1992-VIL-552-CAL-DT
Equivalent Citation: [1995] 214 ITR 448, 120 CTR 417
CALCUTTA HIGH COURT
Date: 18.09.1992
COMMISSIONER OF INCOME-TAX
Vs
SP. JAISWAL ESTATES PVT. LIMITED
BENCH
Judge(s) : SHYAMAL KUMAR SEN., AJIT KUMAR SENGUPTA
JUDGMENT
AJIT K. SENGUPTA J.--In this reference under section 256(1) of the Income-tax Act, 1961, for the assessment years 1978-79 and 1979-80, the following questions of law have been referred to this court:
The common questions for the assessment years 1978-79 and 1979-80 are as follows:
" 1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the preparation of food in hotel was manufacture or production of articles of the nature as envisaged in section 32A of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in allowing investment allowance to hotel although the Tribunal itself held that the hotel was not primarily an industrial undertaking ?"
The additional question for the assessment year 1978-79 is as follows:
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the luxury tax liability of earlier years arose or accrued in the accounting year in which the provisional assessment for the luxury tax for such earlier years was passed although the statute for luxury tax came into force prior to the accounting year of the said earlier years ?"
The facts relating to this reference are that the assessee runs a five star hotel in Calcutta styled as "Hotel Hindustan International". The assessee claimed in the revised return for the assessment year 1978-79 and in the original return for the assessment year 1979-80 investment allowance of Rs. 1,04,663 and Rs. 58,412 on plant and machinery said to have been installed during those years respectively. For that purpose the necessary reserve was also created. However, the Income-tax Officer did not allow investment allowance under section 32A of the Income-tax Act, 1961, since, according to him, the business of hotel which was being carried on by the assessee in these years was not in the nature of an industrial undertaking as it did not manufacture or produce any article or thing.
Against the disallowance of investment allowance under section 32A of the Act, the assessee filed appeals before the Commissioner of Income-tax (Appeals) who held that the assessee was not entitled to investment allowance. In doing so, he placed reliance on the judgment of the Kerala High Court in the case of CIT v. Casino (Pvt.) Ltd. [1973] 91 ITR 289.
Being aggrieved, the assessee came in further appeal before the Tribunal. The assessee's contention before the Tribunal was that in the hotel articles of food were prepared from raw materials and as such there was manufacturing activity and, therefore, it should have been allowed investment allowance. The Department in support of its contention supported the order of the Commissioner of Income-tax (Appeals) and placed reliance upon the case of Casino (Pvt.) Ltd. [1973] 91 ITR 289 (Ker) and the judgment of the Madras High Court in the case of CIT v. Buhari Sons P. Ltd. [1983] 144 ITR 12. The Tribunal viewed that in the hotel there was manufacture or production of any article or thing within the meaning of section 32A(2) of the Act and by following the decision of the Delhi Bench of the Tribunal in the case of Orient Express Co. (P.) Ltd. v. IAC of I. T. [1985] 14 ITD 506, held that the assessee-company is entitled to investment allowance. In holding that the assessee-company was entitled to investment allowance, the Tribunal observed that since the Income-tax Officer disallowed the claim of the assessee on the preliminary ground of the claim not falling within the ambit of section 32A, he had no occasion to verify as to what machinery or plant had been included by the assessee in the claim. The Tribunal further observed as follows:
" We may make it clear that the activity and business of a hotel has to make available many other articles to the customers by way of amenities. The Income-tax Officer shall, therefore, examine the claim of the assessee which shall be limited to only such machinery or plant as are required for manufacture or production of food. He shall allow the investment allowance on that machinery or plant. "
The assessee claimed a sum of Rs. 1,66,981 representing West Bengal luxury tax in the assessment year 1978-79. The assessee stated before the Income-tax Officer that the direction for payment of the luxury tax for the period July 25, 1972, to September 30, 1976, relevant to the earlier years was received by an order dated November 19, 1976. The entire sum of Rs. 1,66,981 related to the period from July 25, 1972, to September 30, 1976. The assessee challenged the validity of the Act imposing luxury tax before the High Court in 1974 by way of a writ petition. The writ petition was rejected by the High Court in May, 1976. The assessee then appealed to the Supreme Court. The Supreme Court in 1976 directed the assessee to submit luxury tax returns under protest and to pay tax accordingly. The returns were accordingly submitted for the period from July 25, 1972, to September 30, 1976, and a provisional assessment order dated November 19, 1976, was received by the assessee requiring it to pay the said amount of tax. In the opinion of the Income-tax Officer such liability was not created for the first time. Moreover, it related to earlier years which arose in the relevant accounting years. The assessee did not claim the same in the earlier years. Considering all these facts, the Income-tax Officer disallowed the assessee's claim for Rs. 1,66,981 in respect of luxury tax relating to earlier years.
On appeal, the Commissioner of Income-tax (Appeals) did not allow the claim of the assessee since, according to him, no provision was made for the liability though the assessee was aware of its liabilities.
Against the findings of the Commissioner of Income-tax (Appeals), the assessee filed an appeal before the Tribunal. The Tribunal held that the assessee was entitled to deduction of Rs. 1,66,981 and the Income-tax Officer was, therefore, directed to modify the assessment accordingly.
We have considered the rival contentions.
The two common questions relating to the assessment years 1978-79 and 1979-80 are concluded by the decision of this court in the assessee's own case for the assessment year 1981-82 in Income-tax Reference No. 44 of 1989 where judgment was delivered on January 27, 1992 (CIT v. S. P. Jaiswal Estates (P.) Ltd. [1992] 196 ITR 179). Following the said decision, we answer the said two questions in the negative and against the assessee.
The additional question for the assessment year 1978-79 arises from the facts, as stated earlier, that the assessee was contesting the liability to pay the luxury tax which is imposed on entertainments and luxuries in hotels and restaurants. It is not in dispute that the appellant's activity is that of a hotel nor is it the case that the assessee is outside the scope of taxation under the special taxation statute, viz., the West Bengal Entertainments and Luxuries (Hotels and Restaurants) Tax Act, 1972, as amended subsequently in 1974 and in 1975. The charging section of the said Act is section 4 which reads as under:
"There shall be charged, levied and paid to the State Government a luxury tax by the proprietor of every hotel and restaurant in which there is provision for luxury and such tax shall be calculated-
(a) in the case of a restaurant at the rate of an annual sum of rupees three hundred for every ten square metres or part thereof in respect of so much of the floor area of the restaurant which is provided with luxury, and
(b) in the case of a hotel at such rate not exceeding fifteen per centum on the daily charges of a room provided with luxury as may be notified by the State Government in the Official Gazette. "
The scheme of the Act is such that the quantification of the liability with accuracy is quite possible as the rate of taxation and the subject-matter of taxation on which the quantum depends are all known. In such a case the liability is determinate and also crystallises as the taxable event happens.
The Supreme Court in the context of the levy of sales tax has laid down in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363 the principle that the obligation to pay tax stands determined as the occasion for the taxation arises. There the assessee followed the mercantile system of accounting. The liability to pay sales tax arises with the sale and the liability shall be a charge against profits irrespective of the fact that the assessee has been contesting his liability. In that case, the assessee disowned its liability to pay sales tax but despite such contention raised in the litigation against the taxation claimed deduction of the liability on the ground that the liability is statutory and, therefore, should be a revenue deduction. The assessee's claim was upheld by the Supreme Court, holding that the assessee having followed the mercantile system is entitled to the deduction claimed, as such liability being a statutory liability is ascertained as soon as the sale takes place. The same principle shall apply to the present case. Here the quantification of the liability presents no problem. The assessee also follows the mercantile system of accounting. The fact that the assessee was contesting the vires of the levy itself is immaterial.
We are, therefore, of the view that the question referred for our opinion is fully covered by the aforesaid decision of the Supreme Court. Respectfully following the said decision, we answer the additional question for the assessment year 1978-79 in the negative and against the assessee.
There will be no order as to costs.
SHYAMAL KUMAR SEN J.-I agree.
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