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Case law › Circulars › 1993 › Circular No. 645
CBDT circular 15 March 1993

Circular No. 645

645 dated 15 03 1993

What this is

Circular No. 645 was issued by the Central Board of Direct Taxes on 15 March 1993. Its subject is 645 dated 15 03 1993.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Settles that State luxury tax counts towards the room charge threshold under the Expenditure-tax Act, 1987. The Act applies to chargeable expenditure incurred in a hotel where room charges for a unit of residential accommodation are Rs. 1,200 or more per day per individual, the figure having been Rs. 400 up to 1-6-1992. Luxury tax and similar State levies form part of 'room charges' under section 2(10) because the customer pays them to the hotel, so a hotel charging Rs. 1,150 a day plus luxury tax at 7 per cent crosses the threshold and must collect and pay expenditure tax. Luxury tax so counted does not, however, become part of the chargeable expenditure for section 5.

Why it was issued

Several petitions had come from hotel associations asking whether luxury tax charged by State Governments enters the computation of room charges under section 2(10).

Who it reaches

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.
Under the 1961 ActNow
s.2s.2, s.346, s.355
s.5s.5

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

OTHER ACTS

EXPENDITURE TAX ACT, 1987
SECTION 2(10) l ROOM CHARGES
Clarification on applicability of the Expenditure Tax Act, 1987

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 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. 645, dated 15-3-1993.

What to watch

Where you meet it

In an expenditure tax demand on a hotel that treated itself as below the threshold because its bare tariff was under Rs. 1,200.

An example

Ours, not the Board’s: a worked case built from the rule the instrument sets, to show how it falls out.

A hotel charges Rs. 1,150 per day per individual and adds luxury tax at 7 per cent, that is Rs. 80.50. The room charge for section 2(10) is Rs. 1,230.50, above the Rs. 1,200 line, so the hotel is within the Act. When it computes the chargeable expenditure under section 5, the Rs. 80.50 of luxury tax is left out.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

← Circular No. 647  ·  Circular No. 646 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.