Hotel & Tourism Industry Domestic & International Tax … PPT_Final.pdf · Tour operators Malls and...

Hotel & Tourism Hotel & Tourism

Industry Industry

Domestic & Domestic &

International Tax

aspects

December 2011December 2011

Presentation Outline

1 Indian Tourism Industry

2Major players of Indian Tourism

industry

Hotelsa

(2011) KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tour operators

Malls and Amusement parks

b

c

2

3 Glossary

1. 1. Indian Tourism Indian Tourism IndustryIndustry

2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms


IndustryIndustry

Indian Tourism industry - Background

Rs. 368,040 crores (4.5%) - contribution of Travel & Tourism Industry to Indias GDP in

2011

- Estimated to touch Rs. 852,310 crores (4.9%) by 2021

India is ranked No. 14 in world in terms of absolute size of tourism

Creates 7.5% of total employment;



Source WTTC Travel and Tourism economic impact (India) 2011

4

2.2. Major players of Major players of

Indian Tourism Indian Tourism

IndustryIndustry



IndustryIndustry

Major players of Indian Tourism Industry

Hotels

(2011) KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms


Indian Tourism Industry

Malls and Amusement

parks

Tour Operators

6

a. Hotels



Regulations at a glance

Shops & Establishment

Certificate, Municipality

Health License etc.

Operational licenses

Permit and liquor licenses

Key approvals / licenses required

Foreign Exchange Regulations

FDI regulations

ECB Regulations


affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.8

Regulations ECB Regulations

Provisions of IT Act

Deductions and related issues

Hotel Operating Arrangement

Others issues

Investment based incentives

Section 44(8) read with

XIII schedule (clause h)

Provisions of

DTC 2010

Key approvals / licenses

requiredrequired

Key approvals / licenses required

General Licenses (Illustrative list)

Shops & Establishment Certificate

BMC Health License ( to serve food and Liquor)

Maharashtra License under Food and Drug control Act, Govt. of India

Grading Certificate namely, I,II and III

Chapra or Board License of BMC under Health Department



Medical/Health Certificate of the Kitchen Staff on yearly basis

Neon-Sign Board Or Glow Sign Board License-provided it carries any advertisement

Maharashtra States Weights & Measurement Department Certificate ( Annual Basis) etc.

Operational licenses

Licenses for Permit Rooms

Complex procedure for obtaining multiple licenses

10

Foreign Exchange

Regulations Regulations

Foreign Exchange Regulations

FDI

- 100% FDI permitted under the automatic route

Hotels include Restaurants (franchise / cash &

carry), Resorts and Tourist complexes - providing

accommodation, food and beverages

Tourism could inter alia include facilities for

Cultural, Adventure & Wildlife experiences, Road,

Air, Water transport facilities, Leisure,

Entertainment, Sports, Health facilities, Convention



Entertainment, Sports, Health facilities, Convention

centers, Airline industry, entertainment industry etc.

- Mere construction of hotels, without operating of hotels

to be considered as real estate which would be subject

to requirements of lock in period, minimum capital

investments etc.

ECB

- For Hotel industry, ECB upto USD 200 million -

allowed under Automatic route

Hotel though a major contributor, not granted infrastructure status for ECB !!

12

Provisions of IT Act

Hotel Industry- a major shift for tax deductions

Profit based deductions

Hotel Industry 2009 TodayTodayTodayToday

Investment based deductions



Profits eligible for deduction

Deduction for Capital investments allowed

by way of depreciation over useful life of

asset

Profits in excess of capital investment

taxable

Deduction for capital investments allowed in

the year of investment in form of accelerated

depreciation

Profit linked deductions - Section 80ID and Section 80IE

Eligibility

CommencementCommencement

EligibilityEligibility

Section 80ID Section 80IE

Engaged in business of 2-4 Star hotel and building,

owning and operating convention Centre in Delhi

NCR Region and other areas* or hotel in specified

districts^ having World Heritage site

Engaged in business of two-star or above

category hotel, adventure or leisure

sports in North-Eastern States&

Hotels and Convention centre in Delhi NCR - 1

April 2007

For World Heritage Sites - 1 April 2008

1 April 2007

Hotels and Convention centre in Delhi NCR - 31

July 2010

For World Heritage Sites - 31 March 2013

31 March 2017

Sunset

clause

Sunset

clause



Profit-linked deduction grandfathered under DTC regime

15

Conditions

Deduction availableDeduction available

Conditions for eligible businessConditions for eligible business

* Farizabad, Gurgaon, Gautam Budh Nagar and Gaziabad^ Agra, Jalgaon, urangabad , Kancheepuram etc.

For World Heritage Sites - 31 March 2013

100% of profits for 5 years 100% of profits for 10 years

Not formed by splitting up / reconstruction

Not formed by transfer of building previously used

as hotel / convention centre

Not formed by transfer of plant or machinery

previously used for any purpose

To furnish CA certificate alongwith ROI (form

10CCBBA)

Same as those mentioned in Section 80ID

&Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura

clauseclause

Investment linked deductions - Section 35AD

Eligibility Building and operating a new two-star or above category hotel anywhere in India

1 April 2010

Commencement

Date for commencing of operations

Commencement

Date for commencing of operations

Entire amount of capital expenditure, except land or goodwill or financial instrument,

EligibilityEligibility



incurred during the year

Pre-commencement expenditure allowed in the year of commencement of operations

Not formed by splitting up / reconstruction

Not formed by transfer of plant or machinery previously used for any purpose

To furnish CA certificate alongwith ROI (form 10CCBBA)

Deduction availableDeduction available

Conditions for eligible businessConditions for eligible business

If investment based deduction is claimed under this section, no profit based deduction would

be allowed

Investment linked deductions - Section 35AD

Implications

MAT applicable

Cost of acquisition of land , goodwill or financial instrument , not allowable as qualifying expenditure

Losses can be set off against profits of other specified business

An option of claiming profit based deduction (section 80ID / 80IE) or Investment deduction is available only for -

- Hotel set up in district having World Heritage Site (Section 80ID)

- hotel set up in specified North Eastern states (Section 80IE)



Deduction under section 35AD is similar to deduction as per schedule XIII under DTC 2010

Issues

Whether deduction is available to companies hotel operating companies - built and operate conditions?

Impact on deduction in case of amalgamation / demerger or Slump sale?

Demolition of existing hotel and construction of new hotel in its place Can it be termed as reconstruction of

existing business?

Where deduction is available to partially constructed hotels / hotels commencing in phases?

Whether deduction available on renovation of existing building into a hotel building?

Comparison of Section 80ID, 80IE and Section 35AD

Particulars Section 80ID Section 80IE Section 35AD

Eligibility Engaged in business of 2-4 Star

hotel and building, owning and

operating convention Centre in

Delhi NCR Region and other areas*

or hotel in specified districts^ having

World Heritage site

Engaged in business of

two-star or above

category hotel,

adventure or leisure

sports in North-Eastern

States&

Building and operating a new two-

star or above category hotel

anywhere in India

Nature of deduction Profit based deduction Profit based deduction Investment based deduction

Commencement Hotels and Convention centre in

Delhi NCR - 1 April 2007

For World Heritage Sites - 1 April

1 April 2007 1 April 2010



For World Heritage Sites - 1 April

2008

Sunset clause Hotels and Convention centre in

Delhi NCR - 31 July 2010

For World Heritage Sites - 31 March

2013

31 March 2017 ----

Tax holiday 100% of profits for 5 years 100% of profits for 10

years

Deduction of capital expenditure

(other than expenditure for land or

goodwill or financial instrument)

Pre-commencement expenditure

Option of claiming profit based deduction is available only for hotels in World Heritage Site and

specified North Eastern states

Hotel Operating Hotel Operating

Arrangements

Hotel Operating Arrangements

Lease and operate of Hotel

Own and operate of Hotel



Hotel Operating and Management(O&M) Agreement

Franchise arrangements

20

A particular arrangement may be combination of above!!

Own and operate of hotel

Mechanics

Owner of hotel operates the hotel

- Eligible for 80ID / 80IE / 35AD deductions on satisfaction of conditions



A Ltd. (owning co.)

Operating revenue

Owning and

maintaining of hotel

Considered as

Business income

21

Lease and operate of hotel

Hotel

A Ltd. (owning co.)

B Ltd.

(operating co.)

Lease to

B Ltd. earns operating

A Ltd. owns the hotel

A Ltd. gives the hotel on lease

to operator- B Ltd.

A Ltd. earns lease rentals

Basis Fixed or certain

Mechanics for A Ltd.

Lease

rentals

Mechanics for B Ltd.

House Property

Income??



Operating

revenue

B Ltd. earns operating

revenue

B Ltd pays lease

rentals A Ltd.

percent of revenue

Lease rent BI / HP / IFOS?

- Deduction under chapter

VIA?

- 35AD deduction?

Deductions for B Ltd.

- Deduction under chapter VIA?

- 35AD deduction?

Lump sum lease payments

- Deferred revenue expenditure?

22

Business

IncomeIssues for A Ltd.

Issues for B Ltd.

Characterization of Income - HP income vs. BI vs. IFOS - Broad parameters

HP Income BI IFOS

Merely parted with the possession

of the premises

No intention of commercial

exploitation

- Ocean Structures (P) Ltd. 170

Taxman 42(Del)

- Keyaram Hotels (P.) Ltd. 173

Taxman 262(Mad)

Licence agreement - Colourable

device

Primary object - to let out portion of property with additional

right of using furniture other common facilities

- Shambhu Investments Pvt. Ltd. 263 ITR 143 (SC)

Involvement of assessee in management / operations of

business run through premises let out

- Faith Real Estate Pvt Ltd. 173 taxman 405(Del)

Let out for smooth carrying on business and on commercial

expediency

- Sateo Securities & Financial V/s. ITO (2009-TIOL-265-

Transaction in nature of lease and

not license for temporary period and

lessor had no intention to resume

hotel business after end of lease

period

- Universal Plasts Ltd. [237 ITR

454(SC)]

- East West Hotels Ltd. V/s. DCIT

309 ITR 149 (Kar)

- Orient Hospital Ltd. vs Dy. CIT

(185 TAXMAN 83)



device

- Ocean Structures (P) Ltd. 170

Taxman 42(Del)

ITAT-MUM)

Primary object - to exploit the immovable property by way of

commercial activities

- ITO vs Shanaya Enterprises (Mumbai)(ITA No. 3648 /

Mum / 2010)

Bifurcation of rent income between HP income and BI in

respect of building and other facilities To be done in

accordance with agreement - CIT vs. Mysore

Intercontinental Hotels (P) Ltd. ((2011) 198 Taxman 514

(Kar) )

(185 TAXMAN 83)

Under DTC 2010, lease income is to be considered as Business Income

Lease rent income not eligible for 35AD deduction if income not from operating of hotel

To claim 35AD deduction, lessor has to be involved in management of hotel

23

Hotel Operating and Management (O&M) Agreement

Constructs and starts

functioning

Operating revenue

Management

fees

O & M

arrangement

A Ltd. (owning co.)

Hotel



A Ltd. owns and operates the hotel

A Ltd. enters into operating and management arrangement with operator B Ltd

B Ltd. earns management and operations fees

B Ltd. (operating co.)

Mechanics

24

O & M agreement Implications

Implications in hands of A Ltd.

Eligible for 80ID deduction

- engaged in business of hotel

Eligible for 35ADdeduction

- Hotel built and operated by A Ltd.

O & M fees paid to B Ltd. is an allowable deduction



Implications in hands of B Ltd.

O & M fees Business income or Income form other Sources subject to tax withholding u/s. 194J / 195

Eligibility of deduction under Section 80ID

- Engaged in business of hotel eligible for deduction under Section 80ID??

Ownership / construction not essential ?

Radhe Developers & Ors. [113 TTJ 300 (Ahd)]

Eligibility of deduction under Section 35AD??

- B Ltd. does not build and operate hotel

25

Case study

Nizam A , owns a palace

The said Palace is given on lease to B Ltd

After taking the palace on lease, B Ltd. renovates and converts it into a five star hotel

B Ltd operates the hotel

Whether it can be said that B Ltd. has built the hotel to claim the deduction under Section 35AD?



Franchise Arrangement

B Ltd -

Franchisor

A Ltd. -

Franchisee

Initial &

Recurring

fees

Supply of

knowhow,

brand,

goods etc +

advisory

assistance



B Ltd. owner of brand name has technical expertise and systems

B Ltd. enters into SOP with operator, provides brand name , technical expertise and training

assistance to the operator

B Ltd. receives franchisee fees

27

Mechanics for A Ltd.

Mechanics for B Ltd.

A Ltd. owns a hotel and has requisite resources for running an hotel

Franchise Agreement Constituents and relevance

Constituents of a general Franchise Agreement:

- Use of know-how, brands, trademark, etc

- Advice and assistance on study and selection of location, design and layout of outlet, purchase of

equipment, etc

- Training of personnel, deputation of specialists, etc

- Advice on National & Regional Advertising & Promotion strategies

Conduct of quality assurance test by the franchisor



- Conduct of quality assurance test by the franchisor

Franchise arrangement relevant where :

- Non resident (having know how, brand etc.) provides any advisory assistance hotel completely

owned and operated by owner

- Non resident not taking part in equity or day today operation

- Intention of owner is to use brand or advisory assistance of non resident

28

Franchise Agreement Implications

Implications in hands of A Ltd.

For A Ltd.

- Initial payment capital / revenue expenditure, capital expenditure eligible for depreciation u/s 32(1)(ii)

- Recurring fees and payment for supply of goods allowed as revenue expenditure




For B Ltd.

- Receipt of initial and recurring franchise fees to constitute Royalty / FTS

- Receipt for supply of raw material to constitute Business Income


29

Eligibility of deduction u/s. 35AD only to A Ltd build and operate an hotel!!

Whether B Ltd entitled to deduction u/s. 80-ID / 80-IE engaged in business of hotel!!

Case Study

A Ltd. owns a hotel and posses expertise of hotel business

B Ltd. owns a brand and also have marketing skills, technical know how to do hotel business

A Ltd. enters into an agreement with B Ltd. for use of its brand and technical know how and using this, A

Ltd. operates the hotel

Thus, B Ltd. earns income for use of its brand and know how.

Can B Ltd. said to be engaged in business of hotel (viv-a-vis the hotel property) to claim deduction

under Section 80ID in respect of payments received from A Ltd.?



under Section 80ID in respect of payments received from A Ltd.?

30

Other issues Other issues

Other Issues

Expenses - Capital vs. revenue

2

1

Time share units - Year of taxability

3

Depreciation

4

TDS



Time share units - Year of taxability4

Payment of marketing fees, consultancy services 5

Payment for access to database, research report, reservation system6

Payment of grading, certification etc.7


Expenditure on renovation and refurbishment

- Asian Hotels Ltd. 286 ITR(A.T.) 157 (Del)

Expenditure on extensive renovation and beautification, acquisition of furniture, plant and machinery

- GE Capital Services India Ltd. 106 TTJ 65 (Del)

Expenditure of Repairs / renovation of hotel building - capital expenses



Landscaping expenses for giving better look to building

- Dy CIT v Hotel Excelsior Ltd (2011) 141 TTJ 248 (Delhi)( Trib).

Initial purchase of linen, blankets, liveries of peons etc. before commencement of business

- Ashoka Hotels 72 ITR 306(Del)

33


Expenditure on replacement of carpet in guestrooms, restaurants, banquet hall, etc.

- Lake Palace Hotels 258 ITR 562 (Raj)

Expenditure on replacement of linen

- Carlton Hotels Pvt. Ltd. 94 ITR 311 (All)

Expenditure of Repairs / renovation of hotel building - revenue expenses



Payment for non exclusive use of logo based on turnover and not lump sum payment - allowable as

revenue expenditure

- Asst CIT vs. Shriram Transport Finance Co Ltd ( 2011) 9 ITR 543 (Chennai Trib)

The assessee had no other right including right to transfer logo

Relied on Jonas Woddhead and Sons (India) vs. CIT (1997) 224 ITR 342 (SC) holding that

payment for use of logo is always revenue in nature

34


Payment made under Franchise & Management Agreement for availing technical know-how,

coupled with technical consultancy services, for setting-up new and distinct business - capital

expenditure

Assessee - engaged in business of development and construction of housing projects extended its

business in the field of hospitality viz. business of setting up, operating/running of restaurants

To set up restaurants, assessee obtained professional services of two leading consultants and made

payments for consultancy/technical assistance/technical know-how



payments for consultancy/technical assistance/technical know-how

Such payment was disallowed holding that it was prior to commencement of business

CIT(A) held that payment was for acquiring of knowledge and using technical know-how of the operator,

prior to the commencement of business

ITAT upheld CIT(A)s finding that expenses were incurred prior to commencement of restaurant business,

which was a new business and expenditure was for setting up of it was not allowable

- Ansal Housing & Construction Ltd. v. DCIT (ITA Nos. 3192/Del/08 & 4595/Del/05 dated 9 Sept 2011

ITAT Delhi)

35

Depreciation on building not a plant

Hotel building partly used as hotel and partly rented out to employees no segregation of building

for purpose of rate of depreciation

Depreciation

Depreciation on Sanitary and pipe line fittings allowed as plant

Anand Theatres 244 ITR 192 (SC)

CIT vs. Taj Mahal Hotel (82 ITR 44) (SC)



Sangu Chakra Hotels P. Ltd. 292 ITR 591 (Mad)

for purpose of rate of depreciation

36

L.P. Hospitality Pvt Ltd. 301 ITR 377(Del)

- Receipt of assessees business were shared with another party, in lieu of materials and labour

supplied by him

- Assessee using brand name of other party, who was only catering at assessee s premises

- Held - assessee had no control over business and there was no mechanism to prevent alleged

withdrawal by other party, no exclusive use of assets by assessee for own business, disallowance

u/s 38(2) for proportionate depreciation for use of assets by another party

If fixed assets of assessee were utilized by another party , proportionate depreciation for use

assets to be disallowed as assets are not exclusively used for its business purpose

Depreciation in case of discontinued business

Depreciation in case of discontinued business allowed once it is in existence

Assessee company did not do any hotel business after its hotel building was washed away in floods However,

being a juristic entity incorporated under the Companies Act, did not cease to exist as it had to fulfill its

obligations imposed by Companies Act .

Therefore, once the assessee company is in existence, it is entitled to depreciation though it has discontinued

its business.

- CIT v Kirti Resorts (P) Ltd ( 2011) 60 DTR 138/243 CTR 341 (HP) (High Court)



TDS u/s. 194I if payments made for hotel accommodation taken on regular basis

TDS

FAQ No. 20 of Circular No. 715 dated 8.8.1995

earmarked rooms let for specific rate and specific period

where rooms are not earmarked, but hotel has legal obligation to provide such types of rooms during the

currency of the agreement

rate-contract agreements, i.e., agreement for providing rooms (not specific) at a pre-determined rate are



not treated as accommodation on regular basis

194C does not apply to services rendered by hotel - East India Hotels

Expression carrying out any work in section 194C is limited to doing something with a view to achieve

the task undertaken or to carry out an operation which produces some result.

The services rendered by a hotel to its customers by making available certain facilities/amenities like

providing multilingual staff, telephone, bank counter, shopping centre etc. do not involve carrying out any

work which results into production of the desired object and therefore, would be outside the purview of

section 194C of IT Act.

38


Membership fees - Allowed to be deferred over term of contract / membership tenure - Mahindra

Holidays & Resorts (India) Ltd.

The assessee is in the business of selling timeshare units in its various resorts

For amount collected from timeshare members, assessee considered only 40% of membership fees as

income and the balance 60% was treated as deferred income.

The AO, considering mercantile system of accounting, contended that receipt (for deferred income)

was undisputedly income of current year

ITAT observed that there are two necessary conditions for income accrual / earning (i) assessee must



ITAT observed that there are two necessary conditions for income accrual / earning (i) assessee must

have contributed to its accruing or arising by rendering services or otherwise, and (ii) a debt

must have come into existence and he must have acquired a right to receive the payment.

ITAT observed that a debt is created in favour of the assessee immediately on execution of the

agreement. However, it cannot be said that the assessee has fully contributed to its accruing by

rendering services.

It held that said receipt is not income as contractual obligation is fastened to the receipt to provide

services in future over the term of contract.

39

Matching Principle!!


Advance on sale of room nights is shown as an advance and thereafter apportionment to income is based on

the happening of the event of the customer availing the room nights, is correct method.

- Assessee received a general amount from customer/member

- Options were granted to customer/member of staying in many alternate properties or refund of money

called surrendered value or to utilize/purchase products and services of the companies /group companies

- Advance received on sale of room nights could not be treated as income

Entire advance received on sale of room nights could not be treated as income - Pancard Clubs



- Advance received on sale of room nights could not be treated as income

Income attributable to advance subscription Deferred income

- Receipt under time share arrangement sale of time share units for 99 years

- Time share selling price consisted of cost of time share and advance subscription

- Income pertaining to 99 years cannot be brought to tax

Income under time share arrangement to be deferred T. K. International

40


Contrary view taken in case of Sterling Holiday Resorts (India) Ltd

The assessee-company was engaged in the business of sale of time share units

Assessee entered into a time share agreement with customers to extend usership rights along with

various facilities for a period of 99 years

The assessee treated 45 % of said receipt as income and balance 55 % was treated advance

subscription (deferred income)



subscription (deferred income)

ITAT held that said receipts cannot be construed as deposit nor as advance

ITAT held that there is absolutely no rationale for excluding 55 % of income and assessee also failed to

satisfy that 55 % of receipt was to meet certain obligations Therefore, entire receipt was treated as

income of year under consideration

41

Distinguished by Mahindra Holidays & Resorts (India) Ltd!!

Marketing / PR / travel agents

- Hoteliers engage foreign agents / consultants for

promoting their brand outside India (through advertisement, trade fairs etc.)

rendering services to foreign customers, i.e., room and travel booking

Sales promotion, marketing services including use of brand, tradename

- OECD Commentary on payments made under composite contracts

Payment of marketing fees, consultancy services



Break-down the payment into various services contemplated in the agreement

However, if one part of the service constitutes the principle purpose of the contract and other parts

are merely ancillary or less important, the treatment applicable to the principle part would generally

be applied to entire amount

Composite payment for availing services and use of brand no royalty / FTS

- Use of brand, trade name incidental, main job was services in relation to advertisement, publicity

Sheraton International Inc. 106 TTJ 620 (Del)

42

Decision of Sheraton International is in line with OECD Commentary

Contrary view taken by AAR in International Hotel Licensing Company S.A.R.L. 288 ITR 534

- Amounts in connection with the marketing and business promotion activities said to be conducted

outside India taxable in India

- Satisfies definitions of FTS

Fee for user of name and accreditation - not taxable as royalty

- accreditation does not allow the accredited product to use, or have a right to use, a trademark, nor

Payment of marketing fees, consultancy services



- accreditation does not allow the accredited product to use, or have a right to use, a trademark, nor

any information concerning industrial, commercial or scientific experience

ACIT vs. Anchor Health and Beauty Care Pvt Ltd (ITA No. 7164/Mum/2008)

43

Access to consumer database maintained by service provider, standard facility provided to anyone - not royalty

- Wipro Limited 92 TTJ 796 (Bang)

Assessee was engaged in the business of distributing Gartner Groups research products

Received subscription fees which enabled subscribers to access research products over the internet

from its data server which was located outside India not a royalty

Payment for use of database containing financial and economic information of companies - not royalty

- no exclusive right or copyright was made over to customer and it did not amount to imparting of information

Payment for access to database, research report, reservation system



- no exclusive right or copyright was made over to customer and it did not amount to imparting of information

concerning the applicants own knowledge, experience or skill in commercial and financial matters

Factseth Research Systems Inc., In Re (AAR) (225 CTR 49)

Operating and maintaining Computer Reservation System for booking tickets PE / Business Connection in

India

- Galileo International Inc. (2008) 19 SOT 257 (Del)

- Amadeus Global Travel Distribution S.A. 113 TTJ 767 (Del)

Access to reservation system / software for booking reservations, training staff, updating database royalty

- IMT Lab India Pvt. Ltd. 287 ITR 450 (AAR) (India USA Treaty)

44

Payment for access to database, research report, reservation system

Six Continents Hotels Inc. v. DCIT (International Taxation) 11 taxmann.com 332 (Mum)

- Various Indian hotels were licensee to the trademark owned by NR, who were operating as per terms

of agreement with NR

- Assessee received the marketing and reservation contribution from worldwide hotels (including

Indian hotels), to meet common expenses of marketing and providing centralized reservation

Marketing and reservation fees received from franchisee hotels with a corresponding obligation to

use it for an agreed purpose - not regarded as income



facilities to them

- For marketing and reservation contribution, held

It was with a corresponding obligation to use it for the agreed purpose

Hence, was not an unfettered receipt and hence cannot be viewed as income

Not royalty or FTS or business profits in the absence of PE in India

45

Payment for advisory services and opinions for improvement of existing facilities in hotels - not make available

- ACIT v Viceroy Hotels Ltd.- ITAT Hyderabad (ITA Nos. 401, 436, 437, 482 AND 483 (HYD.) of 2007

Payments for quality / other audits conducted, issuing of grading certificates Not making available technical services

- Diamond Services International Pvt. Ltd. 169 Taxman 201 (Bom)

Application fee, programmed fee, certification, fee for conducting surveillance audit etc. in respect of granting

accreditation - not make available

- Joint Accreditation System of Australia and New Zealand, In re (2010] 194 TAXMAN 11 (AAR)

Payment for grading, certification etc.- Royalty / FTS?



- Joint Accreditation System of Australia and New Zealand, In re (2010] 194 TAXMAN 11 (AAR)

Testing and certification services utilised for export activity not taxable as royalty

- Havells India Ltd v Addl CIT ( 2011) 59 DTR 118 140 TTj 28 3 / 47 SOT 61 (Delhi) (Trib).

Consultancy services provided to foreign chefs and trainers FTS

- Oberoi Hotels (India) Pvt Ltd. 231 ITR 148 (SC)

Treaties not having make available clause?

Payments to professional consultants / rating agencies?

46

Payments to expat DJs, musicians, entertainer etc. liable to tax in India

- Generally falls under Article 17 which provides for taxing in state where the activities are performed (i.e. in

India)

Payments to expat DJs, musicians, entertainer



b. Tour Operators



- Bansal Credits Ltd. 259 ITR 69 (SLP dismissed by Supreme Court)

- Indocount Finance Ltd. 271 ITR 251 (Del)

- Sita World Pvt. Ltd. vs. Inspecting AC ((1993) 45 ITD (DEL) 623)

Motor cars given on lease by tour / travel operators - higher rate of depreciation

Depreciation on motor car

Motor cars given on lease - higher rate of depreciation not allowed as assessee merely leased the



Motor cars given to hotel guests on hire for sight seeing used whether in business of

running on hire to claim higher rate of depreciation??

Motor cars given on lease by tour / travel operators liable to wealth tax?

Motor cars given on lease - higher rate of depreciation not allowed as assessee merely leased the

the vehicles and not engaged in business of hire

- Bhagwati Appliance (Now Dairyden Ltd.) vs. ITO (2011) 10 taxmann.com 329 (Guj-HC)

49

Held as Commission

Singapore Airlines (2009-TIOL-183-HC-DEL)

Air France (2008-TIOL-40-ITAT-DEL)

Not held as Commission

Difference between the published fare and the net price

TDS



Not held as Commission

CIT v. Qatar Airways - ITA No. 99/2009 - Bombay High Court

Discount on issues of concessional air tickets to travel agents not commission or brokerage

TDS deductible on principal-to-agent relationship

British Airways PLC (2008-TIOL-115-ITAT-DEL)

Austrian Airlines (2007-TIOL-454-ITAT-DEL)

- Followed Ahmedabad Stamp Vendors 257 ITR 202(Guj) and M.S. Hammed & Others vs. Director of

State Lotteries 249 ITR 1856 (Ker.).

50

FAQ No. 6 of Circular No. 715 dated 8.8.1995

Payments to travel agent for purchase of tickets not liable to TDS u/s. 194C

TDS

Discount given by agent of Airlines to intermediaries who book tickets for third parties

Not a commission / brokerage



Not a commission / brokerage as there is no contract of agency between assessee and intermediaries,

intermediaries are not acing on behalf of the assessee

ITL Tours and Travels Pvt. Ltd.vs. ITO (ITA No.5746/Mum/2009 Mumbai Tribunal)

51

c. Malls and

Amusement

parks



parks

Income from letting of malls

For letting of shopping malls/business centers on properties owned and developed by assessee, it was

observed that basic intention of assessee was commercial exploitation of its properties, hence, income derived

was BI

- Pfh Mall & Retail Mgmt Ltd. 112 TTJ 523(Asr.)

Referred Kongarar Spinners (P.) Ltd. [1994] 208 ITR 645] and held , where main intention is of letting out,

income HP income, Where main intention is exploitation of immovable property by way of commercial

activities BI

Income from properties let out with intention of commercial exploitation of properties, was BI



- Harvindarpal Mehta (HUF) vs. DCIT [2010] 122 ITD 93 (MUM)

Space provided in business centre alongwith other services. As object of assessee was to run business

centers on commercial lines, income is Business income

Income from maintenance charges towards promotion and upkeep of the Mall - BI

Assess collected maintenance charges from lessees and also from the persons to whom the premises were

sold

HC upheld ITAT and CIT(A) findings that mall upkeep charges are meant to promote the mall

Quantum of maintenance charges under the agreement are based on area of he premises - cannot be a

ground to consider the said income as HP income

- CIT v. M/s Runwal Deveopers Pvt. Ltd. (2011 TIOL 658 - Mumbai High court)

53

Glossary

AAR Authority for advance Ruling

AO Assessing Officer

AY Assessment Year

BI Business Income

BMC Bombay Municipal Corporation

CIT Commissioner of Income Tax

IFOS Income from other Sources

IT Act Income Tax Act, 1961

MAT Minimum Alternative Tax

NR Non Resident

OECDOrganization for Economic

Cooperation and Development

PE Permanent Establishment



CRS Computer Reservation System

DTC 2010 Direct Taxes Code, Bill 2010

ECB External Commercial Borrowings

FAQ Frequently asked Questions

FDI Foreign Direct Investments

FTS Fees for Technical services

HC High Court

HP House Property

PE Permanent Establishment

PR Public relations

ROI Return of Income

TDS Tax deducted at Source

u/s Under Section

VAT Value Added Tax

SOP Standard Operating procedure

TDS Tax Deducted as Source

WTTC World Travel and Tourism Council

Thank You

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