' SAEEDUZZAMAN SIDDIQUI, J.--This petition under Article 199 of the Constitution is filed by Messrs Taj Mahal Hotels Limited Karachi to challenge the order of respondent No,4 whereby the Shopping Arcade situated within the premises known as "Taj Mahal Hotel Complex" has been treated as part of the hotel business and excise duty has been assessed on the monthly rent, air-conditioning charges, telephone line rent, local calls, betterment tax and electricity charges received by the petitioner from shop keepers and cabin holders of Taj Mahal Hotel Complex. The respondent No,4 also imposed excise duty on the amount of Rs, 77,50,000 which was received by the petitioner by way of security deposit from the tenants occupying the shops and cabins in the Shopping Arcade.
At the hearing of the petition the learned counsel for the petitioner stated that he is only challenging the levy of excise duty on the sum of Rs,77,50,000 which was received by the petitioner /s security deposit from shop keepers and cabin-holders in the complex. From the order of respondent No,4 it is quite clear that on the aforesaid amount of Rs,77,50,000 Excise Duty has been assessed on two grounds. Firstly, it was treated as a compensatory amount in view of low rent received by the petitioner from the shop keepers and cabin holders and secondly in view of subsections (12) and (13) of Section 12 of Income Tax Act which was introduced by Finance Ordinance of 1978 the above amount of deposit was treated as the turnover of the hotel on which central excise duty was found livable. In the words of respondent No,4 the 'reasons for levying excise duty on the sum of Rs,77,50,000 were as follows: "12. Regarding the security deposits it had been stated by the petitioner that this amount is a sort of a trust with the lessor. The amount is refundable and has been collected only to compensate for any loss or damage if any or any rent in arrear against the tenant and because of these factors this should not be treated as income of Hotel. The plea of the petitioner in this regard also cannot be accepted firstly because the Central Excise Schedule imposes duty on any charges received on account of services and facilities rendered by the Hotel. In this case shopping complex which is part and parcel of the Hotel has been leased to various parties and the security deposits have been received in lieu of this. Since the security amount has been received as a compensatory amount for a very low rent i.e, 1.5. Per square feet this has to be treated as a charge in terms of Central Excise Act. Secondly, the Finance Ordinance 1978 vide Section 12 Subsections (13) and (14) of the Income Tax reads"
13. Whereas assessee being the owner of a building receives from any person to whom such building or any part thereof are let out on rent any amount....Which is not adjustable against the rent payable by such person such amount shall be deemed to be the income of the assessee and chargeable to tax under the head "Income from house property" of the income year in which such amount is received and the nine income years next following the said income year in equal proportion; and the amount so allocated to each income year shall be deemed to be the rent received in respect of such building or a part thereof.
14. Where the (amount) mentioned in subsection(13) is refunded by the assesse to the tenant on termination of the tenancy before expiry of ten years as aforementioned no portion of such(amount) shall be allocated to the income year in which it is refunded or any income year thereafter except in a case mentioned in subsection(15).
15. The abovementioned clauses of the Finance Ordinance clearly establish that any amount received which is not adjustable against the rent payable shall be income for that year and for the subsequent nine years in equal proportion and this income surely constitutes a part of his turn over which is liable to CE duty. But considering this charge/security received as refundable I am inclined to split the incidence of duty on ten years on the basis of 10 equal annual installments. If any security is refunded subsequently the same amount should be deducted from the yearly installment".
In our view the above reasons are not valid for levying excise duty on the above amount of Rs, 77,50,000. Excise duty is levied on hotels in accordance with the provisions contained in part H of Schedule I read with Section 3 of Central Excises and Salt Act 1944. Part II of Schedule I of the Act provides that all service facilities and utilities including catering supplies and merchandize provided or rendered by a hotel shall be subject to payment of excise duty at 15% of the charges.
The amount of security deposit does not fall either in the category of service facilities or utilities provided by hotel or return received in lien thereof, and as such it could not be subjected to the charge of excise duty under the Act. We, therefore, hold that to the extent of imposition of excise duty on the aforesaid sum of Rs,77,50,000 which was received by the petitioner by way of security deposit from various tenants and cabin-holders in the Shopping Complex the order of respondent No,1 was wholly illegal and without jurisdiction and accordingly the subsequent orders of respondents Nos. 3 and 2 confirming the order of respondent No,4 in appeal and revision respectively are also not sustainable in law. We may mention here that the learned counsel for the respondent appearing in the above petition also did not support the levy of excise duty in so far it related to the amount of security deposit mentioned above although he supported levy of excise duty on other charges mentioned in the order as well as the penalty imposed by the Excise Department on account of non-payment of those charges. Mr. Rehmat Elahi learned counsel for the petitioner also contended that in view of the fact that it has been found that the respondents were not entitled to levy excise duty on the sum of Rs, 77,50,000, the additional excise duty imposed on the petitioner needs reconsideration. The contention of the petitioner is not without justification.
In view of our conclusion that respondents were not entitled to charge excise duty on security deposit of Rs,77,50,000 the additional duty has to be redetermined. We accordingly remand the case to respondent No,4 for redetermination of the excise duty payable by the petitioner in the light of above observations.
2. There will be no order as to costs.