M/S.MADHAVARAJA CLUB V. COMMERCIAL TAX OFFICER

WA/338/2013

AI Insights

The case involves M/s. Madhavaraja Club, which challenged the notices issued under the Kerala Tax on Luxuries Act, 1976, demanding the production of books of accounts and additional tax liabilities. The club argued that it had already fulfilled its tax obligations under Section 4(2A) and that the doctrine of mutuality, as applied in income tax contexts, should exempt it from further taxation. However, the court referenced a previous judgment (Trivandrum Club v. Sales Tax Officer) and found that the club's activities, such as renting out rooms, constituted a taxable luxury under the Act, irrespective of the non obstante clause in Section 4(2A).

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 694415 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 04-03-2013
• Assessment Year: misc
• Other Referred Cases: Trivandrum Club v. Sales Tax Officer (Luxury Tax), Commissioner of Income Tax v. Bankipur Club Ltd.
• Laws Referred To: Kerala Tax on Luxuries Act, 1976
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: SEBASTIAN CHEMPAPILLI
• Assessee Lawyers: HARISANKAR MENON; MEERA MENON; MAHESH MENON
• Keywords: Doctrine of mutuality; Luxury tax; Club Tax Liability; Non Obstate Clause
• Section: 6(2); 4(2a)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.M.JOSEPH & THE HONOURABLE MR. JUSTICE K.RAMAKRISHNAN MONDAY, THE 4TH DAY OF MARCH 2013/13TH PHALGUNA 1934 WA.No. 338 of 2013 --------------------------- [AGAINST THE JUDGMENT DATED 18-01-2013 IN W.P.(C).NO.1848/2013 OF THIS HON'BLE COURT] ................. APPELLANT/PETITIONER: -------------------------------------- M/S.MADHAVARAJA CLUB, ENGLISH CHURCH ROAD, PALAKKAD, REPRESENTED BY ITS SECRETARY, GIRI NAIR. BY ADVS.SRI.HARISANKAR V. MENON, SMT.MEERA V.MENON, SRI.MAHESH V.MENON. RESPONDENTS/RESPONDENTS: ----------------------------------------------- 1. THE COMMERCIAL TAX OFFICER (LUXURY TAX), PALAKKAD-678 001. 2. COMMISSIONER OF COMMERCIL TAXES , THIRUVANANTHAPURAM-695 001. 3. STATE OF KERALA, REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-695 001. BY SPL. GOVERNMENT PLEADER (TAXES) DR. SEBASTIAN CHEMPAPILLI. THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 04-03-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Prv. K.M.JOSEPH & K.RAMAKRISHNAN, JJ. ------------------------------------------------ W.A.No.338 of 2013 ----------------------------------------- Dated, this the 4th day of March, 2013 J U D G M E N T K.M.Joseph, J. Appellant is the writ petitioner. The writ petition was filed calling in question Exts.P1 and P3. Exts.P1 and P3 were issued under the Kerala Tax on Luxuries Act, 1976 (hereinafter referred to as 'the Act'). 2. Appellant is a club registered under the provisions of the Act. It provides more than two facilities. It is having 5 rooms as well as an auditorium apart from other facilities available. According to the appellant, appellant has satisfied the liability under Section 4 (2A) on the basis of the Act and without fail. It is while so, Ext.P1 dated 16.11.2011 was issued W.A.No.338 of 2013 2 calling upon it to produce books of accounts in connection with the club. Appellant furnished Ext.P2 objection. Appellant pointed out inter alia that it has satisfied liability under Section 4 (2A) of the Act and there cannot be any further levy under the Act. Appellant also expressed willingness to produce the books of accounts. The Ist respondent, on receipt of Ext.P2 objections issued Ext.P3 notice under Section 6 (2) of the Act directing the appellant to produce certain details. It is then the appellant approached this Court challenging Exts.P1 and P3. 3. Learned Single Judge followed the Bench judgment of this court in Trivandrum Club v. Sales Tax Officer (Luxury Tax) (2012 (3) KLT 176) and dismissed the writ petition. 4. We heard the learned counsel for the appellant and learned Government Pleader. Learned W.A.No.338 of 2013 3 counsel for the appellant would contend that, under the Act, if the club satisfies its liability under Section 4 (2A), then it cannot be called upon to discharge 4 (2) (c ) of the Act. The rationale for the said argument apparently flows from the non obstante clause contained in Section 4 (2A). Section 4 (2A) along with the explanation reads as follows: “4 (2A). Notwithstanding anything contained in sub-section (2), there shall be levied a luxury tax at the rate of rupees one hundred per year per member and the same shall be collected by the person responsible for the management of the club, by whatever name called. Explanation: For the purpose of this section, 'club' means a club W.A.No.338 of 2013 4 which provides more than two facilities like card room, bar, billiard rooms, snooker room, tennis court, swimming pool, Sauna jacuzzi and the like, gymnasium, golf course, internet facility, video, video compact disk, digital video disk and computer games and having a membership strength of at least twenty five.” 5. The learned counsel for the appellant would point out that Section 4 (2A) figures in the section after Section 4 (2) (c ). Legislature was aware of the provision of Section 4 (2) (c ) and it is thereafter it inserted Section 4 (2A). Therefore, it means that, Legislature intended that as far as clubs are concerned, it is to be taxed only under Section 4 (2A) and there W.A.No.338 of 2013 5 cannot be further liability imposed on the club under Section 4 (2) ( c). Learned counsel for the appellant would further contend that, in the case of the appellant, appellant has let out the rooms to its own members. Appellant harnesses the principle of mutuality and submits that under the said doctrine no levy of tax is permissible. Appellant strongly relied on the judgment of the Apex Court in Commissioner of Income Tax v. Bankipur Club Ltd. (226 ITR 97) and contended that it is inconceivable as to how when the club lets out the rooms to its own members it could be subjected to tax even if it be luxury tax. 6. Per contra, learned Government Pleader would contend that the judgment of the Division Bench has laid down the law and under the same the appellant is liable. He would further contend that the provisions of the Act providing for tax on luxury does not suffer from W.A.No.338 of 2013 6 any ambiguity and it clearly provides for levy under Section 4 (2) (c ) on clubs inter alia and also Section 4 (2A) provides for tax further on the members of the club as provided therein. 7. We are of the view that, there is no merit in the contentions of the appellant. Admittedly, the appellant is a registered club. Admittedly, the appellant has paid tax under Section 4 (2A). Under the scheme of the Act, tax is levied on luxuries traceable to Entry 62 of List II of 7th Schedule to the Constitution of India. The said Entry enables tax on luxuries. Section 4 is the charging section. The section provides that there shall be levied and collected a tax called the luxury tax in respect of any luxury provided inter alia in a club among other places which are rented for accommodation for residence or used for conducting functions whether public or private. W.A.No.338 of 2013 7 Section 2 (f) reads as under. “2 (f). “Luxury provided in a hotel, house boat,hall, auditorium, Kalyanamandapam or place of like nature” means accommodation for residence or use and other amenities and services provided in a hotel or house boat or hall or auditorium or Kalyanamandapam or place of like nature (the rate of charges of accommodation for residence and other amenities and services provided excluding charges of food and liquor is one hundred and fifty rupees per day or more.)” Thereafter Section 4 (2) provides that “4 (2) Luxury tax shall be W.A.No.338 of 2013 8 levied and collected-- xx xx xx xx xx xx (c ) In respect of a convention centre, hall, kalyanamandapam, auditorium including those attached to hotels, clubs or places of the like nature, for the charges for accommodation, amenities and services provided excluding food and beverages, (i) at the rate of ten per cent where the gross charges of accommodation and other amenities and services provided is above rupees three thousand per day. W.A.No.338 of 2013 9 (ii) at the rate of fifteen per cent where the gross charges of accommodation and other amenities and services provided is above rupees ten thousand and upto rupees twenty thousand per day; (iii) at the rate of twenty percent where the gross charges of accommodation and other amenities and services provided is above rupees twenty thousand per day”. 8. The Division Bench of this Court has in the judgment followed by the learned single Judge taken the view that hotel as defined in the Act has a wide W.A.No.338 of 2013 10 meaning because explanation covers even guest house run by the Government or a company or a corporation. The Court took note that government guest houses are not run for business and still they are brought within the definition of the word hotel. The Court also took the view that there is no necessity for the department to prove that the accommodation provided to guests in cottages and rooms attached to clubs for residence is a business activity of the club to levy luxury tax. Still further, the Court found some force in the contention of the learned Government Pleader that there is no prohibition against club making profit by renting out cottages and rooms to it's members or to members of affiliated clubs and such profit of the club will ultimately go to the benefit of the members. The Court therefore took the view that cottages and rooms attached to clubs answer the description of 'hotel' attracting tax under W.A.No.338 of 2013 11 Section 4 (2) (a) of the Act. It is further stated that all that is necessary to prove is that the rooms are rented out in excess of the charges provided under the Act attracting liability for luxury tax. It is further stated that the principle is same for cottages and rooms attached to clubs by virtue of the wide meaning of 'hotel' contained in the definition clause. In para 4 it is held as follows: “4. Senior counsel for the appellant contended that besides membership fees chargeable to luxury tax under S.4 (2A), the clubs are liable for luxury tax only in respect of rent and other charges collected for hall, auditorium and kalyanamandapam attached to the clubs as provided in S.4 (1) (i) of the Act and not on rooms and cottages available for W.A.No.338 of 2013 12 letting out to members of other clubs and to guests of members of the club. We have co consider this in a realistic manner because all clubs are not providing cottages and guest rooms to their members or to guests. However, there are ever so many big clubs which extensively provide accommodation to their guests and to members of affiliated clubs. Such of the clubs which do not have rooms, cottages, auditorium or kalyanamandapam will be liable to luxury tax only on membership under S.4 (2A) of the Act. On the other hand, those clubs which provide accommodation in cottages, rooms, W.A.No.338 of 2013 13 auditorium, kalyanamandapam or halls for use of members or guests, will be liable to pay luxury tax not only for every member under S.4 (2A) of the Act, but will also be liable for luxury tax as provided under S.4 (1) (i) of the Act.” 9. The argument of the learned counsel for the appellant is that in view of the opening words of Section 4 (2A) being a non obstante clause payment of tax under Section 4 (2A) will extricate the appellant from liability to pay any further tax under the Act. As far as Section 4 (2) is concerned, we are of the view that there is no merit in the said contention. As held by the Division Bench there may be clubs which may not be providing facilities which attract tax under Section 4 (2) (a) or Section 4 (2) (c ). But, they would nonetheless W.A.No.338 of 2013 14 satisfy the requirement of the word club in the explanation to the Section. The definition of the word club contemplates that there must be more than at least 25 members. Secondly, it further contemplates that the club must provide at least two facilities which are described in the explanation. If these requirements are satisfied, for the purpose of the Act, it will be treated as club. If it is treated as a club then under non obstante clause irrespective of whether the club is liable to pay tax under Section 4(2) (a) or 4 (2) (c ) as the case may be, the club would be liable to pay tax under Section 4 ( 2A). The reason why the Legislature has apparently inserted the non obstante clause is to make it clear that in a case where the club attracts liability under Section 4 (2) (a) or 4 (2) (c) it is still liable under Section 4 (2A). The other interpretation sought to be placed by the learned counsel for the appellant that by virtue of W.A.No.338 of 2013 15 the non obstante clause it can do away with the liability which otherwise arises on account of its activities attracting tax under Section 4 (2) (a) and (c ) is unfounded. We see there is no reason to us to accept the contention of the appellant on this score. 10. The further contention raised by the appellant is equally fallacious as it involves importing of a doctrine which is foreign to the scope of the Act in question. The doctrine of mutuality has been applied under the Income Tax liability as is evident from the decision of the Apex Court relied on by the appellant. The question which arises under the Income Tax Act is whether the income arises. It is in the context of this fundamental question that the Apex Court was asked to consider as to whether when a number of persons combine together and contribute to a common fund for the financing of some venture or object and in this W.A.No.338 of 2013 16 respect they have no dealings or relations with any outside body, then any surplus would be regarded as profit. It is in the said context the Court took the view that trading between persons associating together does not give rise to profits which are chargeable to tax . Chargeability to tax means chargeability to Income Tax. That was the specific question which fell for Court's consideration and decision. The Court inter alia relied on the following passage from the Halsbury's Laws of England. “Where a number of persons combine together and contribute to a common fund for the financing of some venture or object and will in this respect have no dealings or relations with any outside body, then any surplus returned to those W.A.No.338 of 2013 17 persons cannot be regarded in any sense as profit. There must be complete identity between the contributors and the participators. If these requirements are fulfilled, it is immaterial what particular form the association takes. Trading between persons associating together in this way does not give rise to profits which are chargeable to tax.” 11. We are of the view that the said principle may not be apposite in the context of the Act which we are called upon to consider. As already noticed, the Act provides for tax on luxury for which the Legislature has power. We may not overlook the fact that the appellant has not challenged the provisions of the Act on any W.A.No.338 of 2013 18 count. The question is as to whether luxury is provided by the club and it is that which is the taxable event. We need not ask the further question as to whether the luxury is occasioned by reason of the activity between the club and its members or the activity between the club and outsiders. It is in the context of, that is to say, the doctrine of mutuality which undoubtedly has its application in certain areas including the Income Tax Act, in our view, would be totally irrelevant and not germane at all to decide as to whether when luxury is provided as contemplated in the Act the further question need be posed as to whether luxury is provided by the club to its members or strangers. Learned counsel for the appellant does not pose before us as to whether luxury is provided at all. In other words, the appellant does not have a case that luxury is not otherwise provided. The only argument is that luxury must be W.A.No.338 of 2013 19 treated as not being provided for the only reason that it is provided to outsiders. We are of the view that such a contention cannot be accepted as such. The question, as already noted, is totally foreign to the scope of the question which we re called upon to consider. It is also not borne out in any manner by any ambiguity in the wording of the statute. 12. Lastly, we must also address ourselves the question raised by the learned counsel for the appellant that the Division Bench was considering a case where the club was in fact providing facilities to outsiders, whereas in this case the facilities is being provided to the members only. In the first place, we must notice that this is a case where the appellant is attacking the notice when an order assessing the appellant is yet to be passed. But, even without aid of materials we would think that the matter has to be answered against the W.A.No.338 of 2013 20 appellant as we have already noted that irrespective of whether luxury in the form contemplated in the Act is provided to members or to non-members the appellant becomes exigible to tax. We notice from the judgment of the Division Bench that the Division Bench did bear in mind the scenario where the club gives rooms on rent to its own members. It is evident from para 4 of the judgment which we have extracted. Even otherwise we would think that, on our understanding of the statute the Act contemplates that when activities falling under 4 (2) (a) or 4 (2) ( c) is carried on attracting tax thereunder the club would be liable to pay tax irrespective of whether it is letting out the building to its members or non-members and still further we are of the clear view that payment of such tax will be in addition to the tax which the appellant is called upon to pay by virtue of 4 (2A) of the Act. We see no merit in W.A.No.338 of 2013 21 the appeal and it is dismissed. (K.M.JOSEPH) JUDGE. ( K.RAMAKRISHNAN) JUDGE. MS "