Trans Asia Hotels Ltd. v. Commissioner-General of
Inland Revenue and Another
TRANS ASIA HOTELS LTD.
v.COMMISSIONER-GENERAL OF INLAND REVENUE AND
COURT OF APPEALJAYASINGHE, J.. (P/CA) ANDEDIRISURIYA, J.
CA NO. 235/99OCTOBER 25. 2001 ANDMARCH 11 ANDAUGUST 08, 2002
Turn Over Tax Act, No. 69 of 1981, sections 2 and 5 (1) – Should turnover taxbe paid on the service charge?
The petitoners collected from the customers a sum of 20% in excess of the amountpayable by the customers. This levy was in respect of the service charge andgovernment tax.
It was contended that amounts received by the collector of the turnover tax fromthe petitioner customers do not fall within the meaning of Turn over" as definedin section 5 (1).
When the petitioner sells food and beverages it enters into a transactionof sale with the petitioner customers. If the petitioner in that transactionreceives money, that money received from the transaction entered into inrespect of that business can without doubt be classified as the turnover;it is irrelevant what component goes to constitute the total, which thecustomer was called . upon to pay the petitioner.
Turnover tax is payable on what is received or recoverable.
The petitioner is not an agent of the state for the collection of Governmenttax. Transferring the turn over tax to the customer is totally illegal.
Turnover tax is payable by the petitioner on the turnover of the petitionerin respect of its hotel business.
Sri Lanka Law Reports
 3 Sri L.R.
APPLICATION for a writ of certiorari.
K. N. Choksy, PC with N. R. Sivendra for petitioner.Farzana Jameel, Senior State Counsel for 1st respondent.
Cur. adv. vult.
December 13, 2002JAYASINGHE, J. (P/CA)
By letter dated 20. 11. 1997 X6 the 2nd respondent wrote to thepetitioner that –
The petitoner has paid Turn Over Tax on nett sales whereasthe Turn Over Tax should have been paid on the grossincome received or receivable by the hotel;
The Turn Over Tax has not been paid on the service chargecollected on the bills issued to the customers,
and called for submissions from the petitioner. Consequently, therehas been lengthy correspondence and interviews on the above matter
between the petitioner and the 2nd respondent and by X15 the 2nd.respondent rejected the Turn Over Tax returns submitted by thepetitioner and informed the petitioner that additional assessmentswill be issued as per detailed figures set out therein. Thereafter, theDeputy Commissioner of the 1st respondent department issued noticesof assessment dated 14. 08. 1998 marked X17A to X170 andassessment dated 14. 02. 1999 marked X17P.
The present application is to set aside the said assessments X17Ato X170 and X17P and for other reliefs prayed for in the petition.
CATrans Asia Hotels Ltd. v. Commissioner-General of
Inland Revenue and Another (Jayasinghe, J.)367
It is the submission of the learned President’s Counsel that theamounts received by the collection of the Turn Over Tax from thepetitioner’s customers does not fall within the meaning of turn overas defined in section 5 (i) of the Turn Over Tax Act, No. 69 of 1981.
Section 5 (i) provides that –
“For the purposes of this Act turn over in relation to anybusiness means the total amount received or receivable fromtransactions entered into in respect of that business or for theservices performed in carrying on that business and includes . .
The learned President’s Counsel raised the issue whether “can itbe reasonably said that when the petitioner collected the turn over
tax from its customers and paid the same to the department, thatsum of money collected as tax was received or receivable fromtransactions entered into with its customers in respect of the petitioner’ssaid hotel business or that it was received or receivable for servicesperformed in carrying on that business”.
He submitted that the proper interpretation of section 5 (i) as alsoits intent is to make payments received from customers for suchservices performed by such customers – “the turn over of a business”.That in other words it is the value of the work performed and goodssupplied to a customer. Therefore, the Turn Over Tax collected fromthe customer must necessarily be excluded from the turn over receivedor receivable. The learned President’s Counsel in support of hisargument sought to draw an analogy from section 2 of the Act.
Section 2 provides that –
“. . . that there shall be charged from every person who
(a) carries on any business in Sri Lanka or
Sri Lanka Law Reports
 3 Sri L.R.
(b) renders services outside Sri Lanka for which payment ismade from Sri Lanka.
A tax in respect of the turn over made by that person fromthat business …"
Mr. Choksy, PC, accordingly submitted that the words “that busi- 60ness” in both section 2 and section 5 (i) must be given a meaningthat is consistent with the intention of the legislature. He submittedthat “that business" of the petitioner is the business of the hotelierwho operates a five-star hotel. That all income earned by the petitioner“from that business” or “in respect of that business" or in carryingon that business of the hotel is the turn over in respect of which thistax is charged under the Act. The learned President’s Counsel wenton to submit that collection of the tax from the customer and remittingit to the department does not make the tax so collected turn over withinthe meaning of section 5 (1) read with section 2. That the tax collected *>from the petitioner’s customers was not paid by them for the trans-action entered into with or for the services rendered by the petitionerin carrying on its hotel business. The learned President’s Counselsubmitted that what the respondents are seeking to do is to impose“a tax on fax” which is a form of double taxation which the respondentsare not entitled to levy.
The learned senior state counsel submitted that admittedly thepetitioners collected from the customers a sum of 20% in excess ofthe amount payable by the customers. This levy was in respect ofthe service charge and government tax. This is evidenced by X13A, 80X13B and X13C. The learned senior state counsel submitted thatthe contention of the petitioner that it was unreasonable for therespondents to tax what the petitioner collected on behalf of therespondents as government tax is untenable in that what was leviedby the petitioner on the customers was the total turn over which isliable for tax. That the petitioner was never mandated to act as acollecting agent for the respondents. She further submitted that the
Trans Asia Hotels Ltd v. Commissioner-General of
Inland Revenue and Another (Jayasinghe, J.)
petitioner in carrying on of its hotel business, received certain sumsof money as government tax and service charge and that these monieswere received by the petitioner in the course of its business. The learnedsenior state counsel submitted the only question for determination iswhether the petitioner sent its return of Turn Over Tax in respect ofthe total turn over received from its customers in respect of its businessor did it fail to reckon the 20% it received under the heading servicecharge and government tax in bills submitted to its customers. Shesubmitted that the turn over is determined on what is received orreceivable from transactions entered into in respect of that business.
According to section 5 of the Act “turn over" means that totalamount received or receivable from two sources, namely,
transactions entered into in respect of that business or
for services performed in carrying on that business andincludes what is set out therein.
The petitioner obviously cannot come within both limbs of section 5.
The petitioner is a hotelier providing room accommodation and foodand beverages and other allied services to its customers at the hotel.
The learned President’s Counsel during the hearing submitted thathe was not seeking to come within the classification of a manufacturer.
It seems to me that when the petitioner sells food and beverages(vide 13A-C) it enters into a transaction of sale with the petitioner’scustomers. If the petitioner in that transaction receives money, thatmoney received from the transaction entered into in respect of thatbusiness can without doubt be classified as the turn over. It is irrelevantwhat components go to constitute the total which the customer wascalled upon to pay the petitioner. If the petitioner did not send itsreturns of Turn Over Tax in respect of the total turn over it received
Sri Lanka Law Reports
 3 Sri L.R.
from the transactions entered into in respect of its hotel business ofsupplying food and beverages to the customers then the petitionerwas acting in violation of section 5. The Turn Over Tax is on whatis received or receivable. There is no statutory duty cast on thepetitioner to collect government tax. The petitioner was not an agentof government for the collection of the government tax. It must alsobe mentioned that the Turn Over Tax is payable by the petitioneron the turn over of the petitioner in respect of its hotel business.The petitioner is not empowered to recover it from the customerwhich according to the Act is the responsibility of the petitioner topay. Transferring the Turn Over Tax to the customer is totally illegal.The argument that there was a tax on tax must therefore fail.
Application for relief is refused with costs fixed at Rs. 25,000.
EDIRISURIYA, J. – I agree.
TRANS ASIA HOTELS LTD. v. COMMISSIONER-GENERAL OF INLAND REVENUE AND AN