1. These appeals by the assessee are consolidated and disposed of by a common order for the sake of convenience, as they relate to the same assessee and involve common issues and the arguments advanced by the parties are also common.
2. These appeals relate to assessment years 1988-89 and 1989-90 and arise out of the consolidated order of the Commissioner (Appeals)-II, Pune dated 31-10-1991 wherein he upheld the orders of the Assessing Officer made under Section 9(2) of the Expenditure Tax Act, 1987 for these years in toto and thus dismissed the appeals filed by the assessee.
(1) The learned CIT(A) erred in equating business of the hotel under the Income-taxAct with hotel as defined under Section 2(6) of the Expenditure tax Act.
(2) The learned CIT(A) erred in confusing the requirements of the Tourism department in the classification of a hotel business with hotel as defined under the Expenditure Tax Act.
(3) The learned CIT(A) erred in relying on extraneous requirements for other purposes while considering the legal provisions of the E.T. Act as observed by him in para 16 of the order for assessment year 1988-89.
(4) The learned CIT(A) erred in not appreciating the real intent of the word 'includes' in the definition of the hotel under Section 2(6) of the E.T. Act and expanding the definition to cover the interpretation and requirements for purposes not connected with the assessment under the E.T. Act.
(5) The learned CIT(A) erred in not appreciating distinction between properties let out as part of business of hotel under the I.T. Act and the hiring or providing residential accommodation for monetary considerations under the E.T. Act.
(6) The learned CIT(A) erred in observing in para 18 that leasing out of part of hotel building as interpreted by him is not distinct from the company's hotel business and also relying on the inclusion of such income in "hotel business" income presumably under the I.T. Act. Further he erred in applying the so-called "wider definition" to shops and offices while it speaks of residential accommodation only.
(7) The learned CIT(A) erred in not appreciating that Section 5 of the E.T. Act has to be interpreted within the limitations laid down in the definition of hotel defined under Section 2(6) of the E.T. Act.
(8) The learned CIT(A) erred in concluding in para 21 of the order that the letting out of various shops and premises on hire and lease in hotel premises would clearly fall within the ambit of Clause (b) sic (c) of Section 5 of the E.T. Act by relying on facts mentioned in the order which should not influence the interpretation of Section 5 of the E.T. Act.
(9) The learned CIT(A) erred in not appreciating the decision of Delhi High Court in the case of the R &. Jain and Others v. Union of India 180 ITR 643 is not applicable in the facts and legal position obtained in our case, as also the reasoning relied on by the appellant company, which is distinct and was not put forth before the Delhi High Court.
(10) The learned CIT(A) erred as judicial authority in relying on CBDT instructions in Interpreting Section 5 of the E.T. Act.
(11) In the facts and circumstances of the case and in law, the learned CIT(A) erred in concluding that the flight kitchen sales would fall within the ambit of the term chargeable expenditure as defined in Section 5 of the E.T. Act.
(12) The learned CIT(A) erred in not appreciating that service charges collected on behalf of employees of our hotel are not payments made by customer to the hotel but to the employees of the hotel and that the said money is in the nature of money held in trust and that it belongs to the employees by overriding title which in fact has been paid over to the employees.
(13) The learned CIT(A) erred in not appreciating that as per the Agreement entered into which was produced before him for perusal the amounts belong to them on account of diversion at source by overriding title.
(14) The learned CIT(A) erred in not appreciating that under the I.T. Act, inclusion of service charges in the receipts and payment is a contra entry not affecting the taxable income under the I.T. Act and also that it does not ultimately form part of the taxable income of the company.
(15) The learned CIT(A) erred in not appreciating that the amount of discount conclusively and effectively reduces the amount of expenditure incurred by the customer in the hotel and hence it cannot become chargeable expenditure under the E.T. Act irrespective of the manner in which or the time when such discount is allowed to the customer. He ought to have appreciated the concept of "real expenditure" which should be chargeable under the E.T. Act.
(16) The learned CIT(A) erred in not appreciating that the sales at Baker's basket are effected outside the hotel and that such expenditure is not incurred by the customer in the hotel as defined in the E.T. Act (17) The learned CIT(A) erred in interpreting the provisions of E.T. Act beyond the intent of law, provisions of the law and by relying on extraneous factors not connected with such interpretation.
(18) The learned CIT(A) erred in not appreciating that the activities of the hotel undertaking cannot be equated with all the activities carried on by the company owning the hotel.
(19) The appellant craves leave to add or to withdraw or to modify any of the grounds of appeal at the time of hearing.
4. However, at the time of hearing, the learned counsel for the assessee has withdrawn ground No. 16 relating to sales at Baker's basket.
5. The appellant company is an assessee-hotel engaged in the business of running a Five Star hotel and is also providing other ancillary services at the hotel. This fact is clear from the objects Clause of the Memorandum of Association of the appellant company as well as from the manner in which the income has been shown in the Income-tax returns during the preceding assessment years, vide para 13 of the impugned order of the Commissioner (Appeals). The assessee follows Financial Year as the accounting year. The Expenditure Tax Act, 1987 came into force from 1st November, 1987 and therefore, it is applicable for the assessment years 1988-89 and onwards. For the assessment year 1988-89, the assessee disclosed total chargeable collection of Rs. 1,96,90,870 and a sum of Rs. 16,74,270 was collected as Expenditure Tax but a sum of Rs. 17,18,589 was actually paid. The assessee, however, claimed that the sum received in foreign currency and the sum allowed as a discount to customers at the time of payment were exempt from Expenditure Tax.
6. In the assessment proceedings before the Assessing Officer, inter alia, the assessee claimed that the licence fees received from letting out various shops and offices should not be included in the "chargeable expenditure" as they do not fall within the definition of "hotel" because rent does not fall under the definition of chargeable expenditure and thus the rental income was outside the scope of charging Section 3 of the Expenditure Tax Act.
7. Similarly, sale proceeds of bakery shop named "Baker's Basket" run in the premises of the hotel were sought to be excluded by the assessee. Another item which it claimed as exclusion related to food sales made to the Indian Airlines for flight kitchen on the ground that they are not chargeable expenditure incurred in the hotel. The assessee levied separately service charges at uniform rate of 10% on the bills relating to food and drinks and also for the lodging. This was sought to be excluded from the chargeable expenditure on the ground that it was not entirely income of the company and 85% of such charges are distributed among the employees and only 15% was retained by the assessee.
8. The Assessing Officer rejected the contentions of the assessee and included all the aforesaid items within the chargeable expenditure as defined by Section 5 of the Expenditure Tax Act. According to the Assessing Officer, the licence fee or the rental income from hiring shops or office premises fell under Sub-sections (a) and (c) of Section 5(1). The stand taken by the Assessing Officer was that the lease rent or hire charges of shop or office premises of the hotel complex are covered by the definition of chargeable expenditure, even if they do not form an integral part of the hotel. Similar, reasoning is applied by the Assessing Officer for sale proceeds of Baker's Basket and flight kitchen. As regards service charges, the case of the Assessing Officer was that the assessee has uniformly levied at 10% from all the customers and they were shown as part and parcel of the price of accommodation, food, drink etc. and Expenditure Tax has also been charged at the rate of 10% on the amounts of the bills which included the service charges and which revealed that the assessee itself has considered service charges as part and parcel of the expenditure incurred by the customers. The Assessing Officer also repelled the contention of the assessee to exclude such service charges from the computation of chargeable expenditure. The fact that it was collected on behalf of the employees was not enough reason to exclude this amount from the computation of chargeable expenditure because the assessee is liable to incur all expenditure to earn income from hotel business including expenditure on employees. For coming to these conclusions, the Assessing Officer has heavily relied on the judgment of the Delhi High Court in the case of R.L. Jain v. Union of India 9. Corning to the claim of exclusion of discount allowed, the Assessing Officer pointed out that the discount allowed to the customer in the bill itself had not been included in the chargeable expenditure.
However, the claim related to some discount allowed to some customers at the time of settlement of the bill for prompt payment. This the Assessing Officer was not inclined to consider as trade discount.
Moreover, the assessee itself has already charged expenditure tax from its customers even before such discount has been allowed for prompt payment. Thus even this claim was rejected by the Assessing Officer.
10. In short, the Assessing Officer has deducted only the payments received in foreign currency from the gross chargeable expenditure shown in the return and subjected the balances to expenditure tax as detailed separately in the assessment orders for the assessment years 1988-89 and 1989-90.
11. The assessee appealed to the Commissioner (Appeals) against the orders of the Assessing Officer for these years. The various arguments and the contentions urged on behalf of the appellant-assessee were duly recorded in paras 5 to 12 of the appellate order of the Commissioner (Appeals). Virtually the same arguments have been advanced by the learned counsel for the assessee even before us at the time of hearing of the appeals.
12. On appeal, the Commissioner (Appeals) gave a finding that the assessee hotel is engaged in the business of running a Five Star hotel and also in providing other ancillary services at the hotel. The activities of hiring or leasing out a part of the accommodation in the hotel as well as in providing confectionery items in Baker's Basket and providing food to Indian Airlines for flight kitchen were held to be part of its activities of running hotel, vide para 13 of the impugned order. He pointed out that for Income-tax purposes the assessee claimed depreciation on the entire building complex and the rent received from the various shops or offices were shown as part of the hotel business income for Income-tax purposes. The point made out by him was that such rental income from shops or offices was considered as business income of hotel and not as property income of the landlord of the building. He also pointed out that as per assessee's own claim made before the Government of India, Ministry of Tourism in its application that it has various facilities which would entitle it to be considered as Five-Star category. Thus, according to the assessee's own showing. Five Star facilities were made available in the assessee's hotel as part of its hotel business, vide the description of various services in Clauses (a) to (i) of para 15 of the impugned order of the Commissioner (Appeals).
The Commissioner (Appeals) referred to the definition of hotel contained in Section 2(6) of the Expenditure Tax Act, 1987 which is an inclusive definition to include not only a hotel as generally understood, but also to include a building or a part of building where residential accommodation is, by way of business, provided for a monetary consideration. The assessee has let out a part of the building on hire or lease to various shops and offices as part of its hotel business which is evident from the statement made by the assessee in column No. 9 of Part II of its application to the Government of India, Ministry of Tourism for being considered as Five Star category. The Government of India, Ministry of Tourism has also approved the assessee as a Five Star hotel. On this basis, the Commissioner (Appeals) gave a finding that the hiring or leasing of a part of a hotel building is not distinct from its hotel business itself and this fact was reinforced by the fact that the assessee has been showing rent receipt from the various shops and offices let out to third parties as part of its hotel business income. Thus the criterion contained in Section 3(1) of the Expenditure Tax Act, 1987 is satisfied and therefore, provisions of the said Act are applicable to the rent received on hire or lease from various shops and offices. Even the definition of chargeable expenditure contained in Section 5 is very wide and covers the rent and licence fee received from various shops and offices let out on hire or on lease in hotel premises. Further the letting out of shops and offices on hire or lease is also a part of its activities of running a hotel providing facility necessary to be considered as Five Star hotel.
13. The decision of the Delhi High Court in the case of R.L. Jain (supra) was relied upon wherein it has been held that Section 5(1)(c) of the Expenditure Tax Act was meant for providing tax to be levied on such portion of the accommodation of the hotel which was let out on hire or on lease. The question and answer contained in the C.B.D.T.Instruction No. 1844 (F.No. 328/62/89-WT, dated 30.3.1990) which has been reproduced in para 21 of the order of the Commissioner (Appeals) also confirms the inclusion of rent, lease or hire charges paid by the occupants of accommodation including shops and show-rooms located in assessee's hotel within the chargeable expenditure under Section 5 of the Expenditure Tax Act.
14. Similarly, the sale proceeds of Bakers Basket were held to fall within the ambit of Clause (b) of Section 5(1) of the Expenditure Tax Act, vide para 22 of the impugned order. Same reasoning was adopted to include sales to Indian Airlines for flight kitchen which in fact was shown by the assessee as part of its hotel business income for the purpose of Income-tax, vide para 23 of the impugned order.
15. As regards the service charges, he held that it formed part of the bills and fell within the ambit of chargeable expenditure. There was also no evidence of diversion of service charges at source by way of overriding title, vide para 24 of the impugned order.
16. Coming to the discount claimed by the assessee, the Commissioner (Appeals) noticed that discount has been allowed after the assessee had already charged expenditure tax on the total bill and also collected expenditure tax on the gross amount of the bill before allowing any discount and therefore, there could be no grievance on the part of the assessee. Therefore, he confirmed the action of the Assessing Officer that the gross amount of the bill should be considered for the purpose of levy of expenditure tax and not net amount of the bill, vide para 25 of the impugned order.
17. The Commissioner (Appeals) also held that there is no ambiguity in the statutory language employed in Sections 2(6), 3(1) and 5 of the Expenditure Tax Act and as the legislative intent is clear on a plain reading of the aforesaid provisions, resort to any interpretative process to unfold the legislative intent would become impermissible.
The observations of the Courts were relied upon to bring home this point, vide para 26 of the impugned order. Thus, the Commissioner (Appeals) concluded that all the expenses incurred as well as discount allowed by the assessee-hotel fell within the ambit of the term "chargeable expenditure" and relied on certain observations of the Supreme Court in the case of Reserve Bank of India v. Peerless General Finance & Investment Co. Ltd. 'Judgments Today' 1987 246 for the proposition that the textual as well as contextual interpretation is required to be adopted, the object for which the Act was enacted is to be considered and one should look at the context of the enactment and look with the glasses of the statute maker for best interpretation of the text of the enactment or every word in it. For all these reasons, the Commissioner (Appeals) has upheld the orders of the Assessing Officer in toto for the assessment years 1988-89 and 1989-90.
18. At time of hearing, Shri S.N. Inamdar, learned counsel for the assessee heavily relied on the definition of hotel contained in Section 2(6) of the Expenditure Tax Act and urged that the entire gamut of computation of chargeable expenditure is to be considered only with reference to such definition and nothing else. Admittedly the room charges are more than Rs. 400 per person per day and portions of the building were let out to Bank, book stall and shops. Food is also catered to the Indian Airlines and payment is also received therefor.
Viewed from that narrow perspective, he would urge that four items of expenditure would not be covered by the definition of chargeable expenditure contained in Section 5 of the Expenditure Tax Act. Firstly, rent received from bank, book stall, shops, offices etc. is not chargeable expenditure, though they are tenants of the landlord of the building and rent is paid to the landlord and not to the hotel. Such expenditure cannot be said to have been incurred in hotel, but could be held as payment direct to owner of the building only. Secondly, catering to Indian Airlines flight kitchen is done by separate staff kept by the Poona Industrial Hotel Ltd. which undertakes the contract and expenditure with regard to such supplies was not incurred by the Blue Diamond Hotel, but it is an independent activity. Thirdly, the service charges, though uniformly charged at the rate of 10% of the bills issued for accommodation or food and drink, nonetheless, 85% of such charges was made over to the staff and only 15% thereof is offered for taxation in the hands of the hotel. However, admittedly the assessee has charged expenditure tax on the gross bill issued including the service charges of 10% over the expenditure on accommodation or food and drinks. In this connection, an agreement between the workers and the employer existed by way of settlement under Section 12((iii) of Industrial Disputes Act, 1947. Demand No. 16 made by the workers pertained to service charges. It was settled that the departmental managers who are presently entitled to service charges at the rate applicable to Grade 1 shall now be entitled to service charges at the rate applicable to Grade 4 with effect from service charge for the month of November 1982. The Managing Director's letter dated 20-9-1972 contained In the paper compilation pages 10 to 12 shows that out of the total amount of service charges collected during the month, 15% will be retained by the management to cover breakages, pilferage etc. and the balance 85% will be distributed to 4 categories of staff ranging from 17% to category IV employees and 30% to category X employees. Fourthly, discount has been allowed on prompt payment of the dues or when payment is settled. In such a case, net bill is accounted for in the books, but for the purpose of expenditure tax, the tax is collected on gross bill as a matter of precaution. Further the decision of the Tribunal, Special Bench in the case of Shri Panzara-Kan Sahakari Sakhar Karkhana Ltd. v. ITO [1983] 5 ITD 449 (Pune) at page 462 has been relied upon for the proposition that as a hotelier, the expenditure tax is liable to be paid in the same way contribution to Education Fund was required to be made by the co-operative societies who manufactured sugar in the capacity of co-operative society and not as manufacturer of sugar.
Reliance was also placed on the judgment of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 for the proposition that deduction is admissible as per Law and the view of the assessee or the presence or absence of entries in the accounts of the assessee are not decisive and does not make any difference.
19. Shri Gautam Kar, learned departmental representative has been duly heard and he has vehemently supported the orders of the Commissioner (Appeals) sustaining the orders passed by the Assessing Officer for these two years. On his part, he stated that the assessee runs a Hotel and not a Dharmshala. It caters to the uppermost strata of the society which has a discriminatory attitude and provides basket of services.
Provision for banking, tourist taxis etc. are integrated services of running a hotel. By not running taxis by itself, it cannot be said that it is not running the business of hotel. The dichotomy sought to be made by the learned counsel for the assessee between Hotel Blue Diamond and Poona Industrial Hotel Ltd. is not valid at all because no separate assessment in the name of Hotel Blue Diamond as such is done in this case. Regarding rents collected from shops and offices, he stated that they fall under Clause (c) of Section 5(1), though the expenditure incurred in any shop or in any office which is not owned or managed by the person who carries on the business of hotel is specifically excluded by Clause (iii) of Section 5(1). In this connection, he vehemently relied on the judgment of the Delhi High Court in the case of R.L. Jain (supra) which specifically related to accommodation in hotel taken on hire or lease and which Was held to constitute chargeable expenditure in terms of Section 5(1)(c). Reliance was also placed on the C.B.D.T.'s Instruction No. 1844 Item No. 4 which has been extracted by the Commissioner (Appeals) in his appellate order. He pointed out that such rentals were also shown by the assessee as business income for the purpose of Income-tax assessment.
20. Again in respect of catering services rendered to Indian Airlines flight kitchen he urged that there is no dichotomy between the Hotel Blue Diamond and such catering services. According to him Clause (b) of Section 5(1) would cover such catering services because such clause covers provision of food or drink whether at the hotel or outside the hotel. He would urge that even services outside the survey number in which the hotel building is situated could also be covered by Clause (b) of Section 5(1). Regarding service charges collected by the assessee, he pointed out that Clause (a) and Clause (b) of Section 5(1) would apply as they formed part and parcel of the bills issued and even the assessee has charged expenditure tax on the gross bill including service charges so included. As regards discount allowed to the customers, he discounted the discount theory urged by the assessee.
21. In reply, the learned counsel for the assessee stated that the shops and offices etc. are excluded as per scheme of the Expenditure Tax Act because it is not a residential accommodation provided by the assessee as definition of hotel would contemplate. Hirer or the lessee of such accommodation also do not enjoy the Five Star facilities vis-a-vis the regular customers staying in residential accommodation and the assessee also had no control over their management. Regarding service charges, he urged that the department is rather hyper-technical and literal interpretation was not to be applied. Catering services to Indian Airlines is a parallel business. Discount allowed is not an expenditure incurred and therefore, should not be included in the computation of chargeable expenditure.
22. We have duly considered the impugned orders of the authorities, grounds of appeal raised, paper compilation filed and the arguments advanced both the counsels. At the outset, it has to be stated that there could be no dispute about the precise definition of "Hotel" contained in Clause (6) of Section 2 of the Expenditure Tax Act, 1987.
The definition of "Hotel" includes a building or part of a building where residential accommodation is, by way of business, provided for a monetary consideration. It is to be noted that the definition is "inclusive" and not "exclusive". This is evident from the word "includes" advisedly used in the definition. The reason for such inclusive definition is not far to seek. Residential accommodation in a hotel is the pivot or focal point around which is built up the various allied or essential services, facilities etc. which all go to make up what is known as Five Star facilities. Therefore, the issues involved in these appeals are required to be approached not from the narrow definition of "hotel" contained in Section 2(6) of the Act, but from a broader and all pervasive view taking into account the type, nature and status of the hotel and all the services it commands or comforts it provides from the point of view of both International and National pleasure seeking tourists, customers and visitors.
23. Even according to the definition of "Hotel", liability of the hotel for Expenditure Tax is attracted as admittedly the room rent charged per day per person exceeds Rs. 400 as contemplated by Section 3 of the Expenditure Tax Act (For short the Act). Section 3 of the Act also covers the chargeable expenditure incurred in a restaurant. Section 4 deals with the rates of levy of Expenditure Tax on chargeable expenditure incurred in a hotel or a restaurant. Section 5 of the Act is more important because it defines the scope of the chargeable expenditure incurred in hotel and also in restaurant which are similar in scope.
24. Before considering the scope of Section 5 of the Act, it is necessary to conjure up in the mind a circle drawn from a centre and the circle is divided into several segments formed by straight lines drawn from the centre to the circumference and each segment representing a distinct and different nature of services rendered or facilities provided. While the centre represents the residential accommodation and the restaurant facilities provided by the hotel, the segments may represent book stall, left luggage room, a barber shop, a travel agency, a beauty parlour, money changing facility, safe deposit facility, florist, store selling toilet, requisite and medicines etc.
The size of the circle varies with the status of the Hotel as regards the number of star services provided.
25. Sub-section (1) of Section 5 covers both expenditure incurred in hotel or payments made to hotel and therefore, it includes not only the chargeable expenditure incurred in the hotel by way of residential accommodation provided to the customers and the food and drink expenditure incurred by them but also any expenditure incurred in or any payments made to the hotel for the four-fold specific services as contemplated by Clauses (a), (b), (c) and (d) thereof. Clause (a) refers to chargeable expenditure incurred in the hotel in connection with any accommodation provided, whether residential or "otherwise". In other words, the expenditure incurred on non-residential accommodation is also covered such as the accommodation in the nature of conference hall, banquet hall, swimming pool etc. Viewed from the wider scope, it may also be said that Clause (a) also would cover accommodation hired out or leased out to banks, shops, offices etc. which occupy various segments within the circle. Clause (c) of Sub-section (1) of Section 5 specifically deals with accommodation provided on hire or lease which is occupied by bank, shops and offices, if not on daily rental basis, but on monthly or yearly or long term basis. Therefore, rent charged from banks, offices and shops fall both under Clause (a) and Clause (c) of Sub-section (1) of Section 5. In fact, their Lordships of the Delhi High Court in the case of R.L Jain (supra) specifically considered the challenge to the liability of the Act made by way of writ petitions filed by shop owners who have obtained accommodation in a hotel on hire or on lease basis and it was held that the payment made in respect of accommodation obtained in the hotel is a chargeable expenditure in terms of Clause (c) of Section 5(1) of the Act. Though their Lordships were not concerned with the question whether such shops were integral part of the hotel or not, even if it is not nevertheless the Act provides for tax being paid under Section 5(1)(a) on any accommodation, residential or otherwise and further in respect of any accommodation in such a hotel on hire or on lease under Section 5(1)(c). It was also clarified that Section 5(1)(c) is meant to provide for chargeable expenditure which was different from what was provided under Section 5(1)(a). It was further observed that though Section 5(1)(a) and 5(1)(c) may overlap to some extent, but there was no escape from the conclusion that Clause (c) of Section 5(1) covers the case of persons who carry on business in such hotels in shops taken by them either on hire or on licence basis. As a corollary, any payment made to the hotel in respect of any accommodation in such hotel taken on hire or lease basis amounted to chargeable expenditure for which the assessee is responsible to deduct expenditure tax and pay the same to the credit of the Government of India. In our view, the ratio of the Delhi High Court applies squarely to the rent charged from shops, offices and thus constitute chargeable expenditure within the meaning of Section 5(1)(c) of the Act and not Section 5(1)(b) as held by the Commissioner (Appeals).
26. Coming to Clause (b) of Section 5(1) it covers any expenditure incurred in or payments made to hotel in connection with provisions of food or drink by the hotel itself whether at the hotel site or outside hotel or provided by any other person at the hotel. This clause also extends the sphere of activity beyond the confines of hotel as defined by Section 2(6) so as to cover the expenditure incurred in or payment made to hotel for provision of food and drink outside hotel or by any person providing the same at the hotel premises. Viewed from this angle, the catering services rendered by the assessee to the Indian Airlines flight kitchen falls within Clause (b) and therefore, payments made by Indian Airlines to the assessee for providing food and drink outside the hotel premises amounted to chargeable expenditure and therefore, it is required to be included. As a matter of fact, such supplies are regarded as supplies made by the Blue Diamond Hotel and not by the owner of the building namely, Poona Industrial Hotel Ltd. irrespective of the fact whether the contract to supply has been obtained by owner of the building or not. There could be no dichotomy between Hotel Blue Diamond staff and the staff engaged in the Indian Airlines catering services and also in the infrastructure of kitchen facilities provided in the hotel for catering services and hotel business. The case of the assessee would be similar to the case of a manufacturer and exporter who maintains separate staff for export division while rest of the staff deal with internal sales. Very recently a huge cake of 101 lbs. in the shape of cricket field was supplied to the organisers of the Third One-day International Cricket match held at Pune between India and Zimbabwe which was cut by the Grand-old man of Indian Cricket Prof. D.B. Deodhar and it is stated that the cake was supplied by Hotel Blue Diamond. Therefore, expenditure on such supply was initially met by Hotel Blue Diamond for which payments were made to Hotel Blue Diamond. This is an instance of supply of cake made by the "Baker's Basket" outside the hotel but regarded as supply made by the hotel itself. Admittedly, such sales including the catering supplies made to Indian Airlines flight kitchen are all accounted for as business receipts of Hotel Blue Diamond for the purpose of Income Tax. It is to be noted that the learned counsel for the assessee has not pressed the ground relating to supplies made by "Baker's Basket". Thus expenditure pertaining to "Baker's Basket." and sales to Indian Airlines flight kitchen falls under Clause (b) of Section 5(1) of the Act.
27. Clause (d) covers any chargeable expenditure incurred in the hotel or payments made to a hotel in connection with provision of any other services at the hotel either by the hotel or by any other person by way of beauty parlour, health club, or "other services". In other words, Clause (d) pertains to the various Star services rendered in various segments of the circle. It is to be noted that this clause is inclusive and the words "other services" contemplate any kind of other services made available in the hotel complex which all go to make up the Five Star services, except the four exceptions contained in Clauses (i) to (iv) thereof with which we are not concerned. It is also significant to note that the word "at" appearing in Clause (d) in contra-distinction to the word "in" appearing in Clause (i) and Clause (c). The scope of services rendered at the hotel is wider than the scope of services rendered in the hotel, so to say. In other words, services rendered outside the hotel but within the circle of hotel complex are also covered by Clause (d) if they are essential and integrated and recognised by the Tourism Development Corporation of India and various State Departmets which all go to make up Five Star facilities.
28. As regards service charges, admittedly, the service charges of 10% are uniformly collected both in respect of accommodation provided as well as food and drinks supplied to the customers. Thus, it has become part and parcel of expenditure incurred by the customers in the hotel or at the restaurant of the hotel. Admittedly, the assessee has collected Expenditure Tax on the gross bill including the service charges at the specified rate of tax and also paid the same to the credit of the Government of India. The service charges collected constituted a chargeable expenditure within the meaning of Section 5(1)(d) of the Expenditure Tax Act and therefore, it is to be included in the chargeable expenditure. The questions of sharing the service charges between the workers and the employer by way of settlement and diversion of income in favour of the workers by way of overriding title and net income only accrued to the assessee are all questions germane to assessment of profits and gains from business and they are not relevant at all for the purpose of expenditure tax for which the criterion is the chargeable expenditure incurred by the customers or what goes out of his pocket.
29. Coming to the discount allowed by the assessee to the customers, the dispute relates to that part of the discount which has been allowed at the time of settlement of the bills by the customers and not at the time of billing the customers. In other words, the discount allowed relates to the post-billing settlement of the bills. Here also, the assessee has admittedly collected the expenditure tax including discount allowed as a matter of caution, but on merits claims that the discount allowed would go to reduce the chargeable expenditure incurred in the hotel by the customers and therefore, chargeable expenditure is to be reduced to that extent. The authorities have flatly rejected the claim which, in our view, is not correct.
Notwithstanding the fact that the assessee had collected expenditure tax on the gross bills as a prudent businessman and paid the same to the credit of the Government of India, nonetheless, the liability to the Act is attracted with reference to the quantum of expenditure incurred by the customers in the hotel or at the hotel or by way of payments made to the hotel. Whether the discount is allowed initially at the time of preparation of the bill or at the time of settlement of the bill the discount allowed goes to reduce the expenditure incurred by the customers in the hotel and consequently, the chargeable expenditure is required to be reduced by the discount allowed. For the purpose of Income-tax, such net receipt is accounted for as business receipts. There could be no different treatment for Income-tax and Expenditure Tax especially when what goes out of the pocket of the customers constitutes chargeable expenditure which is only the net expenditure and not the gross expenditure incurred by him. Here the case of assessee has merit and therefore, its claim that the discount allowed is to be reduced from the chargeable expenditure has force and therefore, it has to be upheld. We are not concerned here with the aspect of collection of Expenditure Tax even on discount allowed.
30. Section 7 of the Expenditure Tax Act deals with collection and recovery of expenditure tax and this section is also helpful to resolve the issues involved in these appeals. Clause (a) of Section 7(1) specifies that in respect of any services mentioned in Clauses (a) to (d) of Sub-section (1) of Section 5 provided by the hotel the person who carries on business of such hotel shall be responsible to collect the expenditure tax at the rates specified in Clause (a) of Section 4.
Clause (b) of Section 7(1) refers to services specified in Sub-Clauses (b) and (d) of Clause (1) of Section 5 provided by other person referred to in that section. Then such other person shall collect the expenditure tax at the rates specified in Clause (a) of Section 4.
Similarly, Sub-section (2) fixes the responsibility on the person who carries on the business of such restaurant if services are rendered by such restaurant and by other such person if services are rendered by such other person. Section 8 prescribes that every person responsible for collecting the tax before expiry of 4 months from the 31st day of March in each year furnish or cause to be furnished to the Assessing Officer in the prescribed form and verified in the prescribes manner a return in respect of the immediately preceding financial year showing (a) the aggregate of the payments received in respect of chargeable expenditure; (b) the amount of the tax collected; (c) the amount of the tax paid to the credit of the Central Government; and (d) such other particulars as may be prescribed. Even though Section 7 and Section 8 fixes the responsibility to collect tax and also to file the return on either person who carries on the business of such hotel or such other person rendering services at the hotel, the assessee itself has chosen the responsibility to collect the expenditure tax and file the return of expenditure tax all by itself. In other words, even the assessee has not made any distinction and differenciation between the chargeable expenditure incurred either in the hotel or outside the hotel or services rendered at the hotel as contemplated by various clauses of Section 5(1). Despite this, the assessee has taken various grounds of appeal and advanced various contentions just for its own sake and therefore, they have no merit except that relating to discount allowed.
31. In view of the aforesaid reasons, we agree with the reasons and conclusion of the Commissioner (Appeals) in respect of rent from shops, offices, banks etc., supplies made to Indian Airlines flight kitchen and service charges collected. However, we do not agree with the decision of the Commissioner (Appeals) in respect of discount allowed to the customers at the time of settlement of bill and consequently, we modify the order of the Commissioner (Appeals) and direct the Assessing Officer to allow deduction for discount actually allowed at the time of settlement of bills as the net bill would represent the net expenditure incurred by the customers and the liability to expenditure tax would attract with reference to the net bill only.