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TEXT OF RELEVANT CIRCULARS  ISSUED UNDER EXPENDITURE-TAX ACT

TEXT OF RELEVANT CIRCULARS  ISSUED UNDER EXPENDITURE-TAX ACT :

CIRCULAR NO. 679, DATED 11-2-1994 

The Board vide Circular No. 645, dated 15-3-1993 read with Circu­lar No. 650, dated 31-5-1993 (see Annex) had clarified that luxury tax and such other taxes levied by the State Government will form part of the “room charges” for the determination of applicability of the Expenditure-tax Act to any particular hotel.

  1. The Income-tax Appellate Tribunal has recently given a finding contrary to the above view of the Board. After examination of the whole issue afresh, it has been decided to accept the view of the Income-tax Appellate Tribunal holding against inclusion of the luxury tax as a part of the “room charges” under section 2(10) of the Expenditure-tax Act. The circulars of the Board referred above are accordingly being withdrawn with immediate effect.

ANNEX

CIRCULAR NO. 645, DATED 15-3-1993

  1. Provisions of the Expenditure-tax Act apply in relation to any chargeable expenditure incurred in a hotel wherein the room charges for any unit of residential accommodation at the time of incurring of such expenditure are Rs. 1,200 or more per day per individual. (Up to 1-6-1992, the Act was applicable to chargeable expenditure incurred in a hotel having room charges at Rs. 400 or more per day per individual).
  2. The computation of room charges is used for the determination of applicability of the Expenditure-tax Act to any particular hotel.
  3. The Board has received several petitions from Hotel Associa­tions requesting for a clarification whether luxury tax charged by the State Governments is to be included in the computation of room charges within the meaning of section 2(10) of the Expendi­ture-tax Act.
  4. It is clarified 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.
  5. To illustrate, if a hotel is charging room rent @ Rs. 1,150 per day per individual and luxury tax @ 7 per cent of the room rent, the “room charges” as per section 2(10) of the Expenditure-tax Act will exceed Rs. 1,200 per day per individual, making the hotel liable to collect and pay the expenditure-tax.
  6. Although the luxury tax forms part of the “room charges”, it will not be considered as a part of the chargeable expenditure for the purpose of section 5 of the Expenditure-tax Act.

CIRCULAR NO. 650, DATED 31-5-1993

The Board, vide Circular No. 645 [F. No. 328/109/92-WT], dated March 15, 1993, has clarified that luxury tax and such other taxes levied by the State Governments will form part of the “room charges” for the determination of applicability of the Expendi­ture-tax Act to any particular hotel.

Some doubts have been expressed about the meaning of “such other taxes” which are to be taken into account for computing the “room charges”.

The phrase “such other taxes” would require to be construed ejusdem generis. Therefore, the phrase “such other taxes” would only mean any tax (by whatever name called) which is in the nature of luxury tax.

CIRCULAR NO. 658, DATED 2-9-1993

  1. Under section 3 of the United Nations (Privileges and Immuni­ties) Act, 1947, read with section 18 of the Schedule to the said Act, officials of International Organisations like the World Bank Mission Staff staying in hotels on official duty, are accorded the same privileges in respect of exchange facility as are accorded to the officials of comparable ranks forming part of Diplomatic Missions to the Government concerned. Based on this provision, the Boardvide  Circular No. 637, dated 2-9-1992 clari­fied that the officials of such International Organisations covered by section 18 of the Schedule to the aforesaid Act shall be entitled for exemption from the levy of expenditure-tax.
  2. The exemption from the levy of the expenditure-tax in respect of any expenditure which is incurred or the payment for which is made in foreign exchange has since been withdrawn from 1-10-1992. The Board has now been advised that consequent to this amendment in section 5 of the Expenditure-tax Act, the official of the International Organisations to which provisions of section 18 of the Schedule to the United Nations (Privileges and Immunities) Act, 1947 have been extended including the World Bank Mission Staff staying in hotels on official duty shall no longer be entitled for exemption from the levy of the expenditure-tax on the chargeable expenditure incurred by them. However, the chargeable expenditure for the levy of the expenditure-tax will continue to exclude the expenditure incurred by persons within the purview of the Vienna Convention on Diplomatic Relations, 1961 or the Vienna Convention on Consular Relations, 1963.
  3. The Board Circular No. 637, dated 2-9-1992 stands modified accordingly.

CIRCULAR NO. 637, DATED 2-9-1992

Under the provisions of section 5 of the Expenditure-tax Act, 1987, any expenditure incurred by persons within the purview of the Vienna Convention on Diplomatic Relations, 1961, or the Vienna Convention on Consular Relations, 1963, is not to be considered as a chargeable expenditure for the levy of the expenditure-tax. The Board has been advised that this exemption is available to the officials of all International Organisations to which the provisions of section 18 of the Schedule to the United Nations (Privileges and Immunities) Act, 1947, apply. Under this section, Diplomatic Missions and their personnel and the World Bank Mission staff staying in hotels on official duty are covered. The expenditure incurred by such persons is, there­fore, not to be considered as a chargeable expenditure under the Expenditure-tax Act, 1987.

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