2009 (10) TMI 22 - HC - Income Tax

Exemption u/s 80HHD - The AO 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 held that - If the room rent is excluded from the consideration for the purposes of Section 80HHD, the object of enactment of Section 80HHD would become meaningless and it will fail to achieve its purpose. - The ITAT has rightly reached to the conclusion that the provisions for amenity in the nature of rooms is an integral part of hotel business and if someone prefers to enjoy this amenity, then, he is said to have availed the services of nature as envisaged in the provisions of Section 80 HHD - the room rent charged by the hotel should also be taken into consideration for granting deduction under Section 80 HHD of the Income Tax Act, 1961

Summary

Issues Involved:
1. Interpretation of Section 80 HHD of the Income Tax Act.
2. Eligibility of room rent charges for deduction under Section 80 HHD.
3. Applicability of the Explanation to Section 80 HHD.
4. Reasonableness and fairness in the interpretation of fiscal statutes.

Comprehensive, Issue-Wise Detailed Analysis:

1. Interpretation of Section 80 HHD of the Income Tax Act:
The core issue revolves around the interpretation of Section 80 HHD, which provides deductions for profits derived from services provided to foreign tourists. The section aims to incentivize businesses, particularly hotels, tour operators, and travel agents, to earn convertible foreign exchange. The court emphasized that the section should be read in its entirety, and any ambiguity should be resolved by considering the dominant object of the provision, which is to promote earnings in convertible foreign exchange.

2. Eligibility of Room Rent Charges for Deduction under Section 80 HHD:
The court examined whether room rent charges fall within the ambit of "services provided to foreign tourists." The Assessing Officer had excluded room rent from the deductions, arguing that it does not constitute a service. However, the court noted that room rent in a hotel is inherently linked to the services provided, such as air-conditioning, TV, furniture, and other luxuries. The court concluded that room rent is an integral part of the services provided by a hotel and should be included in the deductions under Section 80 HHD.

3. Applicability of the Explanation to Section 80 HHD:
The Explanation to Section 80 HHD excludes certain services, such as sales in shops owned or managed by the hotel, from the definition of "services provided to foreign tourists." The court held that since room rent is not explicitly excluded by the Explanation, it should be included in the deduction. The court also referred to Circular No.559 dated 4th May 1989, which clarified that services provided at health clubs, beauty parlours, and similar facilities owned by the hotel are included in the term "services provided to foreign tourists."

4. Reasonableness and Fairness in the Interpretation of Fiscal Statutes:
The court reiterated that provisions dealing with deductions, exemptions, and reliefs in fiscal statutes should be construed reasonably and in favor of the assessee. The court found that excluding room rent from the deductions would defeat the purpose of Section 80 HHD, which is to promote earnings in convertible foreign exchange. Therefore, the court upheld the view that room rent charges should be considered for deductions under Section 80 HHD.

Conclusion:
The court dismissed the appeals, affirming that room rent charges should be included in the deductions under Section 80 HHD of the Income Tax Act. The court found no error in the Tribunal's decision and held that the provisions for room amenities are an integral part of the hotel business, qualifying as services provided to foreign tourists. The appeals were dismissed with costs.