M/S.WINDSOR CASTLE V. COMMERCIAL TAX OFFICER (WORKS CONTRACT)

WA/28/2013

AI Insights

The case involves M/S. Windsor Castle, Kodimatha, Kottayam, which challenged the re-assessment made under the Kerala Tax on Luxuries Act, 1979. The re-assessment included charges for services provided by third parties within the hotel premises, which were initially excluded by the Assessing Officer. The main legal issues revolved around the constitutional validity of the re-assessment provisions, the retrospective application of these provisions, and whether the re-assessment constituted a mere change of opinion. The court upheld the constitutional validity of the Act but found procedural issues with the re-assessment for the year 2000-01, leading to its setting aside.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 726816 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 29-01-2019
• Assessment Year: misc
• Other Referred Cases: Kovalam Ashok Beach Resort v. Sales Tax Officer, Brunton Boatyard v. State of Kerala, State of Kerala Vs. M/s. Chembra Peak Estate Limited, S.C Prashar and another v. Vasantsen Dwarkadas and other, Addl. Commissioner (Legal) and another v. Jyoti Traders and another
• Laws Referred To: Kerala Tax on Luxuries Act, 1979
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: JOSEPH KODIANTHARA; K N RADHAKRISHNAN
• Assessee Lawyers: K N RADHAKRISHNAN
• Keywords: Change of opinion; Constitutional Validity; Luxury tax; Re-assessment; Rectification of error
• Section: 6(6); 6.5%

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 29TH DAY OF JANUARY 2019 / 9TH MAGHA, 1940 WA.No. 2061 of 2012 AGAINST THE ORDER/JUDGMENT IN WPC 18545/2007 of HIGH COURT OF KERALA DATED 21-05-2012 APPELLANT/S: M/S.WINDSOR CASTLE KODIMATHA, KOTTAYAM, REPRESENTED BY M.O.ABRAHAM, MANAGING DIRECTOR. (CAUSE TITLE CORRECTED AS - M/S.THE WINDSOR CASTLE, KODIMATHA, KOTTAYAM, REPRESENTED BY T.O.ALEYAS, MANAGING DIRECTOR. - AS PER ORDER DATED 29.01.2019 IN IA 1188/17 AND 920/18.) BY ADV. SRI.K.N.RADHAKRISHNAN(THIRUVALLA) RESPONDENT/S: 1 COMMERCIAL TAX OFFICER (WORKS CONTRACT) OFFICE OF THE DEPUTY COMMISSIONER, COMMERCIAL TAXES DEPARTMENT, KOTTAYAM - 686001. 2 THE STATE OF KERALA REPRESENTED BY SECRETARY TO GOVERNMENT,TAXES DEPARTMENT, SECRETARIAT,THIRUVANANTHAPURAM - 695 001. BY ADV. SRI.K.N.RADHAKRISHNAN(THIRUVALLA) OTHER PRESENT: SRI. JOSEPH KODIANTHARA SR. THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 29.01.2019, ALONG WITH WA.28/2013, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: WA No.2061/2012& 28/2013 2 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 29TH DAY OF JANUARY 2019 / 9TH MAGHA, 1940 WA.No. 28 of 2013 AGAINST THE ORDER/JUDGMENT IN WPC 33681/2006 of HIGH COURT OF KERALA DATED 21-05-2012 APPELLANT/S: M/S.WINDSOR CASTLE KODIMATHA, KOTTAYAM, REPRESENTED BY M.O.ABRAHAM, MANAGING PARTNER. BY ADV. SRI.K.N.RADHAKRISHNAN(THIRUVALLA) RESPONDENT/S: 1 COMMERCIAL TAX OFFICER (WORKS CONTRACT) OFFICE OF THE DEPUTY COMMISSIONER, COMMERCIL TAXES DEPARTMENT, KOTTAYAM-686 001. 2 THE STATE OF KERALA REPRESENTED BY SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM-695 001. 3 THE STATE OF KERALA REPRESENTED BY SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM- 695001. BY ADVS. SRI.JOSEPH KODIANTHARA (SR.) SRI.K.N.RADHAKRISHNAN(THIRUVALLA) THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 29.01.2019, ALONG WITH WA.2061/2012, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: WA No.2061/2012& 28/2013 3 J U D G M E N T W.A No.2061 of 2012 & 28 of 2013 Vinod Chandran, J The challenge in the two writ petitions, from which the two appeals arise, was against the assessment and re-assessment made under the Kerala Tax on Luxuries Act, 1979, the latter invoking sub-section (5) of Section 6; which sub-section was brought in, after the subject assessment years, in August, 2006. The challenge to the assessment under the Act arose primarily on the ground of a constitutional invalidity. The learned Senior Counsel Sri. Joseph Kodianthara, fairly submits that the said ground does not survive as of now for reason of the same having been held against the assessees. This Court has found the provisions to be constitutionally valid. 2. The challenge is confined to the WA No.2061/2012& 28/2013 4 re-assessment carried out for the years 2000-01 to 2004-05. The first four years are dealt with in W.A No.28/2013 and the last year dealt with in W.A No. 2061/2012. The challenge is against the inclusion of the charges of the services facilitated within the premises of the assessee, which admittedly was carried on by third parties and the charges collected from persons, who were not the residents in the Hotel, who availed of the facilities. This was originally excluded by the A.O; which was sought to be assessed to tax in the re-assessment initiated. 3. The issues whether the facilities provided inside a hotel by an outside agency and the charges levied for such other amenities and services provided to persons other than residents of the Hotel, could be included under the term luxury and taxed under the Act has been held in favour of the State in Kovalam Ashok Beach Resort WA No.2061/2012& 28/2013 5 v. Sales Tax Officer, (2006) 14 KTR 417 (Ker) and Brunton Boatyard v. State of Kerala, 2013 (4) KLT 37. 4. The facilities were provided by licensees of the assessee, both to outsiders and residents of the Hotel. While the assessment was carried on, the Assessing Officer excluded the charges for such facilities levied by the independent licensees on outsiders, ie, as distinguished from the residents in the hotel. Re-assessment proceedings were taken by the impugned notices seeking to bring in the charges levied on such outsiders also, who were not residing in the hotel. 5. The validity of the re-assessment is challenged on two counts; one the provision itself was brought in, later to the assessment year, in August 2006 and can only have prospective effect. WA No.2061/2012& 28/2013 6 Then it is contended that, the assessee had disclosed the entire turnover and there was no reason for a reassessment. The Assessing Officer while issuing notice for assessment had proposed to include both the charges, ie, those charges levied on the residents and the outsiders. However, accepting the objections raised by the assessee on that count, the Assessing Officer while completing assessment, consciously decided to exclude the portion with relation to the charges levied on those persons who were not residing in the hotel. There could be no re-assessment carried out since the assessee was not at default and the Assessing Officer had taken a conscious decision to exclude a particular component; which removes it from the ambit of re-assessment for reason of the same being only now brought to tax, for reason of a mere change of opinion. Further, the learned Senior Counsel would also refer to the proceedings WA No.2061/2012& 28/2013 7 which had taken place, altering the management of the hotel and the decision of the National Company Law Tribunal (for brevity the NCLT), Chennai which set aside the accounts commencing from the year 2002-03 onwards for reason of the AGM's convened for approving the accounts for the consecutive years having been illegally convened. The NCLT has also directed the accounts to be recast and convening of AGM's properly to approve the same. The State should be asked to wait till the accounts are finalized and properly approved by duly constituted AGM's as directed by the NCLT is the compelling argument. 6. The learned Senior Government Pleader, to address the contention with respect to the retrospective effect of the provision, relies on AIR 1963 SC 1356 [S.C Prashar and another v. Vasantsen Dwarkadas and other]. A decision of a Constitution Bench of the Supreme Court which held WA No.2061/2012& 28/2013 8 that a provision for re-assessment with a specific period of limitation would retro-actively apply to the prior years in which the limitation has not expired. It is contended that even with respect to the assessment year 2000-01, if it is admitted for arguments sake that the re-assessment under Section 6(5) cannot be sustained, it can still be upheld under section 6(6) which speaks of a rectification. The Assessing Officer on completing the assessment had clearly committed an error by excluding the charges levied on outsiders. This would specifically come within the ambit of rectification of an error; is the argument advanced. As to the question of change of opinion, the learned Senior Government Pleader specifically relies on the Full Bench decision of this Court in OTC 10/2013 dated 30.11.2018 State of Kerala Vs. M/s. Chembra Peak Estate Limited. 7. On the question of the retrospective WA No.2061/2012& 28/2013 9 effect of the provision for reassessment, we need not labour much since the issue is squarely covered by the decision of the Hon'ble Supreme Court in S C Prashar (supra) and (1999) 2 SCC 77 [Addl. Commissioner (Legal) and another v.Jyoti Traders and another]. The re-assessment under sub- section(5) of Section 6 has been taken up within the period of limitation for the subject assessment years, except that of 2000-01. We hence reject the contention of the assessee insofar as the limitation is concerned with respect to assessment years 2001-02 to 2004-05. 8. As to 2000-01 we cannot accept the contention of the State that it is a mere rectification of error. A rectification of error arising from the face of the record can only be a modification made which does not call for any adjudication at all. Rectification can only be of a mistake which can be ascertained by a mere scan of WA No.2061/2012& 28/2013 10 the records without any deliberation on the issue. Here the Assessing Officer while completing the assessment had specifically excluded certain portion of turnover of certain facilities offered in the Hotel, which comes within the ambit of luxury as defined under the Act. When it is sought to be included in a reassessment proceedings definitely it cannot be a mere rectification and it involves a deliberation on a consideration of the objections and adjudication of the issue. We hence reject the contention of the State. We hold that there can be no rectification carried out in the year 2000-01, bringing to tax, the charges levied on services, specifically excluded in an assessment under the Act. We also hold that the assessment completed for the year 2000-01, cannot be subjected to re-assessment under Section 6(5) of the Act for reason of the limitation having set in. The re-assessment carried out for that year stands set WA No.2061/2012& 28/2013 11 aside. 9. The next contention is with respect to the change of opinion, insofar as the Assessing Officer, on completion of assessment having clearly taken a conscious decision to exclude the charges levied on persons who were not residing in the hotel. We notice the Full Bench decision which considered in pari materia provisions of Section 41 of the Agricultural Income Tax Act, 1991. The Full Bench considered the issue on a reference made by this very Division Bench, finding conflict of opinion, in two Division Bench decisions of this Court; Deputy Commissioner of Sales Tax Vs. T.P.Elias [(1993) 90 STC 25] and Deputy Commissioner of Agricultural Income Tax Vs. T.K.S.Dinakaran [(1998) 232 ITR 164 (Ker.)]. T.P.Elias expressed the view that the re-assessment contemplated under the Agricultural Income Tax Act would take in any reason including a change of WA No.2061/2012& 28/2013 12 opinion, as distinguished from the provision enabling re-assessment under the Income Tax Act. T.K.S.Dinakaran however, took a contrary view and followed a decision; which held under the Income Tax Act that a mere change of opinion would not be a “reason to believe” for proceeding with a re-assessment. The Full Bench found favour with the view that the provision under the Agricultural Income Tax Act has a wider import since it refers to a re-assessment being enabled for any reason as distinguished from the provision found under Section 147 of the Income Tax Act. It was also found that under the Income Tax Act the reason to believe as arrived at by the Assessing Officer should be from sources that are extrinsic; before he can proceed to re-assess where as in the case of the Agricultural Income Tax Act, the words employed 'for any reason' contemplates a re-assessment even when there is a mere change of opinion. WA No.2061/2012& 28/2013 13 10. We respectfully follow the Full Bench decision and further notice that Section 147 as it existed from 1987 on amendment by the Direct Laws Amendment Act, 1987 as also the Amending Act, 1989 speaks of reason to believe of escapement of any income from assessment; “which comes to his notice subsequently in the course of proceedings under this Section...(sic.)”. This makes it clear that an aspect which was noticed earlier, in the regular assessment under the Income Tax Act, and a decision taken in favour of the assessee; would preclude the same from being taken up for reason only of that earlier decision being erroneous. That would amount to a mere change of opinion; which is prohibited in re-assessment under the Income Tax Act. The re-assessment as contemplated under the Income Tax Act specifically provides for some extraneous factors which were not before the Assessing Officer at the time of the original assessment to enable a WA No.2061/2012& 28/2013 14 re-assessment. 11. Under the Income Tax Act on the facts of the present case, the re-assessment would not be possible since the Assessing Officer had looked at the total turnover in the Ayurvedic Centre and Boat Hiring centre etc.,and had consciously excluded a portion of the same as being not covered under the Act. However, we find that the provision under Section 6(5) is in pari materia with the Agricultural Income Tax Act which we extract herein: Section 6(5): Where for any reason, the whole or any part of the business of a hotel/house boat has escaped assessment to tax in any year or has been under assessed at a lower rate than the rate at which it is assessable or any deduction has been wrongly made there from, the assessing authority may at any time within a period WA No.2061/2012& 28/2013 15 of five years from the expiry of the year to which the tax relaters, proceed to determine to the best of its judgment, the turnover which has escaped assessment to tax or has been under-assessed or has been assessed at a lower rate than the rate at which it is assessable and assess the tax payable on such turnover, after issuing a notice to the proprietor and after making such enquiry as it may deem fit”. The Assessing Officer hence is clothed with the power to even interfere with the earlier finding in regular assessment provided it is done within a period of five years as provided under the provisions for re-assessment. We hence reject the said contention of the assessee. 12. The last contention raised is for the State to keep in abeyance the recovery till the accounts are finalised. The assessee herein is a WA No.2061/2012& 28/2013 16 closely held company where the share holders are all related. There were disputes between the share holders which reached the Company Law Board(CLB), this Court, the Supreme Court and then the NCLT. The earlier management which was in office in the subject assessment years were put out of office and a new management has taken over by virtue of the judgment of this Court confirmed by the Hon'ble Supreme Court. After the change in management again a proceeding was initiated, before the NCLT wherein it was found that the AGM's carried on after 31.03.2003 were all illegal for reason of the CLB having prohibited convening of AGM's when the matters were pending there. NCLT has set aside the entire accounts of the assessee which were approved in the AGM's constituted in violation of the interim order of the CLB. The accounts are directed to be recast and placed in duly constituted AGM's. The learned Senior Counsel prays that the demand WA No.2061/2012& 28/2013 17 may be kept in abeyance and the orders also rectified after the accounts are finalised. 13. We do not think there is any reason to so keep in abeyance the demand raised or direct rectification of the assessments carried out on the said ground raised. The accounts of the assessee which were confirmed at the AGM's earlier constituted; when recast can only have implications to the share-holders. The assessment made under the Act of 1976 is only on the receipts of the Hotel which would not at all be altered and the same is based on the books of account as maintained by the Hotel and verified by the Assessing Officer. There can be no alteration of the receipts at this stage when the last of the assessment years we are concerned with is about 14 years prior. We do not think that there is any ground to keep the demand in abeyance till the company sets its house in order; which as found by us, will have only WA No.2061/2012& 28/2013 18 implication with respect to the various share holders and not on the receipts of the Hotel or the licensees. We hence reject that contention also. In such circumstances, Writ appeal 28/2003 is partly allowed setting aside the re-assessment made for the year 2000-01 but upholding the re-assessment for the other years and W.A 2061/2012 is rejected. There is no order as to costs. Sd/- K. Vinod Chandran, Judge Sd/- Ashok Menon, Judge jma WA No.2061/2012& 28/2013 19 APPENDIX OF WA 2061/2012 PETITIONER'S/S EXHIBITS: ANNEXURE R3(A) THE TRUE COPY OF COMMON JUDGMENT IN SLP (CIVIL) NO.30483 AND 30589 OF 2015 OF THE HON'BLE SUPREME COURT. ANNEXURE R3(B) A TRUE COPY OF THE ORDER DATED 13.2.2017 IN C.P.NO. 9 OF 2016 OF THE NATIONAL COMPANY LAW TRIBUNAL, CHENNAI. ANNEXURE R3(C) TRUE COPY OF THE MINUTES OF THE EXTRA ORDINARY GENERAL MEETING DATED 25.2.2017 OF THE APPELLANT COMPANY. ANNEXURE R3(D) TRUE COPY OF CERTIFICATE FOR RECOVERY NO.RRC NO.2017/4187/05 DATED 24.8.2017 ISSUED BY THE DISTRICT COLLECTOR KOTTAYAM. ANNEXURE R3(E) THE COPY OF DEMAND NOTICE DATED 8.9.2017. ANNEXURE R3(F) THE TRUE COPY OF CERTIFICATE FOR RECOVERY NO.2017/4188/05 DATED 24.8.2017 ISSUED BY THE DISTRICT COLLECTOR, KOTTAYAM. ANNEXURE R3(G) THE COPY OF DEMAND NOTICE NO.RRC NO.2017/4188/05 DATED 8.9.2017. ANNEXURE R3(H) THE TRUE COPY OF CERTIFICATE FOR RECOVERY NO.2017/4185/05 DATED 24.8.2017 ISSUED BY THE DISTRICT COLLECTOR, KOTTAYAM. WA No.2061/2012& 28/2013 20 APPENDIX OF WA 28/2013 PETITIONER'S/S EXHIBITS: ANNEXURE R3(A) THE TRUE COPY OF COMMON JUDGMENT IN SLP (CIVIL) NO.30483 AND 30589 OF 2015 OF THE HON'BLE SUPREME COURT. ANNEXURE R3(B) A TRUE COPY OF THE ORDER DATED 13.2.20174 IN C.P.NO.9 OF 2016 OF THE NATIONAL COMPANY LAW TRIBUNAL, CHENNAI. ANNEXURE R3(C) TRUE COPY OF THE MINUTES OF THE EXTRA ORDINARY GENERAL MEETING DATED 25.2.2017 OF THE APPELLANT COMPANY. "