Delhi Gymkhana Club Exigible To Tax Under Delhi Tax On Luxuries Act, 1996: Delhi High Court

The Delhi High Court has held that Delhi Gymkhana Club is exigible to tax under the Delhi Tax on Luxuries Act, 1996.

The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that the Delhi Tax on Luxuries Act, 1996, as it stood during the assessment period in question, extended its application also to the provision of residential accommodation in a club and, in any case, did not at the relevant time exclude the provisioning of accommodation to members of a club from the expression “luxury”. In fact, the word “luxury” did not even exist in the statute book prior to its insertion by virtue of the 2012 Amendment Act.

The petitioner/assessee has challenged the validity of the order passed by the Commissioner (Entertainment and Luxury Tax), the respondent/department, and which has in turn affirmed the orders of assessment made for Financial Years 2009-10, 2010-11, and 2011-12, holding it to be exigible to tax under the Delhi Tax on Luxuries Act, 1996.

The petitioner/assessee, which claims to be a “Club”, constituted as a not-for-profit company as contemplated under Section 25 of the erstwhile Companies Act, 1956, had neither obtained registration under the Act nor had it paid any tax.

The petitioner asserts that it is a social club governed by the principle of mutuality, and it was duly incorporated as such in terms of Section 25 of the Companies Act, 1956.

The petitioner contended that it is a mutual benefit association and that its various activities are confined to its members. Resting the challenge to the order passed by the respondent on the principles of mutuality as enunciated in respect of clubs and associations, it is contended that the respondent has clearly erred in holding it liable to pay luxury tax.

The expression “hotelier” was defined to mean the owner of an establishment and would, by extension, have to be read alongside Section 2(g), which included a “club” within the meaning of an establishment. Section 3 envisaged the levy of tax on the turnover of receipts by a hotelier. Section 3(4) of the Delhi Tax on Luxuries Act, 1996, extended the levy of tax even to a contingency where a room may have been provided in a hotel to a person other than an employee of the former, either gratis or at a concessional rate.

The 2012 Amendment Act thus sought to expand the levy of tax from just an “establishment” as defined in Section 2(g) to activities as defined under both Sections 2(eb) and 2(g). The tax thus became leviable upon a banquet hall, gymnasium, health club, hotel, or spa as well. In terms of Section 2(g), the word “establishment” was defined to extend to residential accommodation, a lodging house, an inn, a club, a resort, a farm house, a public house, or a building or a part where residential accommodation is provided by way of a business.

“We turn our gaze to the word “luxury” as defined, and we find that the same is brought within its ambit of accommodation or space provided in a banquet hall, services provided in a gymnasium or health club or accommodation, and other services provided in a hotel or facilities, and services provided in a spa. Undisputedly, the petitioner association would not fall within either of those clauses as set out in Section 2(i),” the court said.

The court held that, despite the order and the negative challenge raised, the decision of the Commissioner assailed shall not be liable to be treated as a precedent for any assessment period post-promulgation of the 2012 Amendment Act.

Counsel For Petitioner: Ayush A Mehrotra

Counsel For Respondent: Rajeev Aggarwal

Case Title: Delhi Gymkhana Club Versus Commissioner (Luxury Tax), New Delhi & Ors.

Citation: 2023 LiveLaw (Del) 1136

Case No.: W.P.(C) 4382/2014

Click Here To Read The Order