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EXPENDITURE-TAX ACT

Ministry of Law and Justice

Act nº 35 of 1987


  • Act nº 35 of 1987

Preamble

EXPENDITURE-TAX ACT, 1987

[Act, No. 35 of 1987]

[14th September, 1987]

PREAMBLE

An Act to provide for the levy of a tax on expenditure incurred in certain hotels1[or restaurants and for matters connected therewith or incidental thereto.]

BE it enacted by Parliament in the Thirty-eighth Year of the Republic of India as follows: -

1. Inserted by Finance (No. 2) Act (Act 49 of 1991) w.e.f. 01.10.1991.


Section 1. Short title, extent and commencement

(1) This Act may be called the Expenditure Tax Act, 1987.

(2) It extends to the whole of India except the State of Jammu and Kashmir.

(3) It shall come into force on such date1as the Central Government may, by Notification in the Official Gazette, appoint.

1. The appointed date is 01.11.1987 vide Notification No. SO 919(E), dated 14th, October, 1987.


Section 2. Definitions

Inthis Act, unless the context otherwise requires, -

(1)"assessee' means a person responsible for collecting the expenditure-taxpayable under the provisions of this Act;

(2)"assessment year" means the period of twelve months commencing on the1st day of April every year;

(3)"Board" means the Central Board of Direct Taxes constituted under theCentral Boards of Revenue Act, 1963;

(4)"chargeable expenditure" means the expenditure referred to in section5:

(5)"expenditure-tax" or "tax" means the tax chargeable underthe provisions of this Act;

(6)"hotel" includes a building or part of a building where residentialaccommodation is, by way of business, provided for a monetary consideration;

(7)"Income-tax Act" means the Income-tax Act, 1961;

(8)"person responsible for collecting" means a person who is required tocollect tax under this Act or is required to pay any other sum of money underthis Act and includes-

(a)every person in respect of whom any proceedings under this Act have been taken,and

(b)every person who is deemed to be an assessee-in-default under any provision ofthis Act,

(9)"prescribed" means prescribed by rules made under this Act;

1 [(9A)"restaurant" means any premises, not being a restaurant situated in ahotel referred to in clause (1) of section 3, in which the business of sale offood or drink to the public is carried on and such premises, at the beginning ofany month, are equipped with, or have access to, facilities forair-conditioning.]

(10)"room charges" means the charges for a unit of residentialaccommodation in a hotel and includes the charges for-

(a)furniture, air-conditioner, refrigerator, radio, music, telephone, television,and

(b)such other services as are normally included by a hotel in room rent, but doesnot include charges for food, drinks and any services other than those referredto in sub-clauses (a) and (b);

(11)all other words and expressions used herein but not defined and defined in theIncome-tax Act shall have the meanings respectively assigned to them in thatAct.

1. Inserted by Finance (No. 2) Act (Act 49 of 1991)w.e.f. 01.10.1991.


Section 3. Application of the Act

This Act shall apply in relation to any chargeable expenditure-

(1)1[incurred before the 1st day of June, 2003 in a hotel] wherein the room charges for any unit of residential accommodation at the time of incurring of such expenditure are two thousand rupees or more per day per individual and where.-

(a) a composite charge is payable in respect of such unit and food, the room charges included therein shall be determined in the prescribed manner;

(b) (i) a composite charge is payable in respect of such unit, for drinks and other services, or any of them, and the case is not covered by the provisions of sub-clause (a), or

(ii) it appears to the Assessing Officer that the charges for such unit, food, drinks or other services are so arranged that the room charges are understated and the other charges are overstated, the Assessing Officer shall, for the purposes of this clause determine the room charges on such reasonable basis as he may deem fit: and

(2) incurred in a restaurant2[before the 1st day of June, 1992.]

1. Substituted for "incurred in hotel" by the Finance Act, 2003 w.e.f. 01.06.2003.

2. Inserted by Finance Act (Act 18 of 1992) w.e.f. 01.06.1992.


Section 4. Charge of expenditure-tax

Subjectto the provisions of this Act, there shall be charged on and from-

(a)the commencement of this Act 1 [but not after the 31st day of May, 2003], a taxat the rate of 2 [ten per cent] of the chargeable expenditure incurred in ahotel referred to in clause (1) of section 3:

PROVIDEDthat nothing in this clause shall apply in the case of a hotel referred to in 3 [clause (a) of sub-section (7) of Section 80-IB] of the Income-tax Act duringthe period beginning on the 1st day of April; 1991 and ending on the 31st day ofMarch, 2001;

4 [PROVIDEDFURTHER that nothing in this clause shall apply in the case of a hotel referredto in 5 [clause (a) of sub-section (7) of section 80-IB] of the Income-tax Act,1961 (43 of 1961) during the period beginning on the 1st day of April, 1998 andending on the 31st day of March, 2008;]

(b)the 1st day of October, 1991 6 [but not after the 31st day of May, 1992],a tax atthe rate of fifteen per cent of the chargeable expenditure incurred in arestaurant referred to in clause (2) of section 3.

1. Inserted by the Finance Act, 2003w.e.f.01.04.2003.

2. Substituted for the words "twenty percent" by the Finance Act (Act 32 of 1994) w.e.f. 01.06.1994.

3. Substituted for "clause (ii) of sub-section(5) of section 80-IA" by the Finance Act, 1999, w.e.f. 01.04.2000.

4.Inserted by the Finance Act, 1997, w.e.f. 01.04.1998.

5.Substituted for "clause (iia) of sub-section (5) of section 80-IA" by theFinance Act, 1999, w.e.f. 01.04.2000.

6. Inserted by Finance Act (Act 18 of 1992)w.e.f.01.06.1992.


Section 5. Meaning of chargeable expenditure11

For the purposes of this Act, chargeable expenditure, -

(1) in relation to a hotel referred to in clause (1) of section 3, means any expenditure incurred in, or payments made to, the hotel in connection with the provision of-

(a) any accommodation, residential or otherwise; or

(b) food or drink by the hotel, whether at the hotel or outside, or by any other person at the hotel; or

(c) any accommodation in such hotel on hire or lease; or

(d) any other services at the hotel, either by the hotel or by any other person, by way of beauty parlour, health club, swimming pool or other services, but does not include-

(i) any expenditure which is incurred, or payment for which is made, in foreign exchange1[before the 1st day of October, 1992];

(ii) any expenditure incurred by persons within the purview of the Vienna Conviction on Diplomatic Relations, 1961 or the Vienna Convention on Consular Relations, 1963:

(iii) any expenditure incurred in any shop or in any office which is not owned or managed by the person who carries on the business of a hotel;

(iv) any expenditure by way of any tax, including the one under this Act.

(2) in relation to a restaurant referred to in clause (2) of section 3, means any expenditure incurred in, or payments made to, a restaurant in connection with the provision of food or drink by the restaurant, whether at the restaurant or outside, or by any other person in the restaurant, but does not include any expenditure referred to in sub-clauses (ii) and (iv) of clause (1).

1. Inserted by Finance Act (Act 18 of 1992) w.e.f. 01.06.1992.


Section 6. Tax authorities

1[(1) Every Director General of Income-tax, Chief Commissioner of Income-tax, Director of Income-tax, Commissioner of Income-tax, Commissioner of Income-tax (Appeals)2[Additional Director of Income-tax, Additional Commissioner Income-tax,3[Joint Director of Income-tax, Joint Commissioner of Income-tax] Deputy Director,] of Income tax, Deputy Commissioner of Income-tax, Assistant Director tax-tax, Assistant Commissioner of Income-tax, Income-tax Officer, Tax Recovery Officer and Inspector of Income-tax shall have the like powers and perform the like functions under this Act as he has and performs under the Income-tax Act, and for the exercise of his powers and the performance of his functions, his jurisdiction under this Act shall be the same as he has under the Income-tax Act.]

(2) All officers and persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board:

Provided that no such orders, instructions or directions shall be issued-

(a) so as to require any tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or

(b) so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions.

(3) Every4[Assessing Officer] employed in the execution of this Act shall observe and follow the orders, instructions and directions issued for his guidance by the5[Director General or Director or by the Chief Commissioner or Commissioner] or by the6[Additional Commissioner of Income-tax or]7[Joint Commissioner] within whose jurisdiction he performs his functions.

1. Substituted by Finance Act (Act 26 of 1988) w.e.f 01.04.1988.

2. Substituted for the words "Deputy Director" by the Finance Act (Act 32 of 1994) w.e.f 01.04.1994.

3. Inserted by the Finance (No. 2) Act, 1998, w.e.f. 01.10.1998.

4. Substituted for the words "Income-tax Officer" by Finance Act (Act 26 of 1988) w.e.f 01.04.1988.

5. Substituted for the words "Director of Inspection or by the Commissioner", by Finance Act (Act 26 of 1988) w.e.f 01.04.1988.

6. Substituted for the words "Deputy Commissioner" w.e.f 01.04.1994.

7. Substituted for "Deputy Commissioner" by the Finance (No. 2) Act, 1998, w.e.f. 01.10.1998.


Section 7. Collection and recovery of expenditure-tax

1 [(1) Where any chargeable expenditure is incurred in a hotel referred to inclause (1) of section 3,

(a)if such expenditure relates to any of the services, specified in sub-clauses (a)to (d) of clause (1) of section 5, provided by the hotel, the person who carrieson the business of such hotel; and

(b)if such expenditure relates to any of the services, specified in sub-clause (b)or sub-clause (d) of clause (1) of section 5, provided by the other personreferred to therein, such other person,shallcollect the expenditure-tax at the rate specified in clause (a) of section 4.

(2)Where any chargeable expenditure is incurred in a restaurant referred to inclause (2) of section 3 2 [before the 1st day of June, 1992] in relation to anyservices specified in clause (2) of section 5 and where such services are-

(a)provided by the restaurant, the person who carries on the business of suchrestaurant; and

(b)provided by the other person, such other person, shall collect theexpenditure-tax at the rate specified in clause (b) of section 4.

(3)The tax collected during any calendar month in accordance with the provisions ofsub-sections (1) and (2) shall be paid to the credit of the Central Governmentby the 10th of the month immediately following the said calendar month.

(4)any person responsible for collecting the tax, who fails to collect the tax inaccordance with the provisions of sub-section (1) or sub-section (2) shall,notwithstanding such failure, be liable to pay the tax to the credit of theCentral Government in accordance with the provisions of sub-section (3).]

1. Substituted by Finance (No. 2) Act (Act 49 of1991) w.e.f. 01.10.1991. Prior to substitution, section 7 read as under:

"7. Collection and recovery of expenditure-tax.

(1) Where any chargeableexpenditure is incurred in a hotel to which this Act applies, --

ifsuch expenditure relates to any of the services, specified in clauses (a) to (d)of section 5, provided by the hotel, the person who carries on the businessof such hotel; and

ifsuch expenditure relates to any of the services, specified in clause (b) orclause (d) of section 5, provided by the other person referred to therein, suchother person, shall collect the expenditure-tax at the rate specified in section4.

(2)The tax collected during any calendar month in accordance with the provisions ofsubsection (1) shall be paid to the credit of the Central Government by the10th day of the month immediately following the said calendar month.

(3)Any person responsible for collecting the tax who fails to collect the tax inaccordance with the provisions of sub-section (1) shall, notwithstanding suchfailure, be liable to pay the tax to the credit of the Central Government inaccordance with the provisions of subsection (2).

2. Inserted by Finance Act (Act 18 of 1992)w.e.f.01.06.1992.


Section 8. Person responsible for collecting tax to furnish prescribed return

(1) Every person responsible for collecting the tax shall before the expiry of four months the 31st day of March in each year, furnish or cause to be furnished to the1[Assessing Officer] in the prescribed form and verified in the prescribed manner, a return in respect of the immediately preceding financial year showing-

(a) the aggregate of the payments received in respect of chargeable expenditure;

(b) the amount of the tax collected;

(c) the amount of the tax paid to the credit of the Central Government; and

(d) such other particulars as may be prescribed.

(2) In the case of any person who, in the opinion of the1[Assessing Officer], is responsible for collecting tax under this Act and who has not furnished a return under sub-section (1), the1[Assessing Officer] may, before the expiry of the financial year in which the return is to be furnished, issue a notice to him and serve the same upon him, requiring him to furnish within thirty days from the date of service of the notice the return in the prescribed form and verified in the prescribed manner setting forth such other particulars as may be prescribed.

(3) Any person responsible for collecting the tax who has not furnished the return within the time allowed under sub-section (1) or sub-section (2), or having furnished a return under sub-section (1) or sub-section (2) discovers any omission or wrong statement therein, may furnish a return or a revised return, as the case may be, at any time before the assessment is made.

1. Substituted for the words "Income-tax Officer" by Finance Act (Act 26 of 1988) w.e.f 01.04.1988.


Section 9. Assessment

(1) For the purpose of making an assessment under this Act. The1[Assessing Officer] may serve on any person who has furnished a return under section 8 or upon whom a notice has been served section-section (2) of section 8 (whether a return has been furnished or not) a notice requiring him on a date therein to be specified, to produce or cause to be produced such amounts or documents or other evidence as the1[Assessing Officer] may require for the purposes of this Act and may, from time to time, serve further notices requiring the production of such further accounts or documents or other evidence as he may require.

(2) The1[Assessing Officer] after considering such accounts, documents or other evidence, if any, as he has obtained under sub-section (1) and after taking into account any relevant material which he has gathered; shall, by an order in writing, assess the chargeable expenditure and the amount of tax payable on the basis of such assessment.

1. Substituted for the words "Income-tax Officer" by Finance Act (Act 26 of 1988) w.e.f 01.04.1988.


Section 10. Best judgment assessment

(a) any person fails to make the return required by any notice given under sub-section (2) of section 8 and has not made a return or a revised return under sub-section (3) of that section, or

(b) any person having made a return fails to comply with all the terms of a notice issued under sub-section (1) of section 9, or

(c) the1[Assessing Officer] is not satisfied with the correctness or the completeness of the accounts of the assesse,the1[Assessing Officer], after taking into account all the relevant material which he has gathered, shall, by an order in writing, make the assessment of the chargeable expenditure to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.

1. Substituted for the words "Income-tax Officer" by Finance Act (Act 26 of 1988) w.e.f 01.04.1988.


Section 11. Chargeable expenditure escaping assessment

If-

(a) the1[Assessing Officer] has reason to believe that by reason of omission or failure on the part of the assessee to make a return under section 8 for any assessment year or to disclose wholly and truly all material facts necessary for his assessment for any assessment year, chargeable expenditure for that year has escaped assessment or has been under-assessed, or

(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the1[Assessing Officer] has, inconsequence of information in his possession, reason to believe that chargeable expenditure assessable in any assessment year has escaped assessment or has been under-assessed, he may, in cases falling under clause (a), at any time, and in cases falling under clause (b), at anytime within four years from the end of that assessment year, serve on the assessee a notice containing all or any of the requirements which may be included in a notice under section 8-andmay proceed to assess or reassess the chargeable expenditure, and the provisions of this Act shall, so far as may be, apply, as if the notice was a notice issued under that section.

1. Substituted for the words "Income-tax Officer" by Finance Act (Act 26 of 1988) w.e.f 01.04.1988.


Section 12. Rectification of mistake

(1) With a view to rectifying any mistake apparent from the record, the tax authority referred to in section 6 which passed any order under the provisions of this Act may, within four years of the date on which such order was passed, amend the order.

(2) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and/decided.

(3) Subject to the other provisions of this section, the authority concerned-

(a) may make an amendment under sub-section (1) of its own motion, and

(b) shall make such amendment if any mistake is brought to its notice,-

(i) by the assessee; or

(ii) where the authority concerned is the Commissioner (Appeals), by the1[Assessing Officer].

(4) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard.

(5) Where an amendment is made under this section, an order shall be passed in writing by the tax authority concerned.

(6) Subject to the other provisions of this Act, where any such amendment has the effect of reducing the assessment, the1[Assessing Officer] shall make any refund which may be due to such assessee.

(7) Where any such amendment has the effect of enhancing the assessment or reducing the refund already made, the1[Assessing Officer] shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be issued under section 20 and the provisions of this Act shall apply accordingly.

1. Substituted for the words "Income-tax Officer" by Finance Act (Act 26 of 1988) w.e.f 01.04.1988.


Section 13. Time limit for completion of assessment and reassessment

(1) No order of assessment shall be made undersection 9 or section 10 at any time after the expiration of a period of fouryears from the end of the assessment year in which the chargeable expenditurewas first assessable, or one year from the date of the filing of the return orrevised return under section 8, whichever is later.

(2) No order of assessment or reassessmentshall be made under section 1,

(a)where the assessment or reassessment is to be made in a case falling withinclause (a) of section 11 for which a notice has been served upon the assessee,at any time after the expiration of a period of four years from the end of theassessment year in which the said notice was served;

(b)where the assessment or reassessment is to be made in a case falling withinclause (b) of section 11, for which a notice has been served, after theexpiration of a period of-

(i) fouryears from the end of the assessment year in which the chargeable expenditurewas first assessable, or

(ii) oneyear from the date of service of such notice, whichever is later.

(3)Notwithstanding anything contained in sub-sections (1) and (2), an order offresh assessment in pursuance of an order passed under section 21, section 22 orsection 23, setting aside or canceling an assessment, may be made at any timebefore the expiry of four years from the end of the financial year in which theorder under section 21is passed by 1 [the Commissioner, or the orderis received by the Chief Commissioner or Commissioner, as the case may be, undersection 22 or section 23].

(4) Theprovisions of sub-sections (1) and (2) shall not apply to the assessment orreassessment made in consequence of, or to give effect to, any finding ordirection contained in an order under section 21,section 22,section 23 2 [orany order of the National Tax Tribunal or of a High Court] or Supreme Court in aproceeding byway of reference or appeal under this Act or any order of any Courtin a proceeding otherwise than by way of an appeal or reference under this Actand such assessment or reassessment may, subject to the provisions ofsub-section (3), be completed at any time.

1. Substituted for the words and figures"the Commissioner, or, as the case may be, the order under section 22 orsection 23 is received by the Commissioner" by Finance Act (Act 26 of 1988)w.e.f 01.04.1988.

2.Substituted for "or any order ofa High Court" by the National Tax Tribunal Act, 2005.


Section 14. Interest on delayed payment of expenditure-tax

Every person responsible for collecting expenditure-tax and paying it to the credit of the Central Government in accordance with the provisions of section 7, who fails to credit the tax to the account of the Central Government within the period specified in that section, shall pay simple interest at the rate of one and1[one] percent for every month or part of a month by which such crediting of tax is delayed.

1. Substituted for "one and one-fourth" by The Taxation Laws (Amendment) Act, 2003 (54 of 2003) w.e.f 08.09.2003