The Delhi High Court has upheld the luxury tax levy on Delhi Gymkhana Club under the Delhi Tax on Luxuries Act, 1996.
The petitioner, which claims to be a “Club”, constituted as a not-for-profit company as contemplated under Section 25 of the erstwhile Companies Act, had neither obtained registration under the Act nor had it paid any tax thereunder.
The view as taken by the Assessing Authority as embodied in its order of assessment dated 19 March 2013 was affirmed by the First Appellate Authority on 21 May 2014. It is in that backdrop that the matter came to be laid before the Commissioner.
The petitioner argued that it operates as a mutual benefit association, engaging solely in activities for its members. Challenging the respondent’s order based on principles of mutuality akin to clubs and associations, the petitioner asserts an error in deeming it liable for luxury tax.
In the act, The term “hotelier” was defined to include the owner of an establishment, extending to a “club” as per Section 2(g). Section 3 outlined the taxation of a hotelier’s turnover. Section 3(4) of the Delhi Tax on Luxuries Act, 1996, broadened the tax to instances where a room was provided in a hotel to a non-employee, either free or at a discounted rate.
The 2012 Amendment Act aimed to extend the tax levy from a mere “establishment” per Section 2(g) to activities defined in both Sections 2(eb) and 2(g). Consequently, the tax now applies to banquet halls, gyms, health clubs, hotels, and spas. Section 2(g) defines “establishment” to include residential accommodation, lodging houses, inns, clubs, resorts, farmhouses, public houses, or buildings providing residential accommodation as a business.
The ongoing dispute centers around the assessment periods of fiscal years 2009-10, 2010-11, and 2011-12. The order in question, dated July 1, 2014, seems to have been grounded in the post-2012 amendment provisions of the Act. The petitioner questions the validity of this order, asserting that it erroneously subjects the club to tax under the Delhi Tax on Luxuries Act, 1996.
Upon scrutinizing the legal landscape, it becomes evident that, during the assessment period, the Act extended its reach to encompass the provision of residential accommodation in a club.
Notably, there was no exclusion of accommodation provided to club members from the definition of “luxury” at that time. Significantly, the term “luxury” itself was introduced only through the 2012 Amendment Act, the bench observed.
The bench of Justices Yashwant Varma and Ravinder Dudeja remarked that, “If it were the contention of the petitioner that the tax on the provision of such residential accommodation could not be levied, it was incumbent upon it to question the validity of the provisions of the Act as they originally stood. However, and in the absence of such a challenge having been mounted and bearing in mind the statutory position which prevailed, we find ourselves unable to hold in favour of the petitioner on this score.”
The court, in its decision to uphold the impugned order, underscores the statutory context prevailing during the assessment period.
Thus, finding no grounds to interfere with the Assessing Authority’s conclusion, the Delhi High Court held that the club was indeed liable to pay luxury tax. However, the court made a crucial observation, stating that this decision should not serve as a precedent for assessment periods following the promulgation of the 2012 Amendment Act.
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