J U D G M E N T

% 23.03.2016 Dr. S. Muralidhar, J:

1. These writ petitions seek a declaration that Section 194-I of the Income Tax Act, 1961 (‘Act’) does not apply to the Hotel Industry since the charges for a room in a hotel is, according to them, not ‘rent’ in terms of Explanation to Section 194-I of the Act.

Profile of the petitioners

2. Writ Petition (Civil) No. 1924 of 1999 is by M/s Apeejay – Surrendera Park Hotels Limited (‘ASPHL’), Petitioner No. 1 and Ms. Priya Paul, shareholder of Petitioner No. 1. ASPHL is a public limited company which runs a five star hotel in New Delhi by the name 'Park Hotel'. ASPHL offers a number of facilities and amenities to its guests. It is stated that the charges for a room in the hotel includes not only charges for use and occupation of the room but also for water, electricity, air- conditioning, telephone facility, and various other items or amenities provided for guests in the room. The room tariff charge is therefore stated to be “a composite charge for all the above and not merely for occupying the room alone.”

3. Writ Petition (Civil) No. 2130 of 1999 is by the Federation of Hotel & Restaurant Associations of India (‘FHRAI’) (Petitioner No. 1), M/s Asian Hotels Limited (‘AHL’) (Petitioner No. 2) and Mr. Sushil Gupta, (Petitioner No. 3) who is the Managing Director (‘MD’) and a shareholder of AHL. FHRAI is stated to be an apex body of hotels and restaurants in India and formed to protect their interests.

Section 194-I as enacted and at present

4. Section 194-I of the Act was inserted with effect from 1st June 1994. The said provision, as it existed at the time of the filing of these petitions, reads as under:

194 - I. "Any person, not being an individual or a Hindu undivided family, who is responsible for paying to any person any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate of –

a. fifteen per cent if the payee is an individual or a Hindu undivided family; and b. twenty per cent in other cases;

Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and twenty thousand rupees.

Explanation - For the purpose of this section, -

(i) "rent" means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of any land or any building ( including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee;

(ii) where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly."

5. It is necessary to note that the definition of 'rent' in Section 194-I of the Act has since undergone a change. It now reads as under:

“194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of—

(a) two per cent for the use of any machinery or plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:

Provided that no deduction sha