Hotel PPT Final

Hotel & Tourism
Industry
Domestic &
International Tax
aspects
December 2011
Presentation Outline
1 Indian Tourism Industry
Major players of Indian Tourism

2
industry
a Hotels
b Tour operators
Malls and Amusement parks

c
3 Glossary
(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.
2
1. Indian Tourism
Industry
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms
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
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2. Major players of
Indian Tourism
Industry
Major players of Indian Tourism Industry
Hotels
Indian
Tourism
Industry
Malls and
Tour
Amusement
Operators
parks
(2011) KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms
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a. Hotels
Regulations at a glance
Shops & Establishment

Certificate, Municipality
Key approvals /
licenses required Health License etc.
Operational licenses
Permit and liquor licenses
FDI regulations
Foreign Exchange
Regulations ECB Regulations
Deductions and related issues

Provisions of IT Hotel Operating Arrangement
Act
Others issues
Investment based incentives

Provisions of Section 44(8) read with
DTC 2010
XIII schedule (clause h)
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Key approvals / licenses
required
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
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
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
Hotel Industry 2009 Today
Profit based deductions Investment based deductions
Profits in excess of capital investment

Profits eligible for deduction
taxable
Deduction for Capital investments allowed Deduction for capital investments allowed in
by way of depreciation over useful life of the year of investment in form of accelerated
asset depreciation
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Profit linked deductions - Section 80ID and Section 80IE
Section 80ID Section 80IE

Engaged in business of 2-4 Star hotel and building, Engaged in business of two-star or above
Eligibility owning and operating convention Centre in Delhi category hotel, adventure or leisure
Eligibility NCR Region and other areas* or hotel in specified sports in North-Eastern States&
districts^ having World Heritage site
Hotels and Convention centre in Delhi NCR - 1 1 April 2007

Commencement April 2007
For World Heritage Sites - 1 April 2008
Hotels and Convention centre in Delhi NCR - 31 31 March 2017
Sunset July 2010
clause For World Heritage Sites - 31 March 2013
100% of profits for 5 years 100% of profits for 10 years

Deduction available
Not formed by splitting up / reconstruction Same as those mentioned in Section 80ID
Not formed by transfer of building previously used
as hotel / convention centre
Conditions for Not formed by transfer of plant or machinery
Conditions
eligible business previously used for any purpose
To furnish CA certificate alongwith ROI (form
10CCBBA)
Profit-linked deduction grandfathered under DTC regime

* Farizabad, Gurgaon, Gautam Budh Nagar and Gaziabad
&Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura
^ Agra, Jalgaon, urangabad , Kancheepuram etc.
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Investment linked deductions - Section 35AD
Eligibility Building and operating a new two-star or above category hotel anywhere in India
Eligibility
Commencement
Date for 1 April 2010
commencing of
operations
Entire amount of capital expenditure, except land or goodwill or financial instrument,

Deduction
available incurred during the year
Pre-commencement expenditure allowed in the year of commencement of operations
Not formed by splitting up / reconstruction

Conditions for Not formed by transfer of plant or machinery previously used for any purpose
eligible business
To furnish CA certificate alongwith ROI (form 10CCBBA)
If investment based deduction is claimed under this section, no profit based deduction would
be allowed
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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)
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?
Deduction under section 35AD is similar to deduction as per schedule XIII under DTC 2010
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Comparison of Section 80ID, 80IE and Section 35AD
Particulars Section 80ID Section 80IE Section 35AD

Eligibility Engaged in business of 2-4 Star Engaged in business of Building and operating a new two-
hotel and building, owning and two-star or above star or above category hotel
operating convention Centre in category hotel, anywhere in India
Delhi NCR Region and other areas* adventure or leisure
or hotel in specified districts^ having sports in North-Eastern
World Heritage site States&
Nature of deduction Profit based deduction Profit based deduction Investment based deduction
Commencement Hotels and Convention centre in 1 April 2007 1 April 2010
Delhi NCR - 1 April 2007
For World Heritage Sites - 1 April
2008
Sunset clause Hotels and Convention centre in 31 March 2017 ----

Delhi NCR - 31 July 2010
For World Heritage Sites - 31 March
2013
Tax holiday 100% of profits for 5 years 100% of profits for 10 Deduction of capital expenditure
years (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
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Hotel Operating
Arrangements
Hotel Operating Arrangements
Own and operate of Hotel
Lease and operate of Hotel
Hotel Operating and Management

(O&M) Agreement
Franchise arrangements
A particular arrangement may be combination of above!!
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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.)
Owning and
maintaining of hotel
Considered as
Operating revenue Business income
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Lease and operate of hotel
Mechanics for A Ltd. A Ltd. (owning co.)
A Ltd. owns the hotel

Lease House Property
A Ltd. gives the hotel on lease rentals Income??
Lease to
to operator- B Ltd.
B Ltd. Mechanics for B Ltd.
A Ltd. earns lease rentals Hotel (operating co.)
Basis Fixed or certain B Ltd. earns operating
percent of revenue revenue
Operating Business B Ltd pays lease
revenue Income
Issues for A Ltd. rentals A Ltd.
Lease rent BI / HP / IFOS? Issues for B Ltd.

- Deduction under chapter Deductions for B Ltd.
VIA?
- Deduction under chapter VIA?
- 35AD deduction?
- 35AD deduction?
Lump sum lease payments
- Deferred revenue expenditure?
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Characterization of Income - HP income vs. BI vs. IFOS - Broad parameters
HP Income BI IFOS
Merely parted with the possession Primary object - to let out portion of property with additional Transaction in nature of lease and
of the premises right of using furniture other common facilities not license for temporary period and
No intention of commercial - Shambhu Investments Pvt. Ltd. 263 ITR 143 (SC) lessor had no intention to resume
exploitation hotel business after end of lease
Involvement of assessee in management / operations of period
- Ocean Structures (P) Ltd. 170
business run through premises let out - Universal Plasts Ltd. [237 ITR
Taxman 42(Del)
- Faith Real Estate Pvt Ltd. 173 taxman 405(Del) 454(SC)]
- Keyaram Hotels (P.) Ltd. 173
Taxman 262(Mad) - East West Hotels Ltd. V/s. DCIT
Let out for smooth carrying on business and on commercial 309 ITR 149 (Kar)
expediency
Licence agreement - Colourable - Orient Hospital Ltd. vs Dy. CIT
device - Sateo Securities & Financial V/s. ITO (2009-TIOL-265- (185 TAXMAN 83)
ITAT-MUM)
- Ocean Structures (P) Ltd. 170
Taxman 42(Del)
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) )
To claim 35AD deduction, lessor has to be involved in management of hotel
Lease rent income not eligible for 35AD deduction if income not from operating of hotel
Under DTC 2010, lease income is to be considered as Business Income

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Hotel Operating and Management (O&M) Agreement
A Ltd. (owning co.)
arrangement Constructs and starts

functioning
Management
O&M
fees
Operating revenue
Hotel
B Ltd. (operating co.)
Mechanics
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
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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

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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?
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Franchise Arrangement
B Ltd -
Franchisor
Supply of
knowhow,
brand, Initial &
goods etc + Recurring
advisory fees
assistance
A Ltd. -
Franchisee
Mechanics for A Ltd.
A Ltd. owns a hotel and has requisite resources for running an hotel
Mechanics for B Ltd.
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
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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
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
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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
Implications in hands of B Ltd.
For B Ltd.
- Receipt of initial and recurring franchise fees to constitute Royalty / FTS
- Receipt for supply of raw material to constitute Business Income
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!!
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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.?
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Other issues
Other Issues
1 Expenses - Capital vs. revenue
2 Depreciation
3 TDS
4 Time share units - Year of taxability
5 Payment of marketing fees, consultancy services
6 Payment for access to database, research report, reservation system
7 Payment of grading, certification etc.
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Expenses - Capital vs. revenue
Expenditure of Repairs / renovation of hotel building - capital expenses
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)
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)
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Expenditure of Repairs / renovation of hotel building - revenue expenses
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)
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
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)
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Depreciation
Depreciation on building not a plant
Anand Theatres 244 ITR 192 (SC)
Depreciation on Sanitary and pipe line fittings allowed as plant
CIT vs. Taj Mahal Hotel (82 ITR 44) (SC)
Hotel building partly used as hotel and partly rented out to employees no segregation of building
for purpose of rate of depreciation
Sangu Chakra Hotels P. Ltd. 292 ITR 591 (Mad)
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
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
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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)
37
TDS
TDS u/s. 194I if payments made for hotel accommodation taken on regular basis
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
Time share units - Year of taxability
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
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.
Matching Principle!!
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Entire advance received on sale of room nights could not be treated as income - Pancard Clubs
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
Income under time share arrangement to be deferred T. K. International
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
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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)
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
Distinguished by Mahindra Holidays & Resorts (India) Ltd!!

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Payment of marketing fees, consultancy services
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
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)
Decision of Sheraton International is in line with OECD Commentary

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Payment of marketing fees, consultancy services
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
any information concerning industrial, commercial or scientific experience
ACIT vs. Anchor Health and Beauty Care Pvt Ltd (ITA No. 7164/Mum/2008)
43
Payment for access to database, research report, reservation system
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
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
Marketing and reservation fees received from franchisee hotels with a corresponding obligation to
use it for an agreed purpose - not regarded as income
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
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 grading, certification etc.- Royalty / FTS?
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)
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)
Payments to professional consultants / rating agencies?
Treaties not having make available clause?

46
Payments to expat DJs, musicians, entertainer
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)
47
b. Tour Operators
Depreciation on motor car
Motor cars given on lease by tour / travel operators - higher rate of depreciation
- 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 - 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)
Motor cars given on lease by tour / travel operators liable to wealth tax?
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??
49
TDS
Difference between the published fare and the net price
Held as Commission
Singapore Airlines (2009-TIOL-183-HC-DEL)
Air France (2008-TIOL-40-ITAT-DEL)
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
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.).
TDS deductible on principal-to-agent relationship

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TDS
Payments to travel agent for purchase of tickets not liable to TDS u/s. 194C
FAQ No. 6 of Circular No. 715 dated 8.8.1995
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
Income from letting of malls
Income from properties let out with intention of commercial exploitation of properties, was BI
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
- 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)
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Glossary
AAR Authority for advance Ruling IFOS Income from other Sources
AO Assessing Officer IT Act Income Tax Act, 1961
AY Assessment Year MAT Minimum Alternative Tax
BI Business Income NR Non Resident
BMC Bombay Municipal Corporation Organization for Economic
OECD
CIT Commissioner of Income Tax Cooperation and Development
CRS Computer Reservation System PE Permanent Establishment
PR Public relations
DTC 2010 Direct Taxes Code, Bill 2010
ROI Return of Income
ECB External Commercial Borrowings
TDS Tax deducted at Source
FAQ Frequently asked Questions
u/s Under Section
FDI Foreign Direct Investments
VAT Value Added Tax
FTS Fees for Technical services
SOP Standard Operating procedure
HC High Court
TDS Tax Deducted as Source
HP House Property
WTTC World Travel and Tourism Council
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Hotel PPT Final

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Hotel PPT Final

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Hotel & Tourism

1 Indian Tourism Industry

Major players of Indian Tourism

Malls and Amusement parks

- 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

Shops & Establishment

Deductions and related issues

Investment based incentives

General Licenses (Illustrative list)

Complex procedure for obtaining multiple licenses

Hotel Industry 2009 Today

Profit based deductions Investment based deductions

Profits in excess of capital investment

Section 80ID Section 80IE

Hotels and Convention centre in Delhi NCR - 1 1 April 2007

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

Profit-linked deduction grandfathered under DTC regime

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

Not formed by splitting up / reconstruction

Particulars Section 80ID Section 80IE Section 35AD

Sunset clause Hotels and Convention centre in 31 March 2017 ----

Own and operate of Hotel

Lease and operate of Hotel

Hotel Operating and Management

A particular arrangement may be combination of above!!

Owner of hotel operates the hotel

A Ltd. (owning co.)

Mechanics for A Ltd. A Ltd. (owning co.)

A Ltd. owns the hotel

Lease rent BI / HP / IFOS? Issues for B Ltd.

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

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

A Ltd. (owning co.)

arrangement Constructs and starts

B Ltd. (operating co.)

A Ltd. owns and operates the hotel

B Ltd. earns management and operations fees

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.

Implications in hands of B Ltd.

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

Nizam A , owns a palace

The said Palace is given on lease to B Ltd

B Ltd operates the hotel

Mechanics for B Ltd.

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

Constituents of a general Franchise Agreement:

Franchise arrangement relevant where :

Implications in hands of A Ltd.

Implications in hands of B Ltd.

- Receipt for supply of raw material to constitute Business Income

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

1 Expenses - Capital vs. revenue