Your hotel room stay not to get pricier as SC stops Income Tax Dept in tracks

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New Delhi | Updated: August 23, 2016 11:11:43 AM

In a breather to the hotel industry, the Supreme Court on Monday stayed the income tax department’s move to levy 10% tax on room tariffs, treating them as ‘rent’.

TDS provisions, the HC had said in its judgement, are applicable to services provided by hoteliers, such as room charges. “The contention of the petitioners that no part of the payment received by them as room charges falls within the ambit of ‘rent’ under Section 194-I of the Act is hereby rejected,” it had said. (PTI)TDS provisions, the HC had said in its judgement, are applicable to services provided by hoteliers, such as room charges. “The contention of the petitioners that no part of the payment received by them as room charges falls within the ambit of ‘rent’ under Section 194-I of the Act is hereby rejected,” it had said. (PTI)

In a breather to the hotel industry, the Supreme Court on Monday stayed the income tax department’s move to levy 10% tax on room tariffs, treating them as ‘rent’.

A bench headed by Justice AR Dave, while issuing notice to the ministry of finance and the Central Board Of Direct Taxes (CBDT), stayed the Delhi High Court’s March judgment that held that the payments made to a hotel towards accommodation would be covered by Section 194 I of the Income Tax Act, 1961, and hence were taxable.

Federation Of Hotel & Restaurant Associations Of India had challenged the Delhi HC judgment on the ground that Section 194-I deals with TDS with respect to payments of rent and does not apply to the hotel

industry since the charges for a room in a hotel is not ‘rent’ in terms of explanation of the provision.

TDS provisions, the HC had said in its judgement, are applicable to services provided by hoteliers, such as room charges. “The contention of the petitioners that no part of the payment received by them as room charges falls within the ambit of ‘rent’ under Section 194-I of the Act is hereby rejected,” it had said.

Terming the impugned (HC) judgment ‘erroneous’, the hoteliers’ association submitted that payments made by a guest in a hotel towards accommodation is in the nature of licence fee and not a rent or lease or agreement governed by the Transfer of Property Act.

Further, the payments made to a hotel are not only towards the land, building, plant and equipment, but it is a composite charge for various other items provided by the hotel, including services and facilities, the association stated, adding that there is no provision to divide or distinguish the charges towards rental and other components. Besides, the bills raised on the customers is incapable of being split up into separate charges — one of service and the other of sale of food stuffs, it added.

Though Section 194-I was introduced into the Income Tax Act with effect from June 1, 1994, according to the appeal filed through Parekh and Co, the high court failed to set aside the circulars dated August 8, 1995, and July 30, 2002, which have in effect extraneously expanded the scope of the meaning of ‘rent’ under Section 194-I of the income tax Act.

According to the hotel body, CBDT through various circulars had sought to expand the scope of the applicability of the provision by applying it to the payments made for “hotel accommodation taken on regular basis” and said the same will be in the nature of rent subject to TDS under Section 194-I.

Another circular had said the tour operators/travel agents were required to deduct TDS under section 194-I while making payments to the hotels.

These circulars were challenged by the hotel industry before the high court, which held that the payments made to a hotel towards accommodation would be covered by Section 194 I.

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