The petitioner does not have a contention that the Resort owned by the petitioner does not come under the definition of “Hotel”. The Resorts are assessed under the LT Act and have also been remitting such tax as collected from the non-members who are residing in their facility and for any facility other than accommodation enjoyed by the members too. The definition also, as seen above, takes in all residential accommodation by way of business provided for a consideration. The definition itself would amply include the petitioner. As to the luxury provided in a hotel, it is the accommodation for residence or use and the other amenities and services. It has been found that the timeshare arrangement fundamentally and essentially provides for the residence of the members for specified days, on specified seasons, in specified types of rooms. The rates are also clear from Section 4, which depend upon the charges for accommodation and has to be applied on such charges for accommodation on a per-day basis.
The members when they book a holiday in a facility which has fixed rent or tariff, subject to availability are allowed the accommodation by virtue of the membership which has been obtained by passing of monetary consideration. The provision for using the accommodation for residence, can only be within the period of validity of the agreement between the parties, i.e., the holiday provider and the member. The assessee admits that rent or tariff for various types of accommodation, depending upon the seasons and also the importance of the location, varies and it has increased over the years. The increase in rent/tariff does not affect a member, since accommodation is promised on the membership being granted, which is also on the basis of fees which factors all the above elements which go into determining the rent/tariff. However, when a member who had taken a membership years back enjoys facility far later, within the validity period, what he enjoys is the facility that the Resort offers to any one in that particular season in that particular type of room; for which a rate/tariff is fixed by the Resort itself. When a non-member is provided accommodation for residence or use, the said fixed rate or tariff is collected. When a member takes up residence, it is offered in lieu of the amounts collected in advance; the measure of which is clearly decipherable from the fixed rate or tariff at that point of time when the residence or use of accommodation is enjoyed. This is the value taken by the assessee too, to determine liquidated charges when due. The value of the facility offered has to be determined on the basis of the value as assessable when the facility is enjoyed. The value so fixed by the assessee themselves, are the charges on which the rates are to be applied. The rate to be applied as per the LT Act, is on such value, which in the case of accommodation in a hotel is the charges per room per day at the time the taxable event occurs.
On the above interpretation, there can be no confusion in finding the measure. It is also pertinent that the assessee has not offered details of the amounts received from each of the members, to compute the charges for accommodation for the period in which they enjoyed the stay within the State of Kerala. In such circumstances, there can be no fault found in adopting the fixed room rent or tariff per day for the purpose of levying the tax. In this context, it is also to be noticed that the tax applied under the LT Act is one on the person who enjoys the accommodation and the assessee could collect such tax from the members.
The mere fact that advance payment was taken as membership fee cannot lead to a conclusion that the accommodation provided/offered to the member is free of cost. The assessee itself, as contended before the IT Appellate Tribunal, splits up the membership fees to the subsequent years to cover the obligation of providing for an accommodation for residence or use. U.K.Monu Timbers has no application, since it only dealt with the question of best judgement assessment that could be made in a penalty proceeding. There is no estimation made in the present case and the penalty is imposed on the actual occupation of the rooms, and the per-day charges of such rooms; as supplied by the assessee.
JUDGEMENT
Challenging two assessment orders and penalties proposed or imposed under Section 17 A of the Kerala Tax on Luxuries Act, 1976 [for brevity “LT Act”], the petitioners raise the question of whether the facilities availed by the members of the unique, newly developed “Time-share arrangements” can be brought under the definition of “luxuries” and taxed under the LT Act.
2. The writ petitions are filed by three entities carrying on Resorts under timeshare arrangements; namely M/s. Mahindra Holidays and Resorts India Ltd. [for brevity “MHR”], M/s.Sterling Holiday Resorts (India) Limited [“SHR”] and The Goan Beach Resorts Ltd [“GBR”].
3. P.(C) No. 20728 of 2015, which was referred to by the petitioners, challenge the penalty order issued against MHR for the years 2013-14 (Exhibit P 3) and 2014-15 (Exhibit P 4) and the notice of demand for 2013-14 (Exhibit P 9) and 2014-15 (Exhibit P 10) issued with respect to their Lake View Resorts at Chinnakkanal, Munnar. W.P.(C) No. 20674 of 2015 is filed by MHR with respect to their resort at Poovar, Thiruvananthapuram; which was issued with Exhibits P 4 and P 5 notices, for the years 2013-14 and 2014-15, under Section 17 A of the LT Act. W.P(C) No. 32579 of 2015 is against two Resorts of MHR at Kumarakom and Ashtamudi, Chavara, wherein Exhibit P 12 is an assessment order for the year 2012-13 and Exhibits P 21 and P 23 penalty orders under the LT Act for the years 2013-14 and 2014-1 5; all with respect to the resort at Kumarakom. Exhibit P 25 is the notice for the year 2013-14 against the Resort at Ashtamudi, Chavara. W.P. (C) No.13553 of 2016 is again against the Resort of MHR at Ashtamudi, Chavara; the challenge being to Exhibit P 1 penalty order for the year 2013-14. In W.P.(C) No.13062, MHR challenge the penalty orders issued for the years 201 3-14 (Exhibit P 6) and 2014-15 (Exhibit P 8) against their Resort at Poovar, Thiruvananthapuram. W.P.(C) Nos.25032 of 2016, 25033 of 2016 and 19615 of 2015 respectively challenge the penalty orders issued for the years 2012-13 (Exhibit P 4), 2014-15 (Exhibit P 6) and 2013-14 (Exhibit P 6) against the “Terrace Green Munnar Resort” of SHR. W.P.(C) No. 34100 of 2016 impugn a interim order on condition passed by the Appellate Authority in an appeal against assessment for the year 2014-15 of GHR. The findings in the various orders, are more or less similar and this Court has referred to the findings from the impugned orders of assessment and penalty in W.P.(C) No. 32579 of 2015 and W.P.(C) No.20728 of 2015.
4. Learned Senior Counsel Sri. Mohan Parasaran placed compelling arguments for the petitioners and the State was ably represented by learned Senior Counsel Sri.R.Venkataraman.
5. The petitioners are registered under the LT Act and have Resorts at various tourist centers; inside the State. The petitioners were issued with notices for assessment in two instances and under Section 17A of the LT Act calling upon them to show cause as to why the accommodation provided to those persons who had taken membership under the timeshare arrangement were not disclosed in the returns or the books of accounts and why the petitioners have not paid tax for the component of “luxury” enjoyed by the said members.
6. The petitioners would contend that timeshare facility is a unique concept, by which the parent Company; which owns or rents out Resorts situated all over the country and even outside, gives membership by selling “Vacation Ownership” [Timeshare] providing holiday facilities to its members. A member can avail of “7 Nights/ 8 Days” holiday every year in a span of 33/25/10 years, depending on eligibility and availability at any of the Resorts of the assessee existing at the time of membership and acquired during the course of When the members so exercise their right to enjoy a holiday in any of the Resorts for a specified period, they are not charged for the accommodation. For any other facilities enjoyed during the stay, they are charged; on which component the petitioners file returns and pay tax. The Resorts are not exclusively for members and when it is rented out to non-members, charges for accommodation is levied, for which also luxury tax is paid. There are also other renting out for marketing purposes and in-house accommodation, for which no charges are levied.
7. The memberships are categorised, as per the members’ requirement, into colour coded seasons of Purple, Red White and Blue; reflecting high-peak, peak, wet and dry seasons. The categorisation is also made, on the choice of the members as to the apartment type with the option of studio, one bedroom or two bedroom apartment. The membership is said to be a combination of preferred season and type of accommodation, opted for by the member for the specified period of 33/25/10 years available for specified days (a week) once in a year. The said membership given is not a privilege for accommodation alone; but entails a bundle of rights, like exchange and splitting up of holidays, carrying forward, pre-poning and post-poning the utilisation, transfer, bequeath and succession of memberships, gifting of holidays and also provision for stay at international destinations. There are also restrictions on these rights as per the terms of membership and there is no guarantee for accommodation, unless booked and confirmed by the individual Resort. There would also be provision for alternate accommodation if a preferred location is not available and there could also be restrictions on the stay at the same place for more than once. These rights together make a membership and it cannot be equated to a simplicitor stay in a hotel. The timeshare arrangement is asserted to be a more complex arrangement going beyond a mere ‘per-day charge for accommodation’, which is not the only right, a person obtains on getting a membership.
8. The provisions of the LT Act does not contemplate the enjoyment of a holiday, in a Resort under a timeshare arrangement and there is absolute lack authority of law to impose the tax for luxuries on the petitioners. Under Article 265 of the Constitution, as has been held in CCE v. Orient Fabrics (P) Ltd. [2004) 1 SCC 597], the authority of law has to be specific, explicit and express. There can be no interpretative process in applying the charging section. To further advance the argument, the provisions in Goa Tax on Luxuries Act, 1988 and the Himachal Pradesh Tax on Luxuries (in Hotels and Lodging Houses) Act, 1979 are put forth to underline the absence of similar provisions in the Kerala Act. The Kerala Act does not contemplate taxing of timeshare arrangements and the same is neither included in the charging provision or the computation provision. There can, hence, be no valid computation of the charges for accommodation attempted, to bring in timeshare arrangements, since the provisions do not at all apply to such arrangements. CIT v. B.C. Srinivasa Setty [(1981) 2 SCC 460], Tata Sky Ltd. v. State of M.P. [(2013) 4 SCC 656] and PNB Finance Ltd. v. CIT [(2008) 13 SCC 94] are relied upon to urge the above contention.
9. The members who stay at the Resorts do not pay any charges for accommodation and their right to enjoy a holiday at the Resort flows from the membership taken and the provision of accommodation cannot be divorced from the membership itself. A member may or may not enjoy the facility and if a member takes a membership for 25 years and enjoys it for only a day in all these years, it cannot be said that the entire membership fee would be treated as charges for accommodation for the single day spent on The member pays a lump sum amount to acquire the bundle of rights and it cannot be dissected into years, months or days. There can be no adoption of a measure of dissection as has been held in Vodafone International Holdings BV v. Union of India [(2012) 6 SCC 613].
10. The LT Act contemplates levy of tax, on charges on a per-day basis, the rates varying with the increase of such charges. There is no levy on a lump sum payment sanctioned under the LT Act, as in a timeshare arrangement. The orders are challenged also on the basis of the measure employed, which is asserted to be on an artificial basis. The Assessing Officer and the Intelligence Officer have taken the room charges applicable for non-members to determine the charges for accommodation for members. There being no such machinery provision available in the LT Act, such computation would be illegal, is the argument. There are no charges for accommodation collected from the members, who stay at the Resorts free of charges, by virtue of their memberships. The classic decision in Govind Saran Ganga Saran v. CST [1985 Supp SCC 205] is relied upon to reiterate the components entering into the concept of taxation, being taxable event, the person on whom the levy is imposed, the rate at which the tax is imposed, the measure or value to which the rate would be applied for computing the tax liability. There is no measure available in the LT Act to apply the rates, in a time share arrangement is the compelling argument put forth. It is also contended that the Department has resorted to artificial computation of charges for accommodation, leading to estimation which is not permissible in penalty proceedings as found in U.K.Monu Timbers v. State of Kerala [2012 (3) KHC 111 (DB)].
11. The State too relies on Govind Saran Ganga Saran to proclaim that all four components of taxation are very much available and that the measure employed is not an artificial one. The assessee having been issued with notice, did not produce any material to show the basis on which the accommodation is granted to the members and how the membership fees are arrived at, at the initial stage; which essentially grants a right to enjoy a holiday in one of the Resorts for specified days. Other than accommodation any facility enjoyed by a member, even according to the assessee, is charged additionally. The tax levied is not on the membership fees, but is on the luxury availed by such member when they are staying in a Resort. When a person within the State of Kerala takes a membership under a timeshare arrangement and does not at all enjoy a holiday or stay in any of the Resorts within the State of Kerala, there is no tax levied. But, wherever the membership is taken and whenever the payment for membership is made, the minute one of such members resides in one of the Resorts within the State of Kerala and enjoys a holiday, he/she is deemed to have enjoyed a luxury; which is taxable under the LT Act, when the charges for accommodation exceed the limit provided in the LT Act. The Department had, on the basis of the books of accounts produced by the assessee, determined the charges for accommodation as disclosed from the books and as applied to non-members on their stay. The assessee themselves have offered their rent/tariff rates as applied to their guests other than members. The facility/luxury enjoyed by the members on such accommodation is the same as that enjoyed by a non-member and the membership fees paid is in lieu of the charges for accommodation, as applied to non-members by the assessee. The rate/tariff applied was the current rates when the accommodation was provided and there is no estimation made. The occupancy and the rates are actual, as supplied by the assessee.
12. The provisions applicable to the State of Goa and Himachal Pradesh were read, to contend that the inclusion is in the nature of an explanation; which, as has been found in AIR 1967 SC 389 [Bihta Cooperative Development Cane Marketing Union Ltd. v. Bank of Bihar] and Sundaram Pillai v. Pattabhiraman [(1985) 1 SCC 591], is only to ensure removal of anomalies. The States of Goa and Himachal Pradesh probably intended, as an abundant caution, to efface any such presumed anomaly; while the State of Kerala asserts that there is no anomaly in the provisions as available in its LT Act and the timeshare arrangement given in Resorts would come under the definition of “Hotels”. The facilities enjoyed would be “luxury provided in a Hotel” attracting the levy under the charging section ie: Section 4. As early as in 1989, in Express Hotels Pvt. Ltd. v. State of Gujarat [(1989( 3 SCC 677], it was found that tax on luxuries includes levy on services, which fall within the concept of “luxuries”. The State also relied on (2012) 54 VST 437 (Ker.) and (2012) 54 VST 442 (Ker.); both with citation Trivandrum Club v. STO (Luxury Tax).
13. The following definitions and the charging section are relevant for consideration:
Sec.2
(e) “hotel” means a building or part of a building where residential accommodation is by way of business provided for a monetary consideration and includes a lodging house.
Explanation.- A guest house run by the Government or a company or a corporation established by or under any law or any other agency shall be deemed to be a hotel within the meaning of this clause.
(ee) “luxury” means a commodity or service that ministers comfort or pleasure:
(f) “luxury provided in a hotel, house boat, hall, auditorium, kalyanamandapam or place of like nature” mens accommodation for residence or use and other amenities and services provided in a hotel or a 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;
xxx xxx xxx
Sec.4
