Choithram Charitable Trust vs Commercial Tax Officer

S.R. Waghmare, J.—By this writ petition under articles 226 and 227 of the Constitution of India, the petitioner, Choithram Charitable Trust has challenged the order dated Jury 12, 2005 passed by respondent No. 2, Deputy Commissioner, Commercial Tax, Indore in Revision Case No. 024/Revision/2005, Luxury Tax, confirming the levy of tax under the provisions of the Madhya Pradesh Hotel Tatha Vas Grihon Me Vilas Vastuon, Par Kar Adhiniyam, 1988 (hereinafter called "the Luxury Tax Act", for brevity), whereas according to the petitioner being a charitable trust it is immune from levy of tax since it is not covered under the charging section of the Act. Briefly stated the facts of the case are that the petitioner is a charitable trust with philanthropic objects as set out in the trust deed dated December 29, 1970 and it is duly registered under the Madhya Pradesh Public Trust Act. The present petitioner has challenged the assessment and levy of the tax under the provisions of the aforesaid Act, first by respondent No. 1/the Commercial Tax Officer, Circle-15, Indore and then by the Deputy Commissioner of Commercial Tax Division-I, Indore, in revision passed by the impugned order dated July 12, 2005, confirming the assessment and levy of the tax under the provisions of the Luxury Tax Act, 1988.

Counsel for the petitioner has vehemently urged the fact that levy and confirmation of the luxury tax under the said Act is illegal, bad in law and without jurisdiction since in the present charitable trust running a Dharmashala is incidental to its main activity of running a hospital and by no stretch of imagination it can be said to be "business" as a "hotelier" within the meaning of the said Act. And hence, counsel submitted that the impugned order be set aside considering that sections 2(c) and (e) of the Luxury Tax Act, 1988 define:

2(c). Hotel includes a residential accommodation, a lodging house, an inn, a public house or a building or part thereof where residential accommodation is provided in the course of business;

2(e). Luxury provided in a hotel means accommodation and other services provided in a hotel the rate of charges for which, including the charges for air-conditioning telephone, television, radio, music, entertainment, extra beds and the like is sixty rupees (...) per day or more, but does not include the supply of food and drinks where such supply is separately charged for.

Counsel, submitted that the registered trust deed indicated, that the primary object of the trust was to establish a hospital under the name of "Choithram Hospital and Research Centre" and it is one of the best medical centers of the State providing best medical facilities. With a view to provide the accommodation to the patients and their attendants and relatives, who come from outside, the trust has constructed a Dharmashala in the hospital campus itself whereby accommodation is provided strictly to the attendants and relatives of the patients on nominal charges. It is this Dharmashala, which is targeted by the respondents for fixation of the petitioner''s liability under the provisions of the Luxury Tax Act, 1988, whereas counsel also countered that the Dharmashala is run by the petitioner on "no profit and no loss basis" and the alleged business and activity cannot be any terms be equated to running a "hotel" within the meaning of the said Act. However, respondent No. 1, Commercial Tax Officer, Indore initiated the proceedings on the basis of some complaint received by him, hence the petitioner has duly filed objections vide annexure P/2 which was not considered by the respondents. Counsel submitted that reply has also mentioned that the Dharmashala was outside the purview of the Act since the petitioner was neither a hotelier nor the Dharmashala could be said to be a hotel within the meaning of the said Act. The activity of Dharmashala was merely incidental and ancillary to the main activity of hospital. Counsel relied on Mahatma Gandhi Kashi Vidyapeeth Vs. State of U.P. and Others, , to submit that the High Court of Allahabad has held in the said case that main object of the Kashi Vidyapeeth established under the U.P. State Universities Act, 1973 was to impart education and the activity of printing and selling admission forms to the students does not amount to business within the meaning of section 2(e) of the U.P. VAT Act and the petitioner was beyond the purview of U.P. VAT Act.

And the counsel urged that similar analogy would be applicable in the present case. The counsel relied on the matter of Commissioner of Sales Tax Vs. Sai Publication Fund, , to state that the trust was created by devotees of Saibaba of Shiridi, with object of spreading the message of Saibaba and the apex court held that affirming the decision of the High Court (i) that a person would not be a "dealer" u/s 2(11) in respect of the goods sold or purchased by him unless he carried on the business of buying and selling of such goods.

Similarly in the matter of Sri Palani Dhandayuthabani Devasthanam Vs. Commercial Tax Officer, under the same heading of luxury tax the High Court of Madras held that definition of business in the Sales Tax Act cannot to be adopted for temple administrated by executive officer under the Religious Endowments Act and renting accommodation to devotees by the temple did not amount to carrying on business and luxury tax was not leviable.

Counsel further relying on the matter of Bangalore Club Vs. The Asst. Commissioner of Commercial Taxes and The State of Karnataka, , stated that the High Court of Karnataka at Bangalore had held that the liability of luxury tax is levied on the luxury provided in a hotel; as meaning, a monetary consideration u/s 2(c) of the Luxury Tax Act and unless the luxury sought to be taxed is in respect of a hotel, there is no charge created by section 3, although "lodging house" has been included in the definition of "hotel". Lodging facility which is the essential requisite for considering the building as a hotel may be with or without board. This facility of providing lodging accommodation must be by way of business. Even in Government guest houses, circuit houses, etc., lodging accommodation is provided, but they cannot be called as hotel. In any case the terms "hotel" and "club" are not interchangeable and a distinction exists between them. Counsel stated that the High Court of Karnataka has categorically held that the main activity of a club is not that of a hotel and it is only incidental that the members or guests or the members of other clubs are provided the facility for stay and food on a reciprocal basis. The activity of renting charges cannot be considered to be its main activity so as to fall within the charging section.

Counsel further relied on the judgment of Malankara Orthodox Syrian Church Vs. Sales Tax Officer and Another, . A short question arose whether hospital is a dealer and High Court of Kerala held that the transaction involved in the sale, when occasional and incidental, cannot be taxed. However when the sale by the hospitals which are supplying medicines of the value in excess of the turnover for which registration is required, i.e., Rs. 2 lakhs in an year, are liable to be registered under the Kerala General Sales Tax Act.

Whereas in the case of Tata Sky Ltd. Vs. State of M.P. and Others, , the court was considering the fact of the question whether the tax was attracted u/s 32(a) of the M.P. Entertainment Duty and Advertisements Tax Act, 1936 and the court held that the question of going to the measure of the tax would arise only if it is found that the charge of tax is attracted u/s 3 read with sections 2(d) and 2(a), the charge or levy of tax is attracted only if an entertainment takes place in a specified place or locations and persons are admitted to the place on payment of a charge. And counsel submitted that in the present case also a hospital is distinct from hotel under the charging sections 2(c) and 2(e) was not chargeable or amenable to tax under the Luxury Act.

Finally, counsel relied on the matter of State of Tamil Nadu and Another Vs. Board of Trustee of the Port of Madras, where the apex court was considering the term carrying on business of the port trust at Madras. The apex court held that it is not merely the act of selling or buying, etc., that constitutes a person a "dealer" but the "object" of the person who carries on the activity is important, it is not every activity or any repeated activity seriously undertaken which results in sale or supply of goods that would attract sales tax. If it was the intention of the Legislature of tax every sale or purchase irrespective of the object of the activities out of which the transactions arose, then it was unnecessary to state that the person must "carry on the business" of selling, buying, etc. Thus counsel contended that both the order passed by respondent No. 1, Commercial Tax Officer and respondent No. 2, Deputy Commissioner are contrary to the provisions of the Act and be set aside as such.

Counsel for the respondents/State has opposed the submissions of the counsel for the petitioner and submitted that the facility provided by the petitioner, i.e., providing accommodation of the attendants and relatives of the patients who were admitted to the petitioner''s hospital generally opt the receipt and creating memo of the Dharmashala mentions the rent per day and the receipt duly filed as annexure R/1 correctly indicates that the petitioner was charging Rs. 65 per day and Rs. 150 per day for their accommodation and various categories of rooms of different rates were available in the petitioner''s hospital and thus u/s 2(e) of the Act, the facility provided was covered under this definition, moreover the balance sheet of amount under the head of Dharmashala where annexure R/2, the balance sheet indicates that they were making profit and definition of hospital indicates residential accommodation renting house and inn, etc., which would come within the four comers of the definition of "hotel" and such type of different rate levied as rent would be a "business" within the meaning of the Act. And hence the statement made by the counsel for the petitioner was not absolutely correct and it could not be said that the facility was being provided on a "no profit no loss basis". Counsel prayed that both the orders impugned in the petition are in accordance with law and no ground for interference is made out and he prayed that the petition be dismissed.

Considering the above submissions and the evidence on record and the annexures filed with the petition, we are of the considered opinion that petition needs to be allowed for simple reason that the hospital cannot be equated to term "hotel" to incur liability under the Luxury Tax Act, 1988. The sole question that arises for our consideration is whether the hospital is included in terms of "hotel" as defined u/s 2(c) of the Act. The charging sections 3 and 4 and section 4 reads thus:

Charges and rate of tax--(1) The tax payable by a hotelier under this Act shall be charged at the following rates, namely:--

Where the charge for luxury provided in a hotel per day:

(a) is less than sixty rupees

Nil

(b) is sixty rupees or more but does not exceed one hundred and fifty rupees

5% of the turnover

(c) is more than one hundred and fifty rupees

10% of the turnover

(2) Where, in addition to the charges for luxury provided in a hotel, service charges are levied and appropriated by the hotelier and not paid to the staff, then such charges shall be deemed to be the part of the charges for luxury provided in the hotel.

(3) The tax shall be levied and collected at the rates specified in sub-section (1) on the charges actually paid to the hotelier for such luxury.

(4) The tax shall be levied and payable in respect of the turnover for supply of food and drinks, where they are not separately charged for and on the sale of which the hotelier is liable to pay tax under the (Madhya Pradesh Vanijyik Kar Adhiniyam, 1994 (No. 5 of 1995)).

We have already, reproduced section 2(c) which defines a "hotel" and section 2(e) which defines "luxury" provided in a hotel. We fully agree with the contention put forth by the counsel for the petitioner that a hospital cannot be termed as hotel by any stretch of imagination. Moreover placing reliance on Malankara Orthodox Syrian Church Vs. Sales Tax Officer and Another, and State of Tamil Nadu and Another Vs. Board of Trustee of the Port of Madras, , we find that the main activity of the hospital ought to be a business u/s 2(a) for monetary consideration and in the present case the Dharmashala is run for charitable purpose and nominal charges are taken for the purpose of rent and other facility and food provided. The object of the trust indicates that the hospital was running "no profit no loss basis" and, therefore, the main activity of hospital cannot be equated "to that of running hotel" within the meaning of the Luxury Tax Act and hence, we find that both respondent Nos. 1 and 2, Commercial Tax Officer and Deputy Commissioner, erred in holding that the petitioner would be under the purview of the charging sections 3 and 4 of the Luxury Tax Act, 1988. Moreover even the exact wording of the title of the Act is considered itself says it is a levy of tax on luxuries provided in a hotel and lodging house in the State of Madhya Pradesh.

We are unable to agree with the contention put forth by the respondents/State that activity of the Dharmashala are collectively incidental and ancillary sales and so also has already stated above the incidence of tax would arise only when under sections 3 and 4 of the Act the charging or levy of tax is attracted. For the purpose of imposing the charge, the Parliament has enacted detailed provisions in order to compute the tax liability and deviating from the provisions is not permissible. The transaction to which the provisions of the Luxury Tax Act must be applied and encompassed for determining the charge this inference flows from the general arrangement of the provisions of the Act and that which is natural has to be concluded otherwise non-mention would mean it was not intended to fall within the charging section.

In this light we have already referred to title of the Act which says that it is called the Luxury Tax Act of 1988 and was intended to levy tax on luxuries provided in hotels and lodging houses in the State of Madhya Pradesh and thus, the "business" of the present institution-Choithram Charitable Trust would not be amenable to luxury tax and was thus outside its purview. We have no hesitation in holding that both the impugned orders, as already stated above are contrary to the provisions of the Act and, therefore, they are hereby set aside. With the aforesaid, the writ petition is allowed and we further direct the respondents to forbear from invoking the provisions of the Luxury Tax Act, 1988 in so far as the petitioner is concerned.