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TMI Blog2006 (12) TMI 531X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80HHD(3) of the Act when this sub-clause specifically provides for reducing payment made to the hotels out of receipts specified in sub-section 2 but does not provide for reducing the same out of total receipts of the business? 3. We have heard the learned counsel for the parties in great detail. These appeals involve the interpretation of Section 80HHD of the Act, the background to the introduction of which requires to be noticed. Section 80 HHD was first introduced in the Act by the Direct Tax Laws (Amendment) Act, 1989. In his Budget Speech on 22.2.1989 the Union Finance Minister explained the rationale for the introduction of the said provision in the following words: In order to provide encouragement to tourism for augmenting foreign exchange reserves, it is proposed to provide deduction of 50 per cent of exchange earnings derived from services rendered to foreign tourists by approved hotels or travel agents. The remaining 50% will also receive similar exemption if it is credited to reserve fund and utilized for the purpose of business of the assessee on the fulfilment of certain conditions. Further, in order that the 100 per cent exemption of foreign exchange earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained further in a Circular No. 559 dated 4.5.1990 issued by the Central Board of Direct Taxes (CBDT) was as under: (i)The assessee had to be an Indian company or an Indian resident engaged in the business of a hotel, or of a tour operator approved by the prescribed authority in this behalf, or of a travel agent; (ii)in computing the total income of such assessee a deduction would be allowed which deduction was a sum equal to: (a)50% of the total profits ?derived by him from services provided to foreign tourists? plus (b)so much of the remaining profit as is debited to the profit and loss account in the previous year and credited to a reserve account to be utilized by the assessee for the purposes of his business in the manner stipulated in sub- section (4). (iii)Among the conditions attached to the availing of such deduction were that the moneys were to be received by the assessee only in convertible foreign exchange and the reserve so created had to be utilised only for certain specific purposes; (iv)Where only a part of the business of the assessee was providing services to foreign tourists, the following formula was to be applied for working out the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... many cases, the foreign tourists visit India on a package tour and make payment in foreign exchange, in one lump sum, to a tour operator in India. The Indian tour operator, thereafter, makes payments to the hotels where the tourist groups are lodged. Since the foreign exchange is received only by the tour operator, it is only he who can claim the tax concession under section 80HHD. The hotel owner is denied the benefit of section 80HHD, even though the payment for service to the foreign tourists rendered by the hotel may constitute the major part of the expenditure by the foreign tourist in India. 33.5 With a view to securing that the benefits under section 80HHD for all the three segments of the tourism industry, section 80HHD has been amended to provide that, in cases where payments for services to the foreign tourist provided by hotel, tour operator or a travel agent are received in Indian currency from another hotel, tour operator, travel agent or airline, the person providing the service to the foreign tourists will be eligible for deduction under section 80HHD in relation to profits derived therefrom, subject to the condition that the payment in Indian currency is made ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. But first, the facts of the case in brief. 8. The Respondent assessee is a travel agent and tour operator. It also has a hotel business under the name of Nikko Hotel. For the AY 1996-97, the assessee declared a total taxable income of ₹ 18,00,350. In the computation of income, the assessee declared its ?Profits and gains from business and profession? (`Business Profits?) as ₹ 28,85,448. The foreign exchange ((FE) received by the assessee from foreign tourists (i.e. ₹ 6,72,89,350) included the FE receipts pertaining to other hotels (i.e. ₹ 2,51,64,240) in respect of which the assessee issued Disclaimer Certificates (DCs) to such hotels in Form 10 CCAE. The assessee?s total receipts for AY 1996-97 was ₹ 7,35,98,820 and its rental income was ₹ 6,73,029. It showed an amount of ₹ 32,19,926 as the receipts of Nikko Hotel. The assessee submitted a separate computation of the business profits of Nikko Hotel as ₹ 23,39,122. The assessee also made a separate calculation for the Section 80 HHD (1) deduction for the Nikko Hotel. In order to avail of the benefit under Section 80 HHD (1) (b), the assessee transferred to the tax incentive re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n AY 1996-97, with a slight difference in that in addition to deducting the receipts of Nikko Hotel from the total receipts, the assessee also deducted the FE receipts in respect of which DCs had been issued to other hotels. The AO by the assessment order dated 23.3.2001 again clubbed the business profits of the tour operator and hotel businesses. The AO, following the earlier pattern in AY 1996-97, permitted the assessee?s formulation of the numerator (i.e. Total FE minus FE covered by DCs issued to other hotels) but disallowed the deduction of the Nikko Hotel receipts and the FE receipts in respect of which DCs had been issued to other hotels from the total receipts (constituting the denominator of the multiplier). Again, the assessee appealed to the CIT (A). 12. The CIT (A) by an order dated 11.2.2002 first disposed of the appeal pertaining to AY 1998-99. Accepting the assessee?s contention in part, the CIT (A) reworked the profits derived from services to foreign tourists by permitting deduction of the FE receipts in respect of which DCs had been issued to other hotels from the total receipts (constituting the denominator of the multiplier). However, the CIT (A) did not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal position that so as to work out proportionate amount correctly both the numerator as well as denominator should be found out on a uniform basis. There is a detailed discussion in this respect in the decision of ITAT Calcutta in 53 ITD 180 (Cal). In our opinion, the legal position is more clear in the case of a tour operator because the exclusion of payments to hotels etc. is provided for in the statute itself by sub-section (2A) of Section 80HHD. We, therefore, do not find much room for a view other than that adopted by the learned CIT (Appeal). We uphold the same and dismiss these appeals filed by the revenue.? 14. Ms. Prem Lata Bansal, the learned counsel appearing for the appellant submits that the express wording of sub-section (3) of Section 80HHD of the Act admits only of a strict and literal construction. According to her, the expression in sub-section (3) does not envisage the deduction of the payments made by the assessee of FE to other hotels [covered by the certificate under sub-section (2A)] from the total receipts of the business. If that were the intention of the legislature, the section would have expressly provided for such deduction. On the other hand, Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and not that of other hotels for whom the assessee may have collected from foreign tourists FE receipts and in respect of which the assessee has not only made over such FE receipts to the other hotels but has also issued the necessary certificate under sub-section (2A), i.e., in Form 10 CCAE. This interpretation, in our view, comports with the purpose for which the provision was introduced in the first place . 17. Although no direct decision on a similar issue concerning Section 80 HHD has been brought to our notice, there are decisions in regard to a similar issue arising in the context of Section 80 HHC, which support this line of interpretation. In Commissioner of Income Tax v. Sudarshan Chemicals Industries Limited [2000] 245 ITR 769 (Bom), while explaining the expression ?total turnover? in Explanation (ba) to Section 80 HHC, S.H. Kapadia J. (as His Lordship then was), speaking for the Bombay High Court explained that if sales tax and excise duty cannot form part of the export turnover [which constituted the numerator of the multiplier for the purposes of sub-section (3) of Section 80 HHC], they could also not the form part of the total turnover [which constit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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