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TMI Blog2006 (1) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... t sub-section (3) while setting out the multiplier that is to be applied while determining the profits derived from services rendered to foreign tourists (where this is not the sole business of the assessee) expressly permits the deduction of the FE receipts in respect of which DCs have been issued to other hotels from the total FE receipts (constituting the numerator of the multiplier) but does not provide for such deduction from the total receipts that constitute the denominator of such multiplier. However, a closer reading of sub-section (3) reveals that the profits derived from services provided to foreign tourists shall be the amount which bears to the profits of the business (as computed under the head 'Profits and gains of business or profession') the same proportion as the receipts specified in sub-section (2) as reduced by any payment referred to in sub-section (2A), made by the assessee bear to the total receipts of the business carried on by the assessee . Therefore the words total receipts are obviously qualified by the immediately succeeding words, viz., of the business carried on by the assessee . In other words the total receipts are only those receipts that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vember 30, 2005, passed by the Income-tax Appellate Tribunal ( the ITAT ) dismissing I. T. A. Nos. 2159 and 2160 of 2002 filed by the appellant arising out of the assessment orders for the assessment years (AYs) 1996-97 and 1998-99 respectively. 2. We admit the appeals and frame the following substantial questions of law for determination: (a) Whether the Income-tax Appellate Tribunal was correct in law in holding that the payment made to the hotels are to be reduced from the amount received by the assessee for services rendered to foreign tourists as well as from the total receipts of the business while computing deduction under section 80HHD of the Act? (b) Whether, the Income-tax Appellate Tribunal has correctly interpreted the provisions of section 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 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. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusively of services provided to foreign tourists resulting in receipts in convertible foreign exchange, the profits of the business as computed under the head 'Profits 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 receipts in convertible foreign exchange, the amount which bears to the profits of the business (as computed under the head 'Profits and gains of business or profession') the same proportion as the receipts in convertible foreign exchange bear to the total receipts of the business carried on by the assessee. 5. The scheme of the above provision, at the time of its introduction, as explained further in Circular No. 559, dated May 4, 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1), profits derived from services provided to foreign tourists shall be the amount which bears to the profits of the business (as computed under the head 'Profits and gains of business or profession') the same proportion as the receipts specified in sub-section (2) as reduced by any payment referred to in sub-section (2A), made by the assessee bear to the total receipts of the business carried on by the assessee. 7.1 The rationale behind the changes brought about with effect from April 1, 1992, when sub-section (2A) of section 80HHD was introduced was explained in a Central Board of Direct Taxes Circular No. 621, dated December 19, 1991, as under: 33.4 In 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's receipt. So, for the purposes of computation of the profits derived from services provided to foreign tourists, such assessee will have to, under the revised section 80HHD(3), deduct such amount as is covered by the certificate in Form No. 10CCAE from the total foreign exchange received. This is as far as the numerator of the multiplier as mentioned in paragraph 5(iv) above is concerned. However, sub-section (3) is silent on whether such foreign exchange that is covered by the certificate in Form No. 10CCAE should also be deducted from the total receipts that constitute the denominator of the multiplier. And that is where the present controversy arises. 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 assessment year 1996-97, the assessee declared a total taxable income of Rs. 18,00,350. In the computation of income, the assessee declared its profits and gains from business and profession ( business profits ) as Rs. 28,85,448. The foreign exchange (FE) received by the assessee from foreign tourists (i.e. Rs. 6,72,89,350) included the FE receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (Appeals) ). 11. For the assessment year 1998-99, the assessee computed the profits derived from services to foreign tourists on the same lines as in the assessment year 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 Assessing Officer by the assessment order dated March 23, 2001, again clubbed the business profits of the tour operator and hotel businesses. The Assessing Officer, following the earlier pattern in the assessment year 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 Commissioner of Income-tax (Appeals). 12. The Commissioner of Income-tax (Appeals) by an order dated February 11, 2002, first disposed of the appeal pertaining to the assessment year 1998-99. Accepting the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m gross receipts in convertible foreign exchange that the assessee is considered to be entitled to and deduction is granted only in respect of net receipts in foreign currency. That being so, it is difficult to understand as to how such amounts for which the assessee issued certificate under Form No. 10CCEA should be treated as belonging to the assessee as a tour operator for the purpose of total business receipts of the assessee. It is settled 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 the Income-tax Appellate Tribunal Calcutta in Chloride India Ltd. v. Deputy CIT [1995] 53 ITD 180. 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 Commissioner of Income-tax (Appeal). We uphold the same and dismiss these appeals filed by the Revenue. 14. Ms. Prem Lata Bansal, learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the profits of the business (as computed under the head 'Profits and gains of business or profession') the same proportion as the receipts specified in sub-section (2) as reduced by any payment referred to in sub-section (2A), made by the assessee bear to the total receipts of the business carried on by the assessee . Therefore the words total receipts are obviously qualified by the immediately succeeding words, viz., of the business carried on by the assessee . In other words the total receipts are only those receipts that can be said to relate to the business of 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 No. 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 80HHD has been brought to our notice, there are decisions in regard to a similar issue arising in the context of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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