IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN THURSDAY, THE 15TH OCTOBER 2009 / 23RD ASWINA 1931 ITA.No. 42 of 2008() -------------------- ETA.1/COCH/2007 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ------------------ THE COMMISSIONER OF INCOME TAX,COCHIN. BY S.C. FOR INCOME TAX SRI JOSE JOSEPH, RESPONDENT: -------------------- HOTEL & ALLIED TRADERS (P) LTD., WILLINGDON ISLAND, COCHIN 682 003. ADV. SRI.P.BALAKRISHNAN (E) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 15/10/2009, ALONG WITH ITA NO. 108 OF 2008 ITA NO. 807 OF 2009 ITA NO. 584 OF 2009 ITA NO. 1585 OF 2009 ITA NO. 1591 OF 2009 & ITA NO. 1652 OF 2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: (C.R) C.N. RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. ---------------------------------------- ITA. Nos.42, 108 of 2008, 807, 1584, 1585, 1591 & 1652 of 2009 ---------------------------------------- Dated, the 15th day of October, 2009 JUDGMENT Ramachandran Nair, J. Common questions are raised in the connected appeals filed by the Department challenging the orders of the Income Tax appellate Tribunal allowing the appeals filed against assessments under the Expenditure Tax Act, 1987 for the assessment years 1994-95 to 1997-98 and 2000-2001 to 2002-03. 2. The respondent/assessee is a limited company engaged in the business as Hotelier. They have a Star Hotel at Kochi and have another hotel at Bangaram in the Lakshadweep. The question that arose in the assessments for the above years is whether the receipts under the following heads constitute chargeable expenditure ITA No.42/08 & Co.cases. -:2:- under Section 5 of the Act attracting liability for Expenditure tax: i. Telephone charges : Rs.11,07,088/- ii. Boat charges : Rs. 7,54,544/- iii.Diving & water sports : Rs.25,64,371/- iv. Laundry : Rs.2,47,695/- v. Miscellaneous : Rs.3,42,106/- In the first appeals, decisions were not unanimous in regard to liability for tax on all the above items. Different appellate authorities took different views and the matter ultimately reached in second appeals before the Tribunal. The Tribunal after hearing the parties held that none of the items above referred attract liability under the Act. Hence, Department has filed these appeals before us under sections 260A of the Income Tax Act read with Section 24 of the Expenditure Tax Act. 3. We have heard the Standing counsel for the appellant and Sri P. Balakrishnan appearing for the ITA No.42/08 & Co.cases. -:3:- respondent/assessee. 4. Since the issues raised have to be considered with reference to the meaning of chargeable expenditure defined under Section 5 of the Act, we extract hereunder the said section relevant for the assessment years: “5. Meaning of Chargeable expenditure.- For the purposes of this Act, chargeable expenditure,- (1) in relation to a hotel referred to in clause (1) of section 3, means any expenditure incurred in, or payments made to, the hotel in connection with the provisions of- a) any accommodation, residential or otherwise; or b) food or drink by the hotel, whether at the hotel or outside, or by any other person at the hotel; or c) any accommodation in such hotel on hire or lease; or d) any other services at the hotel, either by the hotel or by any other person, by way of beauty parlour, health club, swimming pool or other services, but does not include- ...........” ITA No.42/08 & Co.cases. -:4:- Even though there is no reported court decision on the chargeability of the above items, there is one decision of the Himachal Pradesh High Court in H.P. Tourism Development Corporation v. Union of India and Others {1999 (238) ITR 38} generally explaining the scope of the charging section. 5. Obviously, the receipts above referred can be brought to tax only if those items fall under the description of chargeable expenditure defined under section 5 of the Act. It is clear that expenditure that is chargeable under the Act is, what is incurred by guests in the hotel for services available in the hotel. The services covered by this section are services provided in the hotel whether those are provided by the hotel or not. It is seen that some of the above items of charges received by the hotel are for services rendered outside the hotel premises. Broadly speaking, the services rendered by Hotelier are those services provided in the hotel and those outsourced by them and provided to the customers in the hotel and those rendered by the hotel outside the hotel premises. Keeping this in mind, it is clear ITA No.42/08 & Co.cases. -:5:- that the expenditure incurred “in” or payments made to a hotel covers not only payments made to the hotel but payments made by the customer to others for availing services in the hotel. For the latter category, payments will be made by the customers to service providers like beauty parlour, health club etc. who provide the services in the hotel. There can be no dispute that none of the services above stated are covered by sub-clauses(a) to (c) or the specific services covered by sub-clause (d) of Section 5(1) of the Act. This leaves us only with one question that is as to whether the items of services above referred fall under “other services”, the residuary provision contained in sub-clause (d) to Section 5(1). 6. The chargeable expenditure covered by sub-clause (d) obviously should be for services provided in the hotel and not elsewhere. The three specific items of service covered by Section 5(1)(d) are beauty parlour, health club and swimming pool. If the hotel arranges these facilities to it's customers outside the hotel, which obviously means, outside ITA No.42/08 & Co.cases. -:6:- the hotel campus, then such services are outside the definition of chargeable services under sub-clause (d) to Section 5(1), because, the requirement for coverage under this clause is that such services should be provided in the hotel. Therefore, obviously, boat charges received and receipts for diving and water sports facilities do not fall under the residuary clause, 'other services' referred to in Section 5 (1)(d). In this juncture, counsel appearing for the assessee submitted that the Bangaram hotel of the assessee is located on the beach and the guests are provided facilities for boating and water sports in the shallow lagoon surrounding the island. The services of this nature are providing boat for boating with or without crew providing swimming and diving gadgets and equipments for swimming, diving and for water sports etc. in the sea. Since the Hotel cannot claim exclusive right for the lagoon or sea around it or even the beach and, so much so, these facilities cannot be said to be services provided in the hotel. So, we are of the view that the Tribunal was correct in holding that items 2 and 3 referred above are not ITA No.42/08 & Co.cases. -:7:- chargeable expenditure falling under section 5 of the Act. However, we are inclined to accept the arguments of the standing Counsel that items 1 and 4 fall under “other services” referred to in Section 5(1)(d). Even though counsel appearing for the assessee submitted that telephone charge is payable for the telephone services provided and the assessee is only recovering the same from customers for payment to the Telecom Company, we do not think the claim is tenable because, for each and every service provided by the Hotel, it incurs expenditure. What is chargeable is the chargeable expenditure incurred by the customer, and irrespective of whether part or even full of which is spent by the hotel, liability under the Act is not affected. Department has a specific case that what is paid towards telephone charges is not what is collected from the customer by way of expenditure incurred by them. There is no need for us to consider this factual issue, because, irrespective of whether the assessee makes a margin in the telephone services provided or not, there is liability for tax ITA No.42/08 & Co.cases. -:8:- because it is an expenditure incurred by the customer for service availed in the hotel where telephone connection is provided. As already found by us, the requirement for liability under Section 5(1)(d) is that the service should be provided in the hotel. Admittedly, telephone net work is provided in the hotel for the customers to avail the service. It is pertinent to note that under the definition, “room charges” under section 2 (10), room charges include the charges for furniture, air- conditioner, refrigerator, radio, music, telephone, television and such other services as are normally included by a hotel in room rent. Normally, room rentals cover telephone facility for internal use. However, hotels charge customers for outside calls made which is the case herein. It is to be seen that though certain items of expenditure are specifically excluded from the chargeable expenditure covered by Section 5, telephone charges is not an item covered by exclusion clause. Even though the counsel for the assessee contended that Rule of ejusdem generis applies to other services referred to in sub-clause (d), we do not think that the said ITA No.42/08 & Co.cases. -:9:- rule can be applied because even the specific items referred to are also not exactly similar. It is pertinent to note that the word “similar” before the word “other” was deleted by the amendment made in 1991. Further, sub-clause (d) as such is a residuary entry and therefore, we are of the view that it has wide scope and so much so, every service provided at the hotel, either by the hotel or by any other person other than specifically excluded services are covered by the charging provision. We are of the view that the provision for telephone service available in the hotel is covered by residuary clause contained in sub-clause (d) of Section 5 (other services). We therefore reverse the order of the Tribunal on this issue. 7. The next item is the charges received for laundry services rendered by hotel. It is not known whether hotel has rendered laundry services by itself or whether it outsources the service of others. However, admittedly, the charges were collected by hotel for the laundry services provided to the customers. It falls under 'other services' covered by Section 5(1)(d) of the Act and it is immaterial ITA No.42/08 & Co.cases. -:10:- whether hotel has a facility for washing and ironing clothes or whether it is a service outsourced. So long as customers in the hotel are provided with laundry service and the hotel charges for such service, the receipts constitutes chargeable expenditure attracting liability under section 5(1) (d) of the Act. We therefore reverse the Tribunal's order and confirm the assessment on this item. The last item is miscellaneous receipts, which in our view, cannot be decided without the split up details of services for which charges are received. It is not possible to decide whether the item falls under chargeable expenditure under section 5(1)(d) of the Act. In our view, that the assessing officer should have called for specific break-up details of the miscellaneous receipts in order to find out whether whole or in part of it constitute chargeable expenditure under any of the items referred to in Section 5(1). In any case we do not want to interfere with the Tribunal's order on this issue because at this distance of time, there is no purpose to remand the matter. We therefore, allow the appeals in part by reversing the order of the ITA No.42/08 & Co.cases. -:11:- Tribunal and declare that telephone charges and laundry charges collected from the customers constitute chargeable expenditure under the Act. The assessing authority is directed to modify the assessment in terms of the judgment. C.N.RAMACHANDRAN NAIR JUDGE V.K.MOHANAN, JUDGE kvm/- ITA No.42/08 & Co.cases. -:12:- V.K.MOHANAN, J. O.P.No. JUDGMENT Dated:..