- (1.) PRAKASH Krishna, J. All these appeals have been filed by the department under Section 260 A of the Income Tax Act. The Income Tax Appeal No.25 of 1999 relating to the assessment year 1990-91 was considered as a leading case by the learned counsel for the parties, therefore, the facts from the said appeal are taken into consideration. It was stated at the bar that in the remaining appeals, except the assessment year, the relevant facts are identical.
(2.) THE facts of the case may be noticed in brief. The respondent herein is a company registered under the Indian Companies Act and is running a five star hotel in the name and style of "Taj Ganges". In the course of assessment proceedings, the assessee respondent claimed deduction under Section 80 HHD of Rs.35, 28, 323/-, under the Income Tax Act. The Assessing Officer found that the assessee has claimed the deduction under Section 80 HHD on room rent also, which according to him, is not permissible under the said Section. He was of the view that under Section 80 HHD, only such deductions will be admissible which relate to the service provided to the foreign tourists. He was of the view that since the assessee has charged the room rent separately for a particular room and for particular period, the charging of such room rent is not service provided to foreign tourists. The claim of the assessee that the room rent was charged at the rate of Rs.1, 000/- per day mainly for the luxuries provided in the form of various facilities, such as air-conditioning, T.V. and video facilities, highly comfortable furnitures and fixtures, telephone and room service and many more luxuries, was not accepted. The case of the assessee was that a simple room with the same dimension would merely fetch 1/100 of the room tariff if acquired in the open market. The Assessing Officer was of the view that on true and correct interpretation of the sub-clause B of sub-section 3 of Section 80 HHD an assessee is not entitled to claim deduction on room rent. Consequently, it allowed only 20 per cent of the receipt in respect of room rent under the said section. The assessment order was successfully challenged in appeal before the Commissioner of Income Tax (Appeals), Varanasi and the order of the First Appellate Authority has been confirmed by the Tribunal, in second appeal filed by the department. The order of the Tribunal is under appeal. In the memo of the appeal, the following question of law has been sought to be raised:- "Whether on the facts and in the circumstances of the case, the Tribunal was right in law, in holding that room rent charged by the hotel should also be taken in consideration for granting deduction u/s 80 HHD of the Income Tax Act, 1961?" Heard Sri A.N. Mahajan, learned standing counsel for the department and Sri Ashok Trivedi, the learned counsel for the respondent assessee. The controversy involved in the present appeal centres round the interpretation of Section 80 HHD of the Income Tax Act. The said section for the sake of convenience as it stood in the relevant point of time and produced in the assessment order, is being reproduced below:- "80 HHD. (1) Where the assessee, being an Indian Company or a person (Other than a company) resident in India, is engaged in the business of hotel or of a tour operator, approved by the prescribed authority in this behalf or a travel agent, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of a sum equal to the aggregate of - (a) fifty per cent of the profits derived by him from services provided to foreign tourists; and (b) so much of the amount out of the remaining profits referred to in clause (a) as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilized for the purposes of the business of the assessee in the manner laid down in sub- section (4). (2) This section applies only to services provided to foreign tourists the receipts in relation to which are received in or brought into, India by the assessee in convertible foreign exchange within a period of six months from the end of the previous year or, there the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period of six months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf. (3) For the purposes of sub-section (1), profits derived from services provided to foreign tourists shall be - (a) in a case where the business carried on by the assessee consists exclusively of services provided to foreign tourists resulting in receipt in convertible foreign exchange, the profit of the business as computed under the head "Profit and gains of business or profession"; (b) in a case where the business carried on by the assessee does not consist exclusively of services provided to foreign tourists resulting in receipt in convertible foreign exchange, the amount which bears to the profit of the business ( as computed under the head "Profit and gains of business or profession") the same proportion as the receipts in convertible foreign exchange bears to the total receipt of the business carried on by the assessee. (4) The amount credited to the reserve account under clause (b) of sub-section (1), shall be utilized by the assessee before the expiry of a period of five years next following the previous year in which the amount was credited for the following purposes, namely:- (a) construction of new hotels approved by the prescribed authority in this behalf or expansion of facilities in existing hotels already so approved; (b) purchase of new cars and new coaches by tour operators already so approved or by travel agents; (c) purchase of sports equipments for mountaineering, trekking, golf, river-rafting and other sports in or on water; (d) construction of conference or convention centres; (e) provision of such new facilities for the growth of Indian tourism as the Central Government may, by notification in the official Gazette, specify in this behalf; Provided that where any of the activities referred to in clauses (a) to (c) would result in creation of any asset owned by the assessee outside India, such asset should be created only after obtaining prior approval of the prescribed authority. (5) Where any amount credited to the reserve account under clause (b) of sub-section (1), - (a) has been utilised for any purpose other than those referred to in sub-section (4), the amount so utilised; or (b) has not been utilised in the manner specified in sub-section (4), the amount not so utilised, shall be deemed to be the profits, - (i) in a case referred to in clause (a), in the year in which the amount was so utilised; or (ii) in a case referred to in clause (b), in the year immediately following the period of five years specified in sub-section (4), and shall be charged to tax accordingly. (6) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed on the basis of the amount of convertible foreign exchange received by the assessee for services provided by him to the foreign tourists. Explanation: For the purposes of this section :- (a) "travel agent" means a travel agent or other person (not being an airline or a shipping company) who holds a valid licence granted by the Reserve Bank of India under section 32 of the Foreign Exchange Regulation Act, 1973 ( 46 of 1973) ; (b) "convertible foreign exchange" shall have the meaning assigned to it in clause (a) of the Explanation to section 80 HHC. (c) services provided to "foreign tourists" shall not include services by way of sale in any shop owned or managed by the person who carries on the business of hotel or of a tour operator or of a travel agent."
(3.) THE said section was inserted by clause -16 of the Direct Tax Laws Amendment Bill, 1988 w.e.f. 1st of April, 1989.;