ORDER
Vimal Gandhi, Judicial Member
1. These appeals by the assessee-Hotel Jagadeswari (P.) Limited, running a hotel, for the assessment years 1988-89, 1989-90 and 1990-91 against orders of Commissioner of Income Tax (Appeals) [In short CIT(A)], Coimbatore involve a common point regarding applicability of the Expenditure Tax Act, 1987 (here-in-after called The Act’) which envisages a tax at 20 per cent ad valorem on “chargeable expenditure” incurred in a class of hotels wherein “room charges” for any unit of residential accommodation are Rs. 400 per day per individual.
2. The hotel run by the assessee in the periods under appeal was liable to pay luxury tax under the Tamil Nadu Tax on Luxuries in Hotels and Lodging Houses Act, 1981 (In short “Luxury Act”). The assessee claimed that room charges in its hotel for a unit of a residential accommodation being less than Rs. 400, the provisions of the Act were not applicable. This contention was rejected by the Assessing Officer as in his view, the luxury tax levied by the State Government was part of “room charges” and when so considered, the room charges exceeded Rs. 400 to attract the impost. He further observed that the assessee collected luxury tax from its customers and the same thus formed part of room rent. The Assessing Officer accordingly applied provisions of Expenditure Tax Act and brought to charge the “chargeable expenditure” in assessment separately made for each of the year under appeal.
3. The assessee impugned the levy in appeal before the CIT(A) and reiterated its claim but without any success. The learned CIT(A) remarked that the luxury tax was applicable only to certain luxury hotels and if an inmate was to get services and facilities in a luxury hotel, he has to pay luxury tax. Thus luxury tax was not to be considered in isolation but as part of room tariff. Just as sales-tax paid to the seller was part of cost of goods purchased, the luxury tax paid by a customer in a hotel appears to form part of room charges. No doubt, the luxury tax would be excluded from the “chargeable expenditure” for the purposes of computation of levy but for purposes of deciding applicability of the Act, it has to be included. The learned CIT(A) held that the expression, “such other services as are normally included by a hotel in room rent” used in Clause (b) of Section 2(10) should cover the issue as a payment of tax could be regarded a service normally included by a hotel in the room rent. He accordingly held that assessments of the assessee under the expenditure tax were justified.
4. The assessee has brought the issue in appeal. Shri S.K. Kandhari, learned counsel for the assessee, vehemently opposed the conclusion reached by the lower authorities regarding applicability of the Act to the case of the assessee. He emphasised that luxury tax charged by the State under a statute cannot be treated as part of “room charges” as defined in the Act. Shri Kandhari in this connection drew our attention to definition and meanings of expressions, “services”, “facilities” and “charges” given in dictionaries and considered by different courts in England, Australia, New Zealand and other Western countries. Certain illustrations of meaning given to word “service” were placed in the Paper Book. Shri Kandhari further submitted that principles of ejusdem generis are applicable in this case and general words and expressions are to take colour from accompanied specific words and expressions in the definition and other clauses. Shri Kandhari stressed that the expression, “such other services” as used in Sub-clause (b) of Sub-section (10) of Section 2 must take colour from the sendees enumerated in Sub-clause (a) of the said sub-section. He further argued that the statute was to be read as a whole to find out the intention of the Legislature. Shri Kandhari emphasised that under Clause (iv) of Section 5 of the Act, the Legislature specifically excluded “any tax including tax under this Act” from the levy of “chargeable expenditure” and, therefore, it is not correct to treat the luxury tax as part of “room charges”. The expression, “other services” in Sub-clause (b) of Section 2(10) clearly imports that “charges” should be for services rendered by a hotel and such luxury tax levied and collected cannot be treated as a charge for any service rendered and thus part of room charges. Shri Kandhari relied upon the decision of the Supreme Court in the case of CIT v. Elphinstone Spg. & Wvg. Mills Co. Ltd. [1960] 40 ITR 142, for the proposition that if the words of a taxing statute fail, then so must the tax. The courts cannot accept rarely and in clear cases help the draftsman by a favourable construction.
5. The learned departmental representative fully supported the order of CIT(A). He contended that the expression, “room charges” under Section 2(10) was an expression of wide import and included every type of charges payable by a customer to a hotel for occupying a room. As luxury tax was to be paid by the occupier, it is part and parcel of “room rent”. “Any other services”, according to the learned departmental representative, was also expression of wide import and would include every kind of service be that manual or otherwise. Thus considered luxury tax which is normally included in the room rent by hotels has to be held part of room charges. Learned departmental representative pointed out that luxury tax was collected by the assessee in the assessment year under appeal. He further relied upon circulars of CBDT justifying inclusion of luxury tax in room charges under sub Clause (b) of Section 2(10). Shri Kandhari, in rebuttal brought to our notice the decision of Hon’ble Supreme Court in the case of Keshavji Ravji & Co. v. CIT [1990] 183 ITR 1 to contend that burden of a taxpayer cannot, be increased through circulars of CBDT.
6. We have considered rival submissions of the parties and examined these submissions in the light of material available on record. There is no dispute that if luxury tax is included in room charges, the composite sum exceeds Rs. 400 otherwise it is less than Rs. 400, for any unit of residential accommodation per day per individual. Thus the question which requires determination is “whether luxury tax can be treated as part of room charges for purposes of levy of Expenditure Tax ?” In order to resolve the controversy, we deem it appropriate to consider the nature and character of’Luxury tax’ by referring to relevant provisions which are as under :
1. Short title and commencement.- (1) This Act may be called the Tamil Nadu Tax on Luxuries in Hotels and Lodging Houses Act, 1981.
2. Definitions -In this Act, unless the context otherwise requires-
** ** ** (f) 'hotel' means a building or part of a building where residential accommodation with or without board is byway of business provided for a monetary consideration and includes a lodging house; (g) 'Luxury provided in a hotel' means accommodation for residence provided in a hotel, the rate of charges for which (including charges for air-conditioning, television, radio, music, extra beds and the like but excluding charges for food, drink and telephone calls) is fifty rupees or more per room per day; (i) 'tax' means the luxury tax levied and collected under this Act; 4. Levy and collection of Luxury tax.- (1) Subject to the provisions of this Act. there shall be levied and collected a tax on the luxury provided in a hotel in respect of every room under occupation by any person (to be known as 'Luxury Tax') at the following rates, namely :- ** ** **
In the case of Federation of Hotel & Restaurant v. Union of India AIR 1990 SC 1637, the constitutional validity of both the Acts now under consideration was challenged before the Hon’ble Supreme Court. The court upheld the constitutional validity of both the statutes. The object of the Luxury Tax was explained by S. Ranganathan, J. as under :
Object of the tax on luxury is to impose a tax on the enjoyment of certain types of benefits, facilities and advantages on which the Legislature wishes to impose a curb. The idea is to encourage society to cater better to the needs of those who cannot afford them. For instance, a luxury tax may, to cite a catchy example encourage construction of ‘Janata’ hotels rather than five star hotels.
It is thus clear that luxury tax is a levy imposed by the State for a public purpose. It is not collected as fees for any services rendered. It is a compulsory extraction of money by public authority without promise to render any services. There is total absence of quid pro quo between the payment made and the benefit realised. Luxury tax is thus an impost truly described as a tax and not a fee charged for any services rendered or promised. In the case of Indian Mica & Micanite Industries Ltd. v. State of Bihar AIR 1971 SC 1182, the Supreme Court observed as under :
From the above discussion, it is clear that before any levy can be upheld as a fee, it must be shown that the levy has reasonable correlationship with the services rendered by the Government. In other words, the levy must be proved to be a quid pro quo for the services rendered.
7. Shri Kandhari during the course of hearing laid considerable stress on principles of ejusdem generis which the Hon’ble Supreme Court in the case of Siddeshwari Cotton Mills (P.) Ltd. AIR 1989 SC 1019, has explained as under :
The expression ejusdem generis – ‘of the same kind or nature’ – signifies a principle of construction whereby words in a statute which are otherwise wide but are associated in the text with more limited words are, by implication, given a restricted operation and are limited to matters of the same class or genus as per preceding them. If a list or string or family of genus-describing items are followed then the verbal context and the linguistic implications of the preceding words limit the scope of such words.
In ‘Statutory Interpretation’ Rupert Cross says :
…The draftsman must be taken to have inserted the general words in case something which ought to have been included among the specifically enumerated items had been omitted….
The principle underlying this approach to statutory construction is that the subsequent general words were only intended to guard against some accidental omission in the objects of the kind mentioned earlier and were not intended to extent to objects of a wholly different kind. This is a presumption and operates unless there is some contrary indication. But the preceding words or expressions of restricted meaning must be susceptible of the import that they represent a class. If no class can be found, ejusdemgeneris rule is not attracted and such broad construction as the subsequent words may limit will be favoured.
But above principle of construction is not of much help for understanding meaning of “such other services” in Sub-clause (b) of Section 2(10) of the Act. The setting and text of the provision do not permit application of above principles as we would show in the following paragraphs:
It was further contended on behalf of assessee that under clause(iv) of Sub-section (1) of Section 5, “any expenditure by way of any tax including tax under this Act” is specifically excluded from “Chargeable expenditure” and, therefore, there is no justification in treating tax as part of room charges. In our considered opinion, the aforesaid submission is also not of much help to the assessee. Under Section 5 of the Act, the Legislature by including and excluding certain items of expenditure incurred in a hotel has defined “chargeable expenditure” for purposes of computing the levy. Charges for “food or drink” or any other services at hotel as enumerated in separate clauses are specifically included in “chargeable expenditure”. These very expenditures are excluded in the definition of “room charges”. This shows that policy adopted by the Legislature in the definition of “room charges” for purposes of application of provision is quite different from the policy adopted from computing and defining the levy. In the case of Federation of Hotels & Restaurants (supra) the court observed as follows
The subject of a tax is different from the measure of the levy. The measure of the tax is not determinative of its essential character.
The converse is equally true. Thus mere exclusion of tax from “chargeable expenditure” more as a matter of policy would not mean than tax cannot be room rent or room charges. All the same sub-Ciause (id) does reflect that the Legislature had no intention to levy expenditure tax on taxes incurred as expenditure.
8. The answer to the problem before us, in our view has to be found by properly considering the text, setting and context of provisions of Section 2(10) and Section 3 of the Act. These are as follows :
2(10). ‘room charges’ means the charges for a unit of resideniiaJ accommodation in a hotel and includes the charges for-
(a) furniture, air-conditioner, refrigerator, radio, music, telephone, television, and
(b) such other services as are normally included by a hotel in room rent,
but does not include charges for food, drinks and any services other than those referred to in Sub-clauses (a) and (b);
3. Application of the Act.
This Act shall apply in relation to any chargeable expenditure –
(1) incurred in a hotel wherein the room charges for any unit of residential accommodation at: the time of incurring of such expenditure are four hundred rupees or more per day per individual and where,-
(a) a composite charge is payable in respect of such unit and food, the room charges included therein shall be determined in the prescribed manner;
(b) (0 a composite charge is payable in respect of such unit, food, drinks and other services, or any of them and the case is not covered by the provisions of Sub-clause (a), or
(ii) it appears to the Assessing Officer that the charges for such unit, food, drinks or other services are so arranged that the room charges are understated and the other charges are overstated,
the Assessing Officer shall, for the purposes of this clause determine the room charges on such reasonable basis as he may deem fit; and
(2) incurred in a restaurant.
9. The provisions of Section 2(10) uses words “means” and “includes”. The word “includes” is normally, a term of expansion, imports addition and adds to subject matter already comprised and conveys that things stated are not exhaustive. But this is not a rule of universal application and when the word is used along with the word “means” in a definition clause, the definition may become exhaustive. The rule of construction in vogue these days is to determine the intention of the Legislature by feeling the text and the context of the words and expressions employed by giving plain meaning to words and on harmonious construction the purpose of the statute is sought to be achieved. In the present Act, the text, setting and context of provisions of Section 3 and Section 2(10) make it abundantly clear that expression “room charges” for the purposes of the Act mean only room rent and charges for providing residential accommodation and other services in a room and not the gross payment made for occupying a room. This intention is clear from the language employed as we would presently attempt to show.
10. “Room charges” in Section 2(10) are stated to mean charges for a unit of residential accommodation in a hotel and includes charges for furniture, air-conditioner, etc., mentioned in Sub-clauses (a). In Sub-clause (b), charges for “such other services as are normally included by a hotel in room rent” are included. Down below Sub-clauses (a) and (b), charges for food, drinks and any services other than those referred to in Clauses (a) and (b) are specifically excluded. Thus common string binding both inclusionary and exclusionary clauses is “charges” for services provided. The expression “other services” in Sub-clause (b) according to the Revenue is entitled to be given such meaning as to include luxury tax. This contention, in our view, is devoid of any substance. As already discussed, luxury tax by stretch of no imagination can be taken to be fee or charges for any services rendered. It is truly described as tax pure and simple collected by the State in exercise of governmental power and cannot be taken as a return for any services rendered to.be covered Sub-clause (b). Further, “such services” in above clause is qualified and controlled by words “as are normally included by a hotel in room rent”. For determining whether to a given charge Sub-clause (b) is applicable it is to be seen whether charges are for services normally included by a hotel in room rent. The question of applicability of above sub-clause would not arise where no services are rendered. It is therefore, difficult to accept that luxury tax is part of services normally included in room rent, luxury tax is not applicable to every hotel, particularly to hotel referred to earlier as “Janata Hotels” and under no circumstances can be considered to be a charge for services rendered. The expression “other services” in Sub-clause (b) must be taken by the Legislature to have been used to cover services normally included in “room rent” but not covered by services specified in Sub-clause (a). Two clauses are separated by the words “and”. Thus on a reasonable and proper consideration of text and the context, it is clear that “room charges” connotes only charges for residential accommodation and facilities provided in the room by a hotel.
11. The aforesaid conclusion is further strengthened on consideration of crucial provision of Section 3 which lays down the differentia for classification of the hotel to which the Act applies. That section provides that Act shall apply in relation to any chargeable expenditure incurred in a hotel where the room charges for any unit of residential accommodation, at the time of incurring of such expenditure, are Rs. 400 or more per day per individual. The levy of tax is confined to such class of hotel which satisfy the statutory standard. Where composite charges are payable under Sub-clause (a) of Sub-section (i) of Section 3, the room charges are to be borne as per Rule 3 of the Expenditure Tax Rules, 1987 and apportioned in the manner prescribed. Sub-clause (b) of above sub-section envisages two situations. The first situation is applicable where composite charges are payable and case is not covered by Sub-clause (a). The second situation covers cases where “room charges” are under-stated. Under both the situations mentioned in Sub-clause (b), the Assessing Officer is authorised to determine “room charges” on such reasonable basis as he may deem fit. But all situations relate exclusively to “charges” for services rendered or provided. There is not even a remote suggestion in the application provision to consider “charges” de hors the “services” rendered or provided. The element of charges for services is all pervading and charges without services cannot be envisaged. A harmonious and plain reading of Section 3 and Section 2(10) leaves no amount of doubt that expression “room charges” is used in a generic sense to cover charges for items enumerated in Sub-clause (a) and charges of services provided and normally included in “room rent” and not total burden, a customer has to bear for occupying a room for residential accommodation in a hotel. In holding that Sub-clause (b) covers the matter, the lower authorities wrongly took luxury tax as a charge for services and further ignored that the expression “other services” is qualified by the words “as are normally included in a room rent”. For the reasons already given, we see no justification for upholding the above approach. The luxury tax therefore cannot be treated as part of room charges on plain reading of the provision defining room charges.
12. The revenue further justified application of provision of the Act on the ground that luxury tax was collected by the assessee. It was also claimed that even expenditure tax was collected. Reliance was also placed on Circulars of CBDT No. 133/371/09-TPL, dated 10th January, 1989 and No. 645, dated 15-3-1993.
The basis for including luxury tax in “room charges” given in the circulars is as under :
Though the amount of luxury tax’ will be excluded from ‘the chargeable expenditure’ while computing the Expenditure Tax at the rate of 20 per cent, it will be included in ‘the room charges’ for lodging the applicability of the Expenditure Tax Act in terms of Section 3 thereof, the reason being that under Section 2(10)(b) of this Act, payment ofluxury tax by the hotel can be considered to be a service which is normally included by a hotel in room rent.
13. We are unable to accept applicability of Expenditure Tax on any or above grounds. On consideration of statutory provision, we have already held that Act is not applicable to the assessee and there is no justification for treating luxury tax as part of “room charges”. As regards circulars of CBDT, we can do not better than quote the following observation of the Hon’ble Supreme Court in the case of Keshavji Ravji & Co. [supra]:
This contention and the proposition on which it rests, namely, that all circulars issued by the Board have a binding legal quality incurs, quite obviously, the criticism of being too broadly stated. The Board cannot, preempt ajudicial interpretation of the scope and ambit: of a provision of the Act by issuing circulars on the subject. This is too obvious a proposition to require any argument for it. A circular cannot even impose on the tax payer a burden higher than what the Act itself, on a true interpretation, envisages. The task on interpretation of the laws is the exclusive domain of the Courts.
14. As the issue of application of Act has to be determined on the basis of interpretation of statutory provisions, admission made by the assessee is not material and is of no avail to the revenue. For the aforesaid reasons, we hold that lower authorities were not correct in applying provisions of Expenditure Tax to the assessee. We, therefore, set aside assessments in all the three years and hold that assessee is not liable to pay the expenditure tax.
15. In the result, the appeals of the assessee are allowed.
G. Krishnamurthy, President
1. I am in entire agreement with the conclusion reached by my learned Brother and also the reasons given. On the applicability of the principle of construction of statutes, namely ejusdem generis, I have my reservations. A taxing statute has to be strictly construed. This rule has been expressed in different language in different cases:
In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. (See CIT v. MG Mills AIR 1971 SC 2434).
There is no dispute that if luxury tax is included in the room charges, for any unit of residential accommodation at the time of incurring of such expenditure, it would exceed the prescribed minimum of Rs. 400 per day per individual and thus the assessee would come within the net of Expenditure Tax Act otherwise it is much below the prescribed limit of Rs. 400 per day. That was how this question of including luxury tax in the room service charges had assumed importance. Before we proceed further in the matter, it would be appropriate to notice the definition clause of the Expenditure Tax Act, which is in controversy:
2. Definitions In this Act, unless the context otherwise requires ** ** ** (10)'room charges' means the charges for a unit of residential accommodation in a hotel and includes the charges for - (a) furniture, air-conditioner, refrigerator, radio, music, telephone, television, and (b) such other services as are normally included by a hotel in room rent, but does not include charges for food, drinks and any services other than those referred to in Sub-clauses (a) and (b); We should also notice at this juncture the definition of "assessee" as given in Section 2(1) of the Expenditure Tax Act: assessee' means a person responsible for collecting the expenditure tax payable under the provisions of this Act.
An assessee who is responsible for collecting the expenditure tax payable under the provisions of this Act has to pay a tax at the rate of 20 per cent of the chargeable expenditure incurred in a hotel on and from the date from which this Act has been brought on Statute book. “Chargeable” expenditure has been defined in Section 5 of the Act meaning:
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 provision 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 service 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-
(i) any expenditure which is incurred, or the payment forwhich is made, in foreign exchange before the 1st day of October, 1992;
(ii) any expenditure which is incurred, by persons within the purview of the Vienna Convention on Diplomatic Relations, 1961 or the Vienna Convention to Consular Relations, 1963;
(iii) any expenditure incurred in any shop or in any office which is not owned or managed by the person who carries on the business of a hotel;
(iv) any expenditure by way of any tax, including tax under this Act.
Explanation : For the purposes of this clause –
(a) expenditure incurred or any payments made in Indian currency obtained by conversion of foreign exchange into Indian currency shall in such cases and in such circumstances as may be prescribed be deemed to have been incurred or, as the case may be, made in foreign exchange; and
(b) ‘foreign exchange’ and ‘Indian currency* shall have the meanings respectively assigned to them in Clauses (h) and (k) of Section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973);
(2) in relation to a restaurant referred to in Clause (2) of Section 3, means any expenditure incurred in, or payments made to, a restaurant in connection with the provision of food or drink by the restaurant, whether at the restaurant or outside, or by any other person in the restaurant but does not include any expenditure referred to in Sub-clauses (it) and (iv) of Clause (1).
By Section 7 of the Act the responsibility of collecting the expenditure tax as specified in Section 4, which we have referred to above, is placed squarely upon the person running the hotel. The person running the hotel is thus constituted as an agent of the State and he has to collect the tax from the customers and tax so collected during any calendar month shall be paid to the credit of the Central Government by the 1 Oth of every month and only in case he fails to collect the tax in accordance with the provisions of Section 7, that he has to pay the tax to the credit of the Central Government out of his own funds notwithstanding such failure to collect the tax. Then there are provisions for securing the filing of the returns, making assessment and reopening of the assessments in case the chargeable expenditure escaped assessment, rectification of mistakes, time limit for completion of assessment and reassessment, interest on delayed payment of expenditure tax. Section 15 provides for levy of penalty for failure to collect or pay any expenditure tax. It says that if any person responsible for collecting expenditure tax in accordance with the provi sions of Section 7 fails to collect such tax or having collected the tax fails to pay such tax to the credit of the Central Government he shall pay by way of penalty a sum equal to the tax that he failed to collect and in case of the other alternative, namely, failure to pay the tax collected, a certain amount of penalty. By Section 31 the power is vested in the CBDT subject to the control of the Central Government, to make rules for carrying out the provisions of the Act and Section 31 (2) (a), which is relevant for our present purpose provides that such rules can be made by the Board :
(a) the manner in which the room charges may be determined under Sub-clause (a) of Clause (1) of Section 3 in cases where composite charges are payable in respect of residential accommodation and food.
Section 32 gives the power to the Central Government to remove the difficulties, if any, arising in giving effect to the provisions of this Act provided they are not inconsistent with the provisions of the Act and that such order shall not be made after the expiry of the period of two years from the commencement of the Act. This Act came into force on 1-11-1987. So any order to be issued by the Central Government to remove difficulties can only be given before the expiry of two years, namely, 1-11-1989. These are the basic features of the Expenditure Tax Act. In other words it says that the person running the hotel are only responsible to collect the expenditure tax payable under the Act. It is only in case they fail to collect the tax that they have to pay it from their own funds. Otherwise this is a tax levied to curb as provided for in the objects the ostentatious expenditure.
2. Now with this background if we see what should be the meaning of the word “room charges”. The room charges means the charges for a unit of residential accommodation in a hotel and includes the charges for furniture, air-conditioner, refrigerator, music, telephone and television and such other services as are normally included by a hotel in room rent but does not include charges for food, drinks etc. Now whether the luxury tax imposed by the State Government is a tax levied for rendering any services as are normally included by a hotel in room rent and whether the services spoken of in Sub-clause (b) or the same as and are comparable to what are mentioned in Sub-clause (a), that is the question, that has to be resolved. A plain reading of this clause would show that the expression “such other services” must refer only to the payment made for providing any services, which are normally included by a hotel in room rent and not otherwise. It is difficult to accept the proposition that luxury tax levied by the State Government on a hotel is a service provided by the person running the hotel to its customer as a normal charge. It is in this context that the interpretation of this expression assumes importance and for that purpose, we have to refer to the construction of this phrase by referring to the rule of ejusdem generis and also to the rule whether when the Legislature uses the words “means” and “includes”, whether it is exhaustive or not.
3. The principle of ejusdem generis has come for interpretation before the Supreme Court in several cases both in connection with the Income-tax Act and in general laws and in the case of Siddeshwari Cotton Mills (P.) Ltd. (supra), the Supreme Court held:
The expression ejusdem generis – ‘of the same kind or nature’ – signifies a principle of construction whereby words in a statute which are otherwise wide but are associated in the text with more limited words are, by implication, given a restricted operation and are limited to matters of the same class or genus as per preceding them. If a list or string or family of genus-de scribing items are followed then the verbal context and the linguistic implications of the preceding words limit the scope of such words.
In ‘Statutory Interpretation’ Rupert Cross says: “…The draftsman must be taken to have inserted the general words in case something which ought to have been included among the specifically enumerated items had been omitted….’
The principle underlying this approach to statutory construction is that the subsequent general words were only intended to guard against some accidental omission in the object of the kind mentioned earlier and were not intended to extend to objects of a wholly different kind. This is a presumption and operates unless there is some contrary indication. But the preceding words or expressions of restricted meaning must be susceptible of the import that they represent a class. If no class can be found, ejusdem generis rule is not attracted and such broad construction as the subsequent words may limit will be favoured.
According to this enunciation this principle of construction will help a great deal to find out the meaning of the Legislature in using the words “such other services” in Sub-clause (b). Though the expression “such other services” was used in Sub-clause (b) separate from Sub-clause (a), the words “other services” must take in the context in which they are used from such services as are provided for in Sub-clause (a). Without reference to the services mentioned in Sub-clause (a) the expression “such other services” in Sub-clause (b) will not have any specific meaning because it is further restricted by the expression “as are normally included by a hotel in room rent”. In other words “such other services” as are normally included in room rent which partake the character of providing furniture, air-conditioner, refrigerator, radio, music, telephone and television can only be considered as other services. Construed this way, ‘such other services’ referred to in Sub-clause (b) are the general words, which precede the particular words referred to in Sub-clause (a), which serves as a list or string or a family of genus and which describes the items that are to follow in the verbal context and linguistic implications of the words in Sub-clause (a) explains the meaning of the words used in Sub-clause (b). That is how the statutory interpretation referred to in the Supreme Court decision must be construed in to say that the draftsmen must be taken to have inserted the general words (i.e.) “Such other services” in case something which ought to have been included among the specifically enumerated items had been omitted.
4. Construing the words “such other services” by applying this principle of construction, ejusdem generis, the other services must be of the same nature or of similar nature of the services that are referred to in Sub-clause (a) which are normally included by a hotel in room rent. We may further observe that the Legislature used the expression “as are normally included by a hotel in room rent”. The service provided must be such as to form part of room rent as and by way of service. The luxury tax levied is not such a service. We think the burden lies on the Revenue to show that the luxury tax also is such a charge for a service rendered by the hotelier to the customer, as to be normally included in room rent. This evidence is totally lacking in this case. It is only an assumption without any proof in support of it. On the contrary the words as used suggest opposite view. Therefore, applying the principle of ejusdem generis, we are of the opinion that the expression “such other services” do not include the luxury tax levied by the State Government, collected by the hotelier from the customers and paid to the State Government unlike the amounts collected for other services, which are all retained by the hotelier, as his income. A person carrying on a hotel business is acting insofar as luxury tax and expenditure tax are concerned, as agents of the respective State and Central Government to collect the respective taxes from the customer and pay to the respective Governments. Such being the case a hotelier, when he collected the luxury tax from a customer and paid it to the State Government, which levied it, is not rendering any services to the customer in the sense that for rendering of such services a charge is levied by the hotelier on the customer. If at all any service was rendered by the hotelier, it was to the State Government but not to the customer. The hotelier carrying on the business of hotel must incur some expenditure out of his own funds and get reimbursement from the customer by way of charges for the facilities provided, so that the charge so levied could be called charges for services. In this context the decision of the Supreme Court on the constitutional validity of the expenditure tax assumes importance. The Supreme Court in the case of Federation of Hotels & Restaurants (supra) observed as under:
Object of the tax on luxury is to impose a tax on the enjoyment of certain types of benefits, facilities and advantages on which the Legislature wishes to impose a curb. The idea is to encourage society to cater better to the needs of those who cannot afford them. For instance, a luxury tax may, to cite catchy example encourage construction of ‘Janta’ hotels rather than five star hotels.
Further there is no quid pro quo between the payment made and the benefit realised, the luxury tax is a tax and not a fee charged for any services rendered or promised. The luxury tax being thus an extraction compulsorily made by the State without any promise to render any services cannot be considered as a service rendered by the hotelier to its guests. Judged by this standard of the difference between the tax and the fee, the luxury tax cannot be considered as a service much less other services akin to the kind of services mentioned in Sub-clause (a) of Sub-section (10) of Section 2.
5. We have already mentioned above that the charging Section 4 mentions that expenditure tax shall be levied at the rate of 20 per cent of the chargeable expenditure incurred in a hotel referred to Clause (1) of Section 3. Clause (1) of Section 3 is as under:
3. Application of the Act
This Act shall apply in relation to any chargeable expenditure –
(1) incurred in a hotel wherein the room charges for any unit of residential accomodation at the time of incurring of such expenditure are one thousand two hundred rupees or more per day per individual and where,-
(a) a composite charge is payable in respect of such unit and food, the room charges included therein shall be determined in the prescribed manner;
(b) (i) a composite charge is payable in respect of such unit, food, drinks and other services, or any of them and the case is not covered by the provisions of Sub-clause (a); or
(ii) it appears to the Assessing Officer that the charges for such unit, food, drinks or other services are so arranged that the room charges are understated and the other charges are overstated, the Assessing Officer shall, for the purposes of this clause determine the room charges on such reasonable basis as he may deem fit; and
The above clause shows the vesting of a power in the Assessing Officer to determine the room charges on such reasonable basis as he may deem fit in case a composite charge is payable in respect of the unit of residential accommodation, food, drinks and other services, which are not separately mentioned. Then Rule 3 of the Expenditure Tax Rules, 1987 provided the manner in which the room charges included in the composite charge is to be determined. This rule provides, where the composite charge is payable in respect of residential accommodation and food, the room charges included therein shall be determined by deducting from the composite charge, the charge for food in the following manner:
Where the composite charge includes the 10 per cent of the charge for breakfast composite charge Where the composite charge includes the 25 per cent of the charge for breakfast and one meal composite charge Where the composite charge includes the 40 per cent of the charge for breakfast and two meals composite charge
This shows the room charge is a charge, which by the rule is supposed to include charges for breakfast and meals and not any other tax imposed for the occupation of the room for the enjoyment of the luxuries. The manner in which the room charge is to be ascertained out of the composite charge, lends further support to the view that a room charge as defined in Section 2(10) cannot include any tax imposed other than the charge levied for rendering of a service.
6. It is to be borne in mind that luxury tax is a tax imposed on the provision of luxuries by hotels. This tax, as we have pointed out above, is levied by the State Government. The Karnataka Act defines luxuries provided in a hotel more elaborately i.e., to include Air-conditioner, telephone, television, radio, music, extra beds and other amenities for which charges are compulsorily payable. It is this expanded definition that was also borrowed most probably into the Expenditure Tax Act also. So a tax levied by the State Government for luxuries provided in a hotel is not so different from the taxable event under the Expenditure Tax Act also. Thus when the object of levy of tax is more or less the same and in any case not so different, how can the tax levied for achieving the same objective by a State Government, which is also a part of the Government, can be considered again as a service provided by the hotelier. Luxury means anything which pleases the senses, costly and not easy to obtain and a rarity. As we have mentioned a shortwhile ago, it was on provision of this kind of amenities that luxury tax is levied by the State Government with a view to curb lavish expenditure so that costly hotels are discouraged and Janta hotels are encouraged.
7. The word “service” provided in a hotel has been judicially noticed as including attendants, provision of heating or lighting, supply of hot water and any other privilege or facility connected with the occupancy of a dwelling unit. Thus the word “service” does not seem to be a word the meaning of which is res Integra. It has received judicial recognition in countries like Australia, England and Newzeland, also in the context of a service rendered in a hotel. Therefore this interpretation of the word “service” also supports the view that luxury tax is not to be included in the word “services” as it does not partake the character of providing any privilege or facility connected with the occupancy of dwelling.
8. We have already pointed out how the Act gives the power to the Assessing Officer to determine the room charges when there is a composite charge levied. Further Section 5 of the Expenditure Tax Act specifically excludes from the computation of chargeable expenditure, any expenditure by way of any tax including the expenditure tax levied under the Expenditure Tax Act. When for the purposes of computing the chargeable expenditure, the expenditure incurred by way of any tax by a hotelier is excluded, how can that tax, which is excluded by Section 5 can be considered to have been included in the expression “room charges”. So it is difficult to follow from the scheme of the Act that the room charges include the luxury tax levied by the State Government.
9. As we have noticed above, Section 2(10) uses the words “means” and “includes”. The word “includes” is normally a term of expansion and imports additions to the definition by adding to subject matter certain things, which are not normally included and conveys the meaning that it is not exhaustive. But when the word “includes” is preceded by the word “means” in a definition clause, then it becomes exhaustive unless a different intention is discernible from the context. In the present Act, the text, the setting and the context of provisions of Sections 3, 5 and 2(10) made it abundantly clear that the expression “room charges” for the purpose of the Act, means only the room rent and the charges for providing residential accommodation and other services like privilege and facilities in a room but not the gross payment made by a customer for occupying the room.
10. The revenue has given clarification by a circular dated 15-3-1993 that:
Luxury tax and such other taxes levied by the State Governments will form part of the ‘room charges’ as the customer is required to pay these taxes to the hotel.
This clarification, in our opinion, is not a proper understanding of the expression “room charges”. In response to a query made by the Secretary General, Federation of Hotel and Restaurant Association of India, the Deputy Secretary, Government of India, Ministry of Finance by a letter dated 10-1-1989 also stated that the luxury tax will have to be included for the purpose of ascertaining the room charges. The submission of the Revenue has been that in view of these circulars and clarification, the Revenue has rightly included the luxury tax in the room charges. It is also argued that these circulars issued by the Board are binding on the Revenue and they have no alternative other than to obey.
11. We do not think that this is a correct approach. In the case of Keshavji Ravji & Co. (supra), the Supreme Court while dealing with the interpretation of Section 40(b) of the Income-tax Act in the context of a circular issued by the Board considered the question whether the Board could issue a circular interpreting the law in a manner opposed to the intendment of the Act and whether by a circular it can in the name of true interpretation, levy tax i.e. place a higher burden on the taxpayer than what the Act itself envisages. At page 17 of the Report, the Supreme Court observed as under:
This contention and the proposition on which it rests, namely, that all circulars issued by the Board have a binding legal quality incurs, quite obviously, the criticism of being too broadly stated. The Board cannot preempt a judicial interpretation of the scope and ambit of a provision of the Act by issuing circulars on the subject. This is too obvious a proposition to require any argument for it. A circular cannot even impose on the taxpayer a burden higher than what the Act itself, on a true interpretation, envisages. The task of interpretation of the laws is the exclusive domain of the courts. However, this is what Sri Ramachandran really has in mind-circulars beneficial to the assessees and which tone down the rigour of the law issued in exercise of the statutory power under Section 119 of the Act or under corresponding provisions of the predecessor Act are binding on the authorities in the administration of the Act. The Tribunal, much less the High Court, is an authority under the Act. The circulars do not bind them. But the benefits of such circulars to assessees have been held to be permissible even though the circulars might have departed from the strict tenor of the statutory provision and mitigated the rigour of the law. But that is not the same thing as saying that such circulars would either have a binding effect in the interpretation of the provision itself or that the Tribunal and the High Court are supposed to interpret the law in the light of the circular. There is, however, the support of certain judicial observations for the view that such circulars constitute external aids to construction.
This would show that a circular issued by the Board does not bind the Tribunal while the circular can only confer benefits on the assessees even by departing from the strict tenor of the statutory provision by mitigating the rigour of the law, it cannot impose an additional burden on the taxpayer. This shows that if the circular goes against the tenor of the statute and impose a higher burden on the taxpayer than what the Act itself envisages, then such a circular can be departed from by the Tribunal not only because the circular travelled beyond the scope of the Act but such circulars are not even binding, inasmuch as, it is the function of the Tribunal as well as of the High Courts, to interpret the law. In that process of interpretation these circulars can only constitute an external aids to construction. Thus, in our opinion, the circular issued by the Board has placed a higher burden on the taxpayer than what the Act envisages. Furthermore this circular was issued by way of clarification sometime on 15-3-1993. If this is a circular issued within the meaning of Section 31 of the Expenditure Tax Act with a view to remove difficulties, then such circular shall not be made after the expiry of the period of two years from the commencement of the Act. The Expenditure Tax Act came into force on 1-11-1987. The circular ought to have been issued within a period of two years. We do not know whether the circular issued after the expiry of two years by way of clarifications can have a legally binding effect. In our view this clarification is beyond the power of the Board, inasmuch as, Section 31 of the Expenditure Tax Act provided for the power of the Board to make rules subject to the control of the Central Government by issuing a notification in the Official Gazette. Clause (a) of Sub-section (2) of Section 31 provided that rules can be made for the manner in which the room rent may be determined under Sub-clause (a) of Sub-section (1) of Section 3 in case where the composite charges are payable in respect of residential accommodation and food. Rules in this regard are already made in Rule 3 of the Expenditure Tax Rules, as we have already noticed above. Therefore there is no need for making a rule by way of clarification again for the manner in which the room charges are to be determined. If the clarification is regarded as a notification, it travels beyond the scope of its power. If it is considered as a clarification, then the interpretation placed by the Board does not, in our view, accord with the meaning of the words “other services” must receive in the context in which it is used in Section 2(10). For the purposes of arriving at the room charges, the luxury tax is totally to be left out of account and so also any other tax imposed, which are all to be eliminated for computing the chargeable expenditure as provided for in Section 5 of the Expenditure Tax Act.
12. As regards the argument of the learned Departmental Representative that the assessee has collected luxury tax, that does not mean that it was collected as a part of the room charges because as we have noticed earlier, for the imposition of luxury tax, the taxable event is provision of luxuries in the hotel, the hotelier being only a collecting agent on behalf of the State Government. He has therefore to collect the luxury tax if he is not to violate the law made in that behalf by the State Government. Therefore the collection of luxury tax by the assessee does not mean that it formed part of the room charges. It is in addition to the room charges.
13. There appears to be some force in the contention advanced on behalf of the assessee that when the words of the Statute fail, the tax also must fail. This was the law enunciated by the Supreme Court in dealing with the interpretation of the Finance Actofl951, Schedule I, Part I, Para B for the purpose of levy of additional income-tax on excess dividends. The Supreme Court held in that case reported as Elphinstone Spg. & Wvg. Mills Co. Ltd. (supra) :
If the words of a taxing statute fail, then so much the tax. The courts cannot, except rarely and in clear cases, help the draftsmen by a favourable construction.
It is for the Legislature to avoid anomalies, which spring not fromjudicial interpretation but from the language employed by it.
We do not wish to say further on the subject except to state that the language of Section 2(10) looked at from any angle does not support the view taken by the Revenue that luxury tax imposed by the State Government can be equated to the services rendered by the hotel so that it could also be included as a component forming part of the room charges within the definition of Section 2(10) of the Expenditure Tax Act.
14. Dealing with the argument of the learned Departmental Representative that the charges levied by a hotelier should be viewed from the customer’s angle, it is no doubt true that for a customer the charge levied by a hotel is the entire amount of the gross bill, which includes not only the room charges, the taxes levied but also the food, drinks and other services provided by the hotel, including Sona Bath, Secretarial services, health club, taxies etc. but all of them are not to be included as forming part of the room charges. For the customer the entire amount is a charge. Therefore the argument that as to how a customer views the charge, meaning the gross amount of the bill, cannot be pressed into service as an aid to interpret the room charges.
15. On a consideration of these, we are of the opinion that the Revenue does not seem to be right in applying the provisions of the Expenditure Tax Act to the assessee by including the luxury tax in the room charges. We therefore set aside the assessments in all the three years and hold that the assessee is not liable to pay the expenditure tax.
16. In the result, the appeals of the assessee are allowed.