Law: Income Tax Act, 1922

Section: 2,2(6C),6(iv)

Income tax Act (XI of 1922)---Ss. 2(6 C) & 6 (iv) Assessable income Assessee a hotel, charging "service charges" from customers for employees assessee not receiv¬ing such "service charges" as part of trading transaction Department not making inquiry and giving finding that practice of collecting "ser¬vice charges" adopted by assessee was colourable device for making tax-free income Held, amount collected by assessee as "service charges" for its employees could not be treated as income of assessee in circum¬stances. Hotel Metropole Limited, Karachi v. Commissioner of Income tax (Central), Karachi 1973 P T D 371; Punjab Steel Scrap Merchants Association Limited. v. Commissioner of Income tax, Punjab (1961) 43 I T R 164 and Tettersall Space (1935 39) 22 Tax Cas. 51 ref. General Fibre Dealers Ltd. v. Commissioner of Income tax (Central), Cal¬cutta (1970) 77 1 T R 23 distinguished. JUDGMENT SALEEM AKBTAR, J. We propose to dispose of these five references by this judgment as common question of law has been referred. The applicant has filed application under section 66 of the Income tax Act, in which the following question has been raised in I.T.R. 413/72. "Whether the amount of Rs. 56,160 received by the applicants on behalf of the various employees can under any provision of Income tax Act. 1922 be treated as income of the applicant?" Similar question with variation in the amount has been referred in all the other references. The applicant i: private l4mited Company, which runs a Three Star Hotel. The hotel building is owned by Karachi Property Investment Company Ltd. and is leased out to the applicant assessee. For the charge years 1966 67, 1967 68, 1968 69, 1969 70 and 1970 71, the Income tax Officer noticed amounts of Rs. 63,029, Rs. 73,172, Rs. 52,153, Rs, 56,651 and Rs. 56,160, respectively in the assessee's books under the head "service charge". The source of these amounts is that the bills issued to the boarders and lodgers include an additional charge at 10 % of the amount of the bills under the heads "service charge". The Income tax Office added back these amounts to the income. The applicant filed an appeal before the Tribunal which relying upon its…

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