The East India Hotels Limited vs Union Of India (Uoi) And Anr.
2004 Latest Caselaw 972 Del

JUDGMENT

Sanjay Kishan Kaul, J.

1.The petitioner is the owner of two hotels, the Oberoi and Oberoi Maidens. In both the hotels at the relevant stage of time discotheques were being run under the name and style of `Tabela' and `Sensation' respectively. The question raised in these two writ petitions is about the liability of the petitioner company to pay entertainment tax on the cover charges/fixed fee imposed in respect of the entry into the discotheques.

2.The entertainment tax is sought to be charged under the provisions of U.P. Entertainment and Betting Tax Act, 1937 (hereinafter referred to as the said Act) as extended to the then union territory of Delhi. The relevant provisions of the said Act are as under :

''2 . Definitions : In this Act, unless there is anything repugnant in the subject or context:-

(1) ''Admission to an entertainment''includes admission in places in which the entertainment is held;

(3) ''Entertainment'' includes any exhibition, performance, amusement, game or sport to which persons are admitted for payment;

(6) ''Paymennt for Admission'' includes -

(i)Any payment made by the person who, having been admitted to one part of a place of entertainment is subsequently admitted to another part thereof for admission tow which payment involving tax or more tax is required;

(ii)Any payment for seats or other accommodation in places of entertainment;

(iii)Any payment for a programme or synopsis of an entertainment; and

(iv)Any payment for any purpose whatsoever connected with an entertainment which a person is required to make as a condition of attending or continuing to attend the entertainment in addition to the payment, if any, for admission to the entertainment.

(3) Tax on payment for admission to entertainments:

(1)They shall be levied and paid on all payment for admission to any entertainment, a tax (hereinafter referred to as the Entertainment Tax) at a rate not exceeding 75% of the payment for admission as the Administrator of the Union Territory of Delhi may from time to time specify by Notification in this behalf and be paid to the Central Government in the manner prescribed.''

3.The petitioner claims that the purpose of running the discotheques was to provide a different menu and atmosphere as compared to the other restaurants and the hotels and the discotheques were mainly restaurants with a dance floor for any customer who may wish to dance to the recorded music. The claim thus made is that no kind of entertainment or amusement was provided in the restaurants either by way of live band, floor shows or cabaret. Thus there was no entertainment provided as defined under Section 2(3) of the said Act.

4.There is no dispute about the fact that fixed fee charged for entry into the restaurant was imposed for purpose of restricting the entry and it is stated to be for the purpose of regulating the number and nature of persons who seek entry into the restaurant. The guests were also required to pay separately for the food and drinks consumed at the restaurant but fixed charge was adjusted against the order placed for eats and drinks. However, in case the bill for eats and drinks was less than the fixed charge, the fixed charge, in any case was payable and if it was in excess of the fixed charge, the amount in excess of the fixed charge was payable. It is also stated that no person admitted to the restaurant was permitted to remain present without ordering any item of food or drink even if the fixed charge had been paid. Both the discotheques were started in the year 1970 and were ultimately closed in the year 1985.

5.The genus of the dispute is that notice issued almost a decade after the restaurants were operating alleging that it had come to the notice of the respondents that entertainment was being provided in the respective discotheques while no entertainment tax was being paid This was responded to by the petitioner stating that there was no entertainment being provided for the reasons set out herein above and request for withdrawal of the notice. However, impugned orders were passed on 26.11.1986 separate in respect of the two hotels. The respondents took the stand that the definition of entertainment in Section 2(3) of the Act was quite wide and not restricted and it covered the type of shows provided by the hotel. A view taken was that the person (sic)ho enters the restaurant after payment of fixed fee got pleasure and entertainment by dancing and seeing others perform the art of dancing and thus it became a public exhibition.

6.In respect of the discotheque ''Tabela'' in the Oberoi, the petitioner had produced details of receipts on account of admission fee year-wise from 1978-1979 to 1984-1985. The earlier period record was admittedly not available because the notice was issued for the first time only on 18.06.1984. The collection for this period was found to be Rs.15,40,095/- and thus for the period 1968-69 to 1977-1978 best judgment was made taking into consideration the fact that the collection was more or less similar or the years for which data was made available. Since tax rate was 25%, on a total collection of Rs.77,40,095/- , tax of Rs.9,35,024/- was imposed.

7.In so far as the other discotheque ''Sensation'' is concerned, the total receipts were found to the tune of Rs.8,43,021/-. Part of the fee was stated to be adjusted for the food and the balance amount was Rs.1,44,424/- which was shown as miscellaneous income. However, the minimum entry fee was held totally towards entertainment and thus tax was imposed on the total amount of Rs.8,43,021/- of 25% amounting to Rs.2,10,755/-.

8. It is both the aforesaid orders which have been impugned in these two writ petitions.

9.It may be noticed that interim orders were confirmed granting absolute stay in both the matters but on petition being filed before the Supreme Court, the interim orders were modified while directing the petitioner to furnish the bank guarantee in respect of the amount and keep the same alive.

10.Learned counsel for the petitioner referred to the judgment of the Supreme Court in Northern India Caterers (India) Ltd. V. Lt. Governor of Delhi, , which dealt with issue of service of meals to casual visitors in restaurant being taxable as sale. Learned counsel for the petitioner submitted by reference to the said judgment that there is package of services provided for persons who enter the restaurant which may include furniture, furnishing, linen, crockery and includes area for floor dancing. Thus number of services are concomitantly provided by way of hospitality. It was observed in paras 5 and 6 as under :

''5. Having proper regard to those particular consideration, it is not surprising that the principle was extended in England to the service of food at eating places or restaurants. The keeper of an eating house, or victualler, was regarded fundamentally as providing sustenance to those who ordered foot to eat in the premises. The eminent and learned Judge, Lord Mansfield, saw no distinction, in Sunderson v. Rowles, 4 Burr 2064 : 98 ER 77 (1767), between an innkeeper and a victualler. He observed :

The analogy between the two cases of an innkeeper and victualler is so strong that it cannot be got over. And we are all clear that this man (victualler) is not within thee laws, upon the authority of a determined case of an innkeeper, and also upon the reason of the thing... He buys only to spend in his house, and when he utters it again it is attended with many circumstances additional to the mere selling price.

Like the hotelier, a restaurateur provides many services in addition to the supply of food. He provides furniture and furnishings, linen, crockery and cutlery, and in the eating places of today he may add music and a specially provided area for floor dancing and in some cases a floor show. The view taken by the English law found acceptance on American soil, and after some desultory dissent initially in certain states it very soon became firmly established as the general view of the law. The first addtion of American Jurisprudence, Vol.46,p.207, para 13, sets forth the statement of the law in that regard, but we may go the case itself, Electa B. Merrill v. James W. Hodson, 1915-B LRA 481, from which the statement has been derived. Holding that the supply of food or drink to customers did not partake of the character of a sale of goods the court commented:

The essence of it is not an agreement for the transfer of the general property of the food or drink placed at the command of the customer for the satisfaction of his desires, or actually appropriated by him in the process of appeasing his appetite or thi(sic)rst The customer does not become the owner of the food set before him, or of that portion which is carved for his use, or of that which finds a place upon his plate, or in side dishes set about it. No designated portion becomes his. He is privileged t(sic) eat, and that is all. The uneaten food is not his. He cannot do what he pleases with it. That which is set before him or placed at his command is provided to enable him to satisfy his immediate wants, and for no other purpose. He may satisfy those wants; but there he must stop. He may not turn over unconsumed portions to others at his pleasure, or carry away such portions. The true essence of the transaction is service in the satisfaction of a human need or desire, ministry to a bodily want. A neessary incident of this service or ministry is the consumption of the food required. Thus consumption involves destruction, and nothing remains of what is consumed to which the right of property can be said to attach. Before consumption title does not ass; after consumption there remains nothing to become the subject of title. What the customer pays for is a right to satisfy his appetite by the process of destruction. What he thus pays for includes more than the price of the food as such. It includs all that enters into the conception of service, and with it no small factor of direct personal service. It does not contemplate the transfer of the general property in the food applied as a factor in the service rendered.

Subsequent cases drew on these observations, notably Mary Nisky V. Childs Company, 50 ALR 227. The position was radically altered in the United States by the enactment of the Uniform Commercial Code, which provides in effect that the serving for value of food or drink to be consumed either on the premises or elsewhere constitutes a sale. Nonetheless it is affirmed i the second edition of American Jurisprudence Vol.67, p.142 para 33, that where the Code does not operate, ''in general the pre-Code distincion between a contract for sale and one for the giving of services should continue.''

''6. It has already been noticed that in regard to hotels this Court has in M/s Associated Hotels of India Ltd. (supra) adopted the concept of the English law that there is no sale when food and drink are supplied to guests residing in the hotel. The Court pointed out that the supply of meals was essentially in the nature of service provided to them and could not be identified as a transaction of sale. The Court declined to accept the proposition that the Revenue was entitled to split up the transaction into two parts, one of service and the other of sale of foodstuffs. If that be true in respect of hotels, a similar approach seems to be called for on principle in the case of restaurants. No reason has been shown to us for preferring any other. The classical legal view being that a number of services are concomitantly provided by way of hospitality, the supply of meals must be regarded as ministering to a bodily want or to the satisfaction of a human need. What has been said in Electa B. Merrill (supra) appears to be as much applicable to restaurants in India as it does elsewhere. It has not been proved that any different view should be taken, either at common law, in usage or under statute.''

Learned counsel for the petitioner, however, concedes that after the judgment there were constitutional amendments to cover liability of sales tax in such cases.

11.Learned counsel for the petitioner submitted that bedroot of the case of the respondent was actually the judgment in s Geeta Enterprises and Ors. V. State of U.P. And Ors., dealt with the issue of entertainment tax and the meaning of the word ''entertainment.'' - Video show of games, sports etc., enjoyed by persons operating the machine on payment of a fixed charge was held to be entertainment. The provisions of Section 2(3) of the said Act were interpreted and on considertion of the legal aspects the following parameters were laid down in para 12 :

''12.. Thus, on a consideration of the legal connotation of the word `entertainment' as defined in various books and other circumstances of the case as also on a true interpretation of the word as defined in Section 2(3) of the Act, it follows that the show must pass the following tests to call within the ambit of the aforesaid section :

(1)that the show, performance, game or sport, etc., must contain a public colour in that the show should be open to public in a hall, theater or any other place where members of the public are invited or attend the show;

(2)that the show may provide any kind of amusement whether sport, game or even a performance which requires some amount of skill; in some of the cases, it has been held that even holding of a tombola in a club hall amounts to entertainment although the p

aying of tombola does, to some extent, involves a little skill;

(3)that even if admission to the hall may be free but if the exhibitor derives some benefit in terms of money it would be deemed to be an entertainment;

(4)that the duration of the show or the identity of the person who operates the machine and derives pleasure or entertainment or that the operator who pays himself feels entertained is wholly irrelevant in judging the actual meaning of the word `entertanment' as used in Section 2(3) of the Act. So also the fact that the income derived from the show is shared by one or more persons who run the show.''

12. Learned counsel for the petitioner, however, submitted that the present case did not satisfy the test laid down in para 12 of the judgment since there was in fact no show but only the entrants in the restaurant utilised the dance floor.

13.It may, however, be noticed that learned counsel for the petitioner very fairly brought to the notice of this Court the judgment of the learned Single Judge of the Bombay High Court (as he then was) in East India Hotels Ltd. V. State of Maharasthra,1985 (LxxxvII) Bombay Law Reports 90, which dealt with the Bombay Entertainment Duty Act having similar provisions in respect of a hotel of the petitioner in Bombay where a discotheque was being run. The definition of ''Entertainment'' was given a wide in erpretation in respect of such cover charge and it was held that in order to constitute entertainment it is not necessary that there must be a show or something objective outside the person entertained. It was thus held that payment for admission into discotheque is a payment for admission to an entertainment. However, relief was provided to the petitioner in view of the fact that the said judgment dealt with the entry of persons who were members of the club and privileges and facilities other than the right of admission to the discotheque as a consequence of the payment fixed charge was held not liable to entertainment tax. It was thus directed that the authorities would have to determine what part of membership subscription represents payment of privileges, rights or purpose other than the admission to the entertainment in the discotheque which would be exempted.

14. Learned counsel for the petitioner submitted that this judgment was not challenged further though it was contended that the judgment of the Bombay High Court at best be of persuasive value and not binding on this Court.

15.In my considered view, this plea cannot be accepted because the judgment is in respect of activity of the same petitioner, albeit in different hotel and deals with the issue of providing of fixed charge for entry into discotheque. This judgment has been accepted by the petitioner. Even otherwise a reading of the said judgment of the Bombay High Court shows that it is the component of the fixed charge which is sought to be treated as taxable being meant only for entry to the place where the entertainment is taking place.

16.In view of the aforesaid position, learned counsel for the petitioner contended that the observations of the Bombay High Court in this behalf are extremely material whereby the components have been segregated. Thus the charge is paid for membership for other purpose other than entry having been treated as subject matter of the tax. The analogy drawn is that in the present case also the full amount is not towards the entry since it is really a cover charge and the persons eat and drink. The bill raised on account of eating and drinking is adjusted against this charge, though of course the minimum charge is fixed. It was thus submitted that it is the only component of the fixed charge which can at best be treated as subject matter of tax.

17.Learned counsel for the petitioner lastly relied upon the judgment in Employees State Insurance Coporation V. Hyderabad Race Club , to contend that the respondents themselves were not clear as to whether the petitioner was liable to pay entertainment tax and that is the reason for more than decade that no demand was raised. Learned counsel submitted in this behalf that a categorical averment was made in both the writ petitions about there being discrimination inasmuch as other resaurants attached to the hotels which not only provided the eatables and drinks but also the facilities to dance to live music played by a band were not subjected to such tax.

18.Learned counsel thus submitted that in view of the confusion in the mind of the respondents who were themselves taking legal advise on this issue before issuing notice, the principles laid down in Employees State Insurance Corporation case (supra) would apply whereby the Supreme Court upheld the decision of the High Court to exempt the liability for past period and observed as under in para 6 :

''6. It is true as contended by the learned counsel on behalf of the Corporation that once a court of law declared the applicability of a statute the said declaration in the ordinary course should apply from the date the law in question was brought into force, but there could be exception to this principle depending upon the facts of the case. It is undisputed that till the judgment of this Court in the case of Hindu Jea Band, Jaipur v. Regional Director, Employees State Insurance Corporation, Jaipur, the law in regard to the institutions like a club coming within the purview of the definition of establishment for the purpose of the Act was nebulous. It was so understood even by the Corporation itself which is evident from the fact that the action against the appellant for non-compliance of its liability was not taken for nearly 15 years until the visit of the inspector of the Corporation on 17.06.1990. In that background even the Corporation was not very certain whether the word establishment used in the concerned notification of 26.3.1975 included a club. Therefore, in our opinion, the High Court was justified in coming to the conclusion to call upon the club to make contribution for a period between 1975 to 1986 would be somewhat unreasonable Thus in the peculiar facts of this case, we are in agreement with the finding of the High Court that the demand under the Act as against this club can be enforced only from the year 1987 onwards.''

19.In the counter affidavit filed in Writ Petition No.44/1987 alone a proper response was given and the response shows that the other restaurants are not subjected to levy of entertainment tax as no minimum entry or admission was charged from the visitors. In this behalf, reliance has been placed in the counter affidavit on the judgment of the Supreme Court in Markand Saroop Aggarwal and Ors V. M.M. Bajaj and anr., under the said Act where a cabaret performance was conducted in the resaurant and minimum charges were imposed for eatables at the time of cabaret which were adjusted against eatables consumed. The price of the eatables were raised for purpose of covering the entertainment but the minimum charge had to be paid. It was hel that cabaret show was an item of entertainment and that if normal rates are charged for the items consumed and incidentally a show was put up, it could not be said that any payment was made for admission for the entertainment but requiring the minimum charges whether the customer consumed any eatables or not would lead to a conclusion that a payment of fee for admission to the entertainment was also included. In the particular matter the conviction was upheld.

20.The submission of learned counsel for the respondent is that the element of fixed charge really makes the petitioner liable and therefore, it was unambiguously conceded that if the fixed charge would not have been there, there would have been no question of levy of entertainment tax. This is the stand taken in the counter affidavit in reply to ground `c'. It was submitted that tax was levied on the total amount though it is admitted that in the bills the amount is shown as miscellaneous charges.

21.I have considered the submissions advanced by learned counsel for the parties on the issue of the admission of tax specially taking into consideration the judgment of the Bombay High Court in East India Hotels Ltd. case (supra) and the observation of the Supreme Court in Markhand Saroop Aggarwal case (supra) as well as M/s Geeta Enterprises case (supra). It is obvious that the question which is left to be considered, in view of the observation herein above would be whether the full amount of the fixed charge is liable to be taxed or only such of the amount for which there is no corresponding consumption of food or drinks items. This is specially so in view of the petitioner having accepted the judgment of the Bombay High Court in East India Hotels case (supra) where the same question was under consideration. I am inclined to follow the view taken by the Bombay High Court in East India Hotels case (supra) where a segregation was made in respect of services connected with the fixed charge and which (sic)ere other than for the said purpose. It is this element of fixed charge which is giving rise to the claim of subjecting to the company to entertainment tax.

22. It has to be appreciated that there was undue delay on the part of the respondents in issuing the notice as apparently the respondents were also not legally sure of their stand. To that extent the principles in Employees State Insurance Corporation case (supra) would apply. However, I am not inclined to exempt the whole amount from tax on that account for the reason that it is possible to segregate the amount towards the fixed charge from the other amounts. This is specially so in view of the i(sic)pugned order passed in the case of M/s Oberoi Maidens where separate figures have been given. It has been found that after adjusting the amount of food and drinks the balance amount of Rs.1,44,424/- was the miscellaneous income. It is this amount which is unadjusted and is towards the fixed amount for entry which can be subjected to entertainment tax and not the total amount. Thus the 25% tax would have to be paid on this amount and not on amount of Rs.8,43,021/-.

23.In the Oberoi's case, however, impugned order does not record any separate figures. In fact on account of delay on the part of the respondents, records were not even available other than for the last seven years. The petitioner cannot be blamed on this account as it cannot be asked to keep records indefinitely. For the past period a best judgment process has been utilised in the impugned order showing that the figures were similar. A practical solution, in my considered view, would be to accept that figure of Rs.37,40,095/- and to apply tax only to the extent of miscellaneous charges for which there is no corresponding consumption of eats and drink. The difficulty today is that there has been further passage of almost 17 years and the records are stated not to be available. In my considered view since the same pattern was prevalent in both the restaurants, the ratio of the fixed charge to the total amount in the case of the Sensation discotheque may also be applied to this case. The percentage on the figure of Rs.1,44,424/- to the ratio of Rs.8,43,021/- works out to 17.13%. It is this percentage which should be applied to the figure of Rs.37,40,095/- which comes to Rs.6,40,678/-. Thus the amount of 25% tax would be payable on this amount which comes to Rs.1,60,169.50/-.

24.The aforesaid is relevant specially taking into consideration the fact that there was no floor show being performed as in the case of Markand Saroop Aggarwal's case (supra) but only piped music was being played and the entrants were using the dance floor. In East India Hotels case (supra) Bombay High Court was of the view that payment for admission into discotheque is what is payment for admission to entertainment since a dance in a sense of a couple executing a ballroom dance, entertains and divers both those who are dancing and those who are looking on and to that extent is an entertainment. It is this element of fixed charge which is sought to be subjected to entertainment tax.

25.The writ petition is allowed to the aforesaid extent and the petitioner is directed to deposit Rs.1,60,169.50 and Rs.36,106/- respectively within one month from today towards the satisfaction of the claim towards entertainment tax. On this amount being deposited, the bank guarantee furnished by the petitioner shall be discharged by the Registrar of this Court.

26. The writ petition is allowed in the aforesaid terms leaving the parties to bear their own costs.