4. 1975-36 STC 511 - Sports Club of Gujarat Ltd. v. Commissioenr of Sales Tax, Gujarat Ltd., Ahmedabad (do) 7 5. 1976-38 STC 428 - The Indian Institute of Technology, Kalyanpur, Kanpur v. The State of Uttar Pradesh (do) 7 6. 1964-15 STC 644 - State of Andhra Prades v. H. Abdul Bakshi & Brothers (do) 8 7. 1968-21 STC 317 - Dy. Commercial Tax Officer, Saidapet, Madras v. Enfield India Ltd. Co-Operative Canteen Ltd. (do) 9 8. 1989-74 STC 157 - Express Hotels Pvt. Ltd. v. State of Gujarat (do) 11 9. 1994-1995 STC 547 - East India Hotels Ltd. v. State of Jammu & Kashmir (do) 11 10. 1994-93 STC 306 - Globe Theatres (Pvt.) Ltd. v. State of West Bengal (do) 11 11. 1992-87 STC 227 - Jubilee Hills International Centre v. Commercial Tax Officer (do) 11 12. 1979-44 STC 268 - Wainganga Club v. The State of Madhya Pradesh (do) 11 13. 1993-88 STC 389 - Bengal Rowing Club v. Commissioner of Commercial Taxes, West Bengal (do) 11

Sri S. Narayana, Advocate for Petitioner,

Sri K.M Shivayogiswamy, Govt. Advocate

Smt. S. Sujatha, HCGP

V.K Singhal, J.:—

All these writ petitions are disposed of by a common order since the controversy involved is common.

2. Petitioners are registered Societies registered under the Societies Registration Act. Assistant Commissioner of commercial Taxes has issued notices under Section 7-A of the Luxury Tax Act, 1979.

3. Facts of the case in Bangalore Golf Club are taken into consideration. The said club is a Society registered under the Societies Registration Act and the object is to promote the game of golf among members and bring together the feternity of golfers and elsewhere besides providing recreation and refreshments for its members and their guests. There are 10 rooms which are used by the members, guests of the members and members of other clubs on reciprocal basis. These rooms are not let out to outsiders or general public. There was a seizure under Section 17(3) of the Karnataka Tax on Luxuries Act on 3.9.1994 on the ground that the petitioner is liable for registration under Section 4-A of the Act. The petitioner is registered under the Karnataka Sales Tax Act. It is stated that the provisions of 1979 Act are not applicable. The Act of 1979 came into force on 1.6.79 providing for levy and collection of tax on luxuries provided in hotels and lodging house. The word ‘Hotel’ has been defined in Section 2(4) of the Act which is as under:

“Hotel means a building or part of a building where lodging accommodation, with or without board is by way of business provided for a monetary consideration, and includes a lodging house.”

Luxury provided in a hotel is defined in Section 2(5) as under:

“Luxury provided in a Hotel means accommodation for lodging provided in a hotel the rate of charges for which (including charges for air-conditioning, telephone, television, radio, music, extra beds and other amenities for which charges are compulsorily payable, but excluding charges for food and drinks) is not less than thirty five rupees per room per day.”

Section 6 refers to assessment and collection of tax. Section 4-relates to registration. Section 7-A relates to assessment of escaped tax and under Section 17 power of investigation, search and seizure has been given.

4. It is stated that the petitioner is not carrying on any business and extending the facility of rooms to members of the petitioner club or members of other club on reciprocal basis cannot be considered to be a business. Under Section 3 which is the charging section the liability is on one who is carrying on business in hotel. The petitioner is neither carrying business in hotel nor lodging. Therefore the notice issued is without jurisdiction.

5. Learned Counsel for the respondents has pointed out that in the seizure order under Section 17 it is mentioned that the club has a lodging house. The Bills are splited separately into two, room service-1 and service charges-2. In the case Karnataka Billiards Association, notice has been issued under Section 4-A and Section 6 of the Act. In the case of Karnataka State Cricket Association (KSCA Club House) orders of assessment from May 1991 to April 1993 have been assailed. In the case of Century club, Bangalore, notice issued under Section 4-A read with Section 13 along with seizure under Section 13(3) have been assailed.

6. Learned Counsel for the petitioner has relied on the decision given in the case of State of Andhra Pradesh v. B.M Swamy Devasthanam, Srisailam . 1989-73 STC 321. wherein it was observed that if the dominant activity of an institution such as a religious or charitable institution is not a business activity, but if the secondary activity has the elements of a commerce or trading activity, then in order to claim exemption from tax, it must be established that it forms an integral part of the main activity. Since the main activity of the Devasthanam was neither commercial nor trading in nature and the incidental activity of running a canteen for the pilgrims, although of a business nature was for the supply of foodstuffs to visiting pilgrims at reasonable prices, which was functionally integral to the main activity, the sale of food in the canteen were therefore not liable to tax.

7. Reliance is also placed on the decision given by the Madras High Court in Tirumala Tirupati Devasthanam, Tirupati v. The State of Madras . 1972-29 STC 266. were silver-ware and other valuable Hundies of the temple were sold in public auction, it was observed that it cannot be said that Devasthanam was doing business or was indulging in commercial activity. In this case the Division Bench decision given in the case of Dy. Commissioner Of Commercial Taxes v. Sri. Thirumagal Mills Ltd. . 1967-20 SIC 287. was referred, where it was observed that the words in connection with or incidental or ancillary to in the second part of the definition of ‘business’ still preserve or retain the requisite that the transaction should be in the course of business understood in a commercial sense. The intention is not to bring into the tax net a transaction of sale or purchase which is not of a dommercial character.

Reliance is also placed on the judgment given in the case of Sports Club Of Gujarat Ltd. v. Commissioner Of Sales Tax, Gujarat Ltd., Ahmedabad . 1975-36 STC 511. wherein it was observed:

“Even though supply of such catering facilities by the club to its members, which ordinarily would be under a contract of service, would be deemed to be a sale, as all doubt on that score is set at rest because of this inclusive definition of Section 2(28), but in order to satisfy the definition of a dealer the, club must be proved to have undertaken business of such sale of goods or such supply, of catering facilities to the members which must involve the element of transferring from one to another. If the club was only an agent or convenient instrument which merely arranged for the supplies and if the property in the goods continued always to remain in the members, there was no element of transfer of property from one to the other in such self-serving members' club, and there would be no taint of any commerciality so as to satisfy the conventional Lord Campbell's definition of business or commerce or even the Wider definition of an industrial undertaking. Such a sporting club would continue to retain its non-profit making character for promotion of sports, even though incidentally it may supply such privileges to its members by catering to their needs and to the needs of their families and guests or for such larger dinner parties at the instance of the members and which would be paid for by the members. The Tribunal had so far as the members and the guests were concerned, refused to hold that the dealer's definition was fulfilled in this case. It, however, made a wrong distinction in the case of such dinner parties by assuming that the character of the members' club changed in the transaction, even though it was a transaction between the members inter se and the privilege was not one which could be bought or purchased but was available by and through the members alone.”

In the case of The Indian Institute Of Technology, Kalyanpur, Kanpur v. The State of Uttar Pradesh . 1976-38 STC 428. supply of food stuffs to occupiers of hostel was considered as integral part of the object of the institute. Permitting the relatives or friends of the students or even those persons who, from time to time, came to the petitioner in connection with the activities of the institution and were in that capacity allowed to stay in the visitors' hostel to whom foodstuff supplied, it was held that it could not be said that the principal activity of the institute was doing business in a commercial way of buying and selling foodstuffs. The principal activity of the institute was predominantly academic and the supply of foodstuffs was minor, subsidiary and incidental to the principal activity and was an integral part of its academic activity.

8. Observations of the Apex Court in the case of State Of Andhra Pradesh v. H. Abdul Bakshi & Brothers . 1964-15 STC 644., interpreting the expression ‘business’, it was observed thus:

“The expression “business though extensively used is a word of indefinite import. In taxing statutes it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. But to be a dealer a person need not follow the activity of buying, selling and supplying the same commodity. Mere buying for personal consumption, i.e, without a profit motive, will not make a person dealer within the meaning of the Act, but a person who consumes a commodity brought by him in the course of his trade, or use in manufacturing another commodity for sale, would be regarded as a dealer.”

9. Learned Counsel for the respondents relied on the decision given by the Apex Court in the case of Dy. Commercial Tax Officer, Saidapet, Madras v. Enfield India Ltd. Co-Operative Canteen Ltd. . 1968-21 STC 317. wherein it was observed as under:

“From the mere fact that the Society supplies refreshments to its members only and claims to make no profit, it cannot be inferred that in preparing refreshments, and making them available to its members it is acting as an agent of the members. Nor can it be said that the Society is holding its property including refreshments prepared by it for supply to its members as a trustee for its members. A registered society is a body corporate with power to hold property and is capable of entering into contracts. It cannot be assumed that property which it holds is property of which its members are owners. The property in law is the property of the society. The members are undoubtedly entitled to compel the society to act according to its constitution and to apply the property for the purposes for which it is held, but on that account the property of the Society cannot be treated as the property of the members. The Society is a person; the property in the refreshments which it supplies to its members is vested in the Society and when refreshments are supplied for a price paid or promised transfer of property in the refreshments results. In the case of an unincorporated Society, club or a firm or an association ordinarily the supply and distribution by such a society, club, firm or an association of goods belonging to it to its members may not result in sale of the goods which are jointly held for the benefit of the members by the Society, club, firm or the association, when by virtue of the relinquishment of the common rights of the members the property stands transferred to a member in payment of a price, and the transaction may not prima facie be regarded as a ‘sale’ within the meaning of the Act. By providing that a transfer of property in goods from a corporate body to its members for a price, the Legislature does not overstep the limits of its authority, and it cannot on that account beheld the proprietor makes it his business to furnish food or lodging or both, that the first Explanation to Section 2(n) is in its entirety ultra vires the State Legislature.”

10. I have considered over the matter. Section 3 is the charging section. It creates liability of tax on the luxury provided in a hotel in respect of every room. Section 2(5) defines luxury provided in Hotel mean a accommodation for lodging providing in a hotel. Hotel has been defined to mean a building or part of a building where lodging accommodation with or without board is by way of business provided for a monetary consideration and includes a lodging house. If all these provisions are taken into consideration, the result would be that liability has been fixed in respect of any luxury provided in a hotel. Legislature has contemplated hotel where lodging accommodation with or without board is byway of business is provided for monetary consideration which includes lodging house. Even luxury provided in a hotel refers to the accommodation for lodging provided in a hotel and thus unless the luxury sought to be taxed is in respect of a hotel, there is no charge created by Section 3. 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.

11. Hotel has been defined in LAW LEXICON, page 531 as under:

“Hotel. Ordinarily a hotel connotes the business carried on by a person though sometimes the term is also used with regard to premises but it is only owing to their association with the original business carried on by them. Where a person purchased the materials and gardens in which a hotel had been run, held, that the vendee did not purchase the goodwill of the business or the right to use the name in which the hotel business had been carried on and that the vendee could continue the business under the original name at some other place (133 IC 891 : 32 PLR 542 : AIR 1931 Lah 650. See also 15 Bom. 53)

HOTEL A hotel is a place where the proprietor makes it his business to furnish food or lodging or both, to travellers or other persons.”

HOTEL AND HOSTEL. The word “hotel” is not to be confounded with the old word “hostel”, which is a synonym for what is now termed an inn. The modern word is introduced from the French and rather implies a house to which people resort for lodgings (Smith v. Scott (1832) 9 Bing. 14)

HOTEL, TAVERN, INN. “The Words ‘Hotel’ and ‘Tavern’ are undergoing a change in their meaning, there being Temperance Hotels and Temperance Taverns as well as houses for the sale of excisable liquors” (per Chitty. LJ Webb v. Fagotti, 79 LT 684)

“Hotel”, “Tavern” and “inn” are properly applied to place kept for the entertainment of travelers and casual guests, as distinguished from a boarding house, which is kept principally for the residence of permanent boarders.

The term ‘inn’, ‘tavern’, or ‘hotel’ does not properly designate a mere lodging house, although the keeper thereof may send out and procure cooked food for his guests.”

In Strouts Judicial Dictionary Vol. 21 D.H 4th Edn. ‘Hotel’ is defined as under:

“HOTEL. (1) Hotel is not to be confounded with the old word “hostel” which is a synonym for INN.

(2) An “Hotel” is a place where lodgings are let and where provisions are, to some extent, supplied (Smith v. Scott, 1 LJ CP 143; Gibson v. King, 12 LJ Ex. 9; per Lord Brougham, King v. Simmonds, 1 HL. Cas. 773); that the lodgings are let to invalids makes no difference (Re Jones, ex p. Thorne, 3 Ch. D. 457). These were decisions on “keepers of hotels” in the late bankruptcy definition of “trader”. In Smith v. Scott, Tindal C.J said; “It is clear that the word ‘hotel’ is not used in the sense of the old word ‘hostel’, for that means what is now termed an ‘inn’; and as the word ‘inn’ immediately precedes, it could scarcely have been intended to designate the same thing by both. The modern word is introduced from the French, and rather implies a house to which people resort for lodgings, than for the sort of entertainment procured only at an ‘inn’. In that case a lodging house keeper who procured and supplied, at a small profit, provisions for her lodgers — such provisions being kept separately for the individuals for whom they were respectively procured — was the keeper of an “hotel” and in Gibson v. King (supra) it was held that a boarding house was a fortiori, an “hotel” within the definition. In Devonshire v. Simmons (39 S.J 60) “hotel” was contrasted with “PUBLIC HOUSE”.

(3) “A hotel — connotes a building in which a hotel business is carried on, to which the public are entitled to resort for accommodation and refreshment, and to which the edict nautaecaupones would apply. A hotel, so defined, is often contrasted with a lodging-house, sometimes dubbed a guest-house or a private hotel, in which control may be retained over the choice of lodgers to be admitted, and in which there is no obligation to the public generally” (per Lord Thankerton in Railway Assessment Authority v. Great Western Railway (1948 LJR. 244)

(4) “I think that the word ‘hotel’ always imports a house where travellers are taken into lodge; and a licensed for the sale (inter alia) of beer” (per Williams L.J Formby v. Barker (1903) 2 ch. 548). But see lves v. Brown (1919) 2 ch. 314; Chambers v. Rendell (1923) Ch. 149.

(5) So, in Section 43(4) of the Inland Revenue Act 1880 (c. 20), the phrase was “hotel for the reception of guests and travellers desirous of dwelling therein” (replaced by Finance (1909-1910) Act 1910 (c. 8) Section 45(1).

(6) In the Licensing (Ireland) Act 1902 (c. 28) section 2(2), “hotel” refers to a “house containing, at least, ten apartments set apart and used exclusively for the sleeping accommodation of travellers, and having no public bar for the sale of intoxicating liquors” On this see Quinn v. Burke (1906) 2 Ir. R. 94, cited PUBLIC BAR.

(7) In America “hotel” has been held to be a synonym for INN (Crowmwell v. Stephens, 2 Daly, 15)

(8) “I agree that the words ‘hotel’ and ‘tavern’ are undergoing a change in their meaning, there being temperance hotels and temperance taverns, as well as houses for the sale of excisable liquors” (per Chitty L.J Webb v. Fagotti, 79 L.T 684). See Thompson v. Lacy, 3B & Aid 383, cited INN; PRIVATE HOTEL.

In NEW ILLUSTRATED MANI'S ENCYCLOPEDIA, the Hotel is defined:

“Hotel, a house providing refreshment and accommodation for travellers, the modern counterpart of the inn. The word ‘hotel’ was first applied to the superior type of English inn about the time of the French Revolution, and it is still used in France for a large house or public building, such as town hail (hotel de ville) or a hospital (hotel dicu).”

in WORDS & PHRASES II Edition by John B. Sounders, ‘Hotel’ is defined as under:

“HOTEL.

In deciding whether a house is a hotel within the definition (in S.I of the Hotel Proprietors Act 1956 (infra)… and thus is an inn, the name by which it is designated is not conclusive. A house which is called a hotel or an inn may not be a hotel within the statutory definition even though it is a house of pubic entertainment, for every alehouse is not such a hotel. If a hotel is used for the common selling of ale, it is an alehouse lodges and feeds travellers it is also a hotel. A house, on the other hand, which describes itself as a tavern and coffee-house may in fact be a hotel within the statutory definition, although a tavern is usually understood to mean a house in which wines and other liquors are sold, and in which a table is furnished, and by a coffee-house is unaually meant a house where refreshment such as tea or coffee is supplied, and neither a mere tavern nor a mere coffee-house is an inn. Nor is a mere restaurant an inn. A place under the same roof as a hotel, with a separate entrance and being in fact a shop in which spirits are sold across a counter is not an inn, even though the hotel is itself an inn.

A house which is not a hotel within the statutory definition cannot be an inn although it may have certain characteristics of an inn at common law and may for other purposes be a hotel. A temperance hotel may be an inn just as well as a hotel licensed for the sale of intoxicating liquor. On the other hand, a residential hotel where suites of apartments or single rooms are let to lodgers, who are also provided with food if they desire it, but in respect of which no licence is held for the sale of intoxicating liquor, and where no one other than a lodger is supplied with food, although for some purposes it is a hotel, is not an inn. Similarly, a private hotel for the reception of persons who desire to reside there does not appear to be an inn (21 Halsbury's Laws (3rd Edn.) 442-444) “Residential hotel” means premises used for the reception of guests and travellers desirous of dwelling or sleeping therein (Shops Act 1950 Section 74)

(1) An hotel within the meaning of this Act shall, and any other establishment shall not, be deemed to be an inn, and the duties, liabilities and rights which immediately before the commencement of this Act by law attached to an innkeeper as such shall, subject to the provisions of this Act, attach to the proprietor of such an hotel and shall not attach to any other person.

(2) The proprietor of an hotel shall, as an innkeeper, be under the like liability, if any, to make good to any guest of his any damage to property brought to the hotel as he would be under to make good the loss thereof.

(3) In this Act, the expression “hotel” means an establishment held out by the proprietor as offering food, drink and, if so required, sleeping accommodation, without special contract, to any traveller presenting himself who appears able and willing to pay a reasonable sum for the services and facilities provided and who is in a fit state to be received (Hotel Proprietors Act 1956, Section 1)

In this section “hotel” means an hotel within the meaning of the Hotel Proprietors Act 1956 (supra) (that is to say an establishment held out by the proprietor as offering food, drink and, if so required, sleeping accommodation, without special contract, to any, traveller presenting himself who appears able and willing to pay a reasonable sum for the services and facilities provided and who is in a fit state to be received) and any establishment which would be an hotel within the meaning of that Act apart from any discrimination on grounds mentioned in this section (viz. grounds of colour, race, or ethnic or national origins) (Race Relations Act 1965, Section 1).”

In Express Hotels Pvt. Ltd. v. State of Gujarat . 1989-74 STC 157. and in the case of East India Hotels Ltd. v. State of Jammu & Kashmir . 1994-1995 STC 547. validity of Luxury Tax was found within the scope of entry 62 list II of 7th Schedule of the Constitution.

In the case of Globe Theatres (Pvt.) Ltd. v. State of West Bengal . 1994-93 STC 306.. West Bengal Taxation Tribunal held snacks and drinks which came in the category of refreshment provided by Bars would come within the meaning of the term Restaurant. Andhrapradesh High Court in the case of Jubilee Hills International Center v. Commercial Tax Officer . 1992-87 STC 227. held that after the 46th Amendment of the Constitution, the clubs which supply food and drinks, to the members and guests of the members who attend the club would be a dealer and the question of supply on no-profit or no-loss basis was irrelevant.

In Wainganga Club v. The State of Madhya Pradesh . 1979-44 STC 268. unmended definition of Business was considered and it was observed that in taxing statutes the word business is in the sense of an occupation or profession which occupies the time, attention and labour of a person normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive and not for sport or pleasure. In Bengal Rowing Club v. Commissioner of Commercial Taxes, West Bengal . 1993-88 STC 389. where supplies were not restricted to members only, but even were made to non-members, the club was held to be a ‘dealer’.

12. The charge is on the luxury provided in a hotel. The word Hotel refers to a building or part of a building where accommodation is provided. Charging provisions have to be strictly construed. In a hotel normally the transient or guests are provided sleeping accommodation. Lodging accommodation must be by way of business for monetary consideration. The term ‘hotel’ includes lodging house, but has no included clubs. In the definition of ‘hotel’ under the Karnataka Tax on Luxuries (Hotels and Lodging Houses) Act, 1979 it cannot be interpreted to include every building where lodging accommodation is provided. Even in Government Guest houses, circuit houses etc., lodging accommodation is provided, but whether they can be called as Hotel. In any case the term ‘Hotel’ and club are not convertable and distinction exists between them. It is no doubt true that clubs are providing luxuries and amenities as defined in Section 2(5) (Luxury provided in a hotel). 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 reciprocal basis. In common as well as commercial parlance, club providing such activity would not be considered to be a hotel. That stage has not been pointed where the club ceased to have its own existence as a club and is converted into a hotel. The business which a hotel is required to carry on for lodging accommodation is with the intention and main object as lodging house or accommodation or building where the lodging accommodation is provided by way of carrying on business. The activity of renting the room or charging for food in a club cannot be considered to be its main activity so as to fall within the charging section.

13. In view of the above interpretation, I feel that the notices which have been issued and the assessment orders framed are liable to be quashed. If it is found by the Assessing authority that in a particular case club ceased to carry on the activities of a club and has been converted into a hotel or the main activity is that of the hotel, he would be free to proceed under the Act.

Writ Petitions are allowed.