In M/s Mahindra Holiday & Resort India Ltd. & Others vs The Intelligence Officer & Others, the Kerala High Court held that Luxury Tax is leviable on Members availing free accommodation under the timeshare arrangement.
Coming to the facts of the case, the assessee, owns and rents out resorts all over the country or outside. The assessee gives membership by selling ‘vacation ownership’ that provides holiday facilities to its members.A membership fee is paid and the member acquires a right to enjoy a holiday in any of the resorts (owned or rented by the assessee) for a specified period and members are not charged for accommodation. However, any other facility enjoyed by the members during the stay is charged and, in turn, luxury tax is also paid.
In the writ petition, the petitioners urged that the accommodation provided to members under time share arrangement does not covered by the definition of ‘luxuries’ and taxed under the Kerala Tax Luxuries Tax Act, 1976 and therefore, penalty cannot be levied for non-payment of luxury tax under the timeshare arrangement .
Rejecting these claims, the court held that the merely because membership fees was taken in advance cannot lead to a conclusion that the accommodation provided/ offered to the member is free of cost.
The bench noted that the residents of the Kerala who subscribe to the membership are not taxed for the fact of such membership having been obtained. Nor are the members from outside the State of Kerala taxed on the basis of their membership merely for reason of certain Resorts which the members could use or reside in, are situated within the State of Kerala. “The tax is levied only when a member enjoys a luxury, i.e., the residence in a hotel [in the case of the assessee a Resort] within the State of Kerala.”
It was thus, held that “the timeshare arrangement i.e. agreement between the assessee and the member relating to accommodation for residence or in a hotel, comes within the definition of luxury and, hence, is taxable under the Kerala Tax Luxuries Tax Act, 1976”.
Thus, the assessee has a right to collect the tax from the residents/ members and pay it to the department. The court held that as no contumacious conduct was found and the assessee bonafidely believed that in respect of members, there was no collection of rent at the resort and, hence, there was no tax payable. Moreover, there was no suppression for the payment of luxury tax on the other facilities offered to the members of the time share arrangement on which payment was received. Therefore, it cannot be held that there was contumacious conduct, warranting imposition of penalty. Hence, in view of the above, though the Kerala High Court considered that accommodation provided to members under the timeshare arrangement comes under the Luxury Tax Act, but, as there was no deliberate suppression or guilty mind being practised with contumacious intent by the assessee, penalty imposition was set aside.
Read the full text of the Judgment below.
