling.” To the same effect is the judgment of the Division Bench of this court in Asianet Satellite Communications Ltd v. State of Kerala – [2010 (3) KLT SN 22 (C.No.29)] as also the judgments of the Supreme Court in Express Hotels and Purvi Communication [supra]. The observations of the court in the said judgments cannot have the effect of altering the taxable event under the Kerala Tax on Luxuries Act, the charging provision of which is specific when it

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:10:- states that the levy of tax is on ‘luxury provided’ meaning thereby that it is levied when the luxury is provided. 14. Similarly, the observation of the division bench of this court in M/s Madhavaraja Club that the doctrine of mutuality is relevant only for the purposes of the Income Tax Act and is not apposite in the context of the KTL Act cannot be seen as laying down the correct law in the light of the subsequent judgment of the Supreme Court in Calcutta Club Ltd where the doctrine of mutuality was held applicable in the context of legislations regulating the levy of indirect taxes such as VAT and Service Tax. We are of the view that the principle recognised in Calcutta Club Ltd, that the absence of two distinct persons to a transaction viz. a supplier/provider of goods/ services/ amenities/ luxuries and a recipient thereof, makes the transaction a supply to oneself, which cannot be taxed under the statute, applies equally to the KTL Act which contemplates the levy of tax whenever a luxury is provided by one specified person to another. We therefore find that the mutuality principle will apply to insulate the petitioner club from the levy of tax under the KTL Act, save under Section 4 (2A) thereunder, on charges collected from its members for amenities provided to them. Since it is not in dispute that the petitioner club has paid the tax in terms of Section 4 (2A) during the assessment years in question, we allow O.P (Tax).No.9 of 2016 and O.P (Tax).No.23 of 2016 by setting aside the orders of the Appellate Tribunal impugned therein and the orders of penalty passed against the petitioner under the KTL Act for the assessment years 2008-09, 2009-10, 2010-11 and 2011-12. We also allow W.A.No.601 of 2021 by setting aside the judgment of the learned Single Judge in W.P(C).No. 2942/2021 and allowing the writ petition by quashing the assessment orders

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:11:- and first appellate orders passed against the appellant under the KTL Act for the assessment years 2014-15, 2015-16, 2016-17 and 2017-18. The assessing authority shall proceed to complete the assessment of the appellant club under the KTL Act for the aforesaid assessment years afresh by excluding that part of the turnover for the said years, as is covered by the mutuality principle discussed above. The assessing authority shall complete the said exercise within a period of three months from the date of receipt of a copy of this judgment." Following the said judgment, these O.P.(Tax) cases are disposed by setting aside the orders of the Tribunal impugned therein and remitting the matter back to the Assessing Authority for redoing the assessment in accordance with the directions issued in the judgment referred above. It is made clear that the liability of the petitioner to pay tax in terms of Section 4(2A) of the Kerala Tax on Luxuries Act is affirmed and the remand is only to determine the liability of the petitioner on other grounds. Sd/- DR. A.K.JAYASANKARAN NAMBIAR JUDGE Sd/-

DR. KAUSER EDAPPAGATH JUDGE Rp

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:12:- APPENDIX OF OP (TAX) 7/2020 PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE ASSESSMENT ORDER NO.LT/2348/213/2010-11 DATED 3.3.2015 FOR A.Y.2010-11. EXHIBIT P2 TRUE COPY OF THE ORDER OF DEPUTY COMMISSIONER (APPEALS)-II, ERNAKULAM DATED 20.4.2017. EXHIBIT P3 TRUE COPY OF THE APPEAL FILED BEFORE THE SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM. EXHIBIT P4 TRUE COPY OF THE COMMON ORDER DATED 5.9.2018 IN T.A.(VAT)NO.65 OF 2017 ISSUED BY THE SALES TAX APPELLATE TRIBUNAL, ERNAKULAM.

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:13:- APPENDIX OF OP (TAX) 8/2020 PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE ASSESSMENT ORDER NO.LT/2328/213/06-07 DATED 26.03.2011 FOR AY 2006-07. EXHIBIT P2 TRUE COPY OF THE ORDER OD DEPUTY COMMISSIONER (APPEALS) II ERNAKULAM DATED 12.02.2014 FOR AY.2006-07. EXHIBIT P3 TRUE COPY OF THE APPEAL FILED BEFORE THE SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM FOR AY.2006-07. EXHIBIT P4 TRUE COPY OF THE COMMON ORDER DATED 05.09.2018 IN TA (VAT) NO.35 OF 2014 ISSUED BY THE SALES TAX APPELLATE TRIBUNAL, ERNAKULAM.

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:14:- APPENDIX OF OP (TAX) 9/2020 PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE ASSESSMENT ORDER NO.LT/2328/LT/212/09-10 DATED 25.03.2014 FOR A.Y.2009-10 EXHIBIT P2 TRUE COPY OF THE ORDER OF DEPUTY COMMISSIONER(APPEALS)IV,ERNAKULAM DATED 22.3.2018. EXHIBIT P3 TRUE COPY OF THE APPEAL FILED BEFORE THE SALES TAX APPELLATE TRIBUNAL,ADDITIONAL BENCH ERNAKULAM EXHIBIT P4 TRUE COPY OF THE COMMON ORDER DATED 27.4.2020 IN T.A.(VAT)NO.12 OF 2018 ISSUED BY THE SALES TAX APPELLATE TRIBUNAL,ERNAKULAM.

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:15:- APPENDIX OF OP (TAX) 10/2020 PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE ASSESSMENT ORDER NO.LT/2328/2013/07-08 DATED 27.03.2012 FOR A.Y.2007-2008. EXHIBIT P2 TRUE COPY OF THE ORDER OF DEPUTY COMMISSIONER (APPEALS)-II, ERNAKULAM DATED 12.02.2014. EXHIBIT P3 TRUE COPY OF THE APPEAL FILED BEFORE THE SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM. EXHIBIT P4 TRUE COPY OF THE COMMON ORDER DATED 05.09.2018 IN T.A.(VAT)NO.62 OF 2014 ISSUED BY THE SALES TAX APPELLATE TRIBUNAL, ERNAKULAM.

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:16:- APPENDIX OF OP (TAX) 11/2020 PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE ASSESSMENT ORDER NO.LT/2328/LT/213/08-09 DATED 30.3.2013 FOR A.Y. 2008-09 EXHIBIT P2 TRUE COPY OF THE ORDER OF DEPUTY COMMISSIONER (APPEALS)-II, ERNAKULAM DATED 22.3.2018 FOR A.Y.2008-09 EXHIBIT P3 TRUE COPY OF THE APPEAL FILED BEFORE THE SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM FOR A.Y.2008-09 EXHIBIT P4 TRUE COPY OF THE COMMON ORDER DATED 27.4.2020 IN T.A.(VAT) NO.11 OF 2018 ISSUED BY THE SALES TAX APPELLATE TRIBUNAL, ERNAKULAM

O.P.(Taxes) Nos.7, 8, 9, 10 11 & 12/2020 -:17:- APPENDIX OF OP (TAX) 12/2020 PETITIONER EXHIBITS EXHIBIT P1 TRUE COPY OF THE ASSESSMENT ORDER NO. LT/2328/LT/2011-12 DATED 03.03.2016 FOR A Y. 2011-12. EXHIBIT P2 TRUE COPY OF THE ORDER OF DEPUTY COMMISSIONER (APPEALS) II ERNAKULAM DATED 20.04.2017. EXHIBIT P3 TRUE COPY OF THE APPEAL FILED BEFORE THE SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM. EXHIBIT P4 TRUE COPY OF THE COMMON ORDER DARTED 5/9/2018 IN TA (VAT) NO.66 OF 2017 ISSUED BY THE SLAES TAX APPELLATE TRIBUNAL, ERNAKULAM. //True Copy// PS to Judge