Case Note & Summary
This reference under section 256(1) of the Income Tax Act, 1961, arises from an order of the Income Tax Appellate Tribunal, Bombay Bench, dated 6.2.1986 in I.T.A. No. 1721/Bom/1986 for the assessment year 1982-83. The assessee, M/s Piem Hotels Ltd., is engaged in the business of running hotels. The Hotel Receipt Tax Act, 1980, which received the assent of the President on 9th December 1980, levied Hotel Receipt Tax (HRT) at 15% of chargeable receipts with effect from 1st February 1981. The assessee collected HRT from its customers. Two questions were referred: one at the instance of the assessee and one at the instance of the Revenue. The first question was whether the Tribunal was right in holding that the amount of HRT collected constituted trading receipts. The second question was whether the Tribunal was right in holding that the assessee was entitled to a deduction of Rs. 84,95,504/- in respect of HRT. The court considered the nature of HRT collection and payment. The court held that the amount collected as HRT is a trading receipt because it is collected from customers as part of the total receipts. However, the assessee is also entitled to a deduction of the amount paid as HRT, as it is an allowable business expenditure. The court answered both questions in the affirmative, in favor of the assessee on the first question and in favor of the Revenue on the second question, but ultimately the assessee benefits from both answers.
Headnote
A) Income Tax - Trading Receipt - Hotel Receipt Tax - Income Tax Act, 1961, Section 256(1) - Hotel Receipt Tax Act, 1980 - Whether amount collected as Hotel Receipt Tax by assessee constitutes trading receipt - Held that the amount collected as HRT is part of the total receipts and is a trading receipt, as it is collected from customers and forms part of the business income (Paras 2-5). B) Income Tax - Deduction - Hotel Receipt Tax - Income Tax Act, 1961, Section 256(1) - Hotel Receipt Tax Act, 1980 - Whether assessee entitled to deduction of Rs. 84,95,504/- in respect of Hotel Receipt Tax for A.Y. 1982-83 - Held that the assessee is entitled to deduction of the amount paid as HRT, as it is an allowable business expenditure (Paras 2-5).
Issue of Consideration
Whether Hotel Receipt Tax collected by the assessee constitutes trading receipts and whether the assessee is entitled to deduction of the amount of Hotel Receipt Tax paid.
Final Decision
Both questions answered in the affirmative. The amount of Hotel Receipt Tax collected constitutes trading receipts, and the assessee is entitled to deduction of Rs. 84,95,504/- in respect of Hotel Receipt Tax for A.Y. 1982-83.
Law Points
- Hotel Receipt Tax collected by assessee constitutes trading receipt
- Assessee entitled to deduction of Hotel Receipt Tax paid in relevant assessment year
