ORAVEL STAYS LIMITED (FORMERLY KNOWN AS ORAVEL STAYS PRIVATE LIMITED),GURUGRAM vs. DCIT CENTRAL CIRCLE 6, NEW DELHI

At the outset, Sh. Ajay Vohra, Sr. Advocate representing the appellant assessee, submitted that the issue of TDS liability under section 194I of the Act interlinks these two appeals. Hence, this issue needed to be decided first and other issues, if required, thereafter. So, we have decided to adjudicate TDS issue first in the ITA No.452/Del/2023. Another issue in is that whether the TDS demand can be raised in TAN DLO04346G even after demerger of the business.

The first issue is whether the minimum guarantee expenses paid by the appellant assessee is liable for TDS under section 194I of the Act. First of all, it is better to understand the business model of the appellant assessee. The appellant assessee has entered into agreements with various hotels, etc. for facilitating booking of hotel rooms, etc. through its e-platform; OYO. As per the said agreement, the hotel conducts its operations in terms of providing lodging and accommodation services, whereas the appellant assessee provides technology, sales and marketing services to various hotels relating to the provision of lodging and accommodation services through its & 452 /Del/2023 Oravel Stays Limited e-platform. The agreement is based on ‘Minimum Guarantee Revenue Model’ (“MGRM’). As per the agreement, the assessee appellant has assured minimum revenue benchmark, which hotels/guest houses may/will receive or likely/expect to receive from the appellant assessee e-platform. In case, the benchmark is exceeded, then the hotel/guest house is required to pay service fee to the appellant assessee otherwise the appellant assessee is required to pay the service fee in case of shortfall in achieving the benchmark. The agreement further provides that in case the rooms are sold at price lesser than the agreed amount between the appellant assessee and hotels, the difference/loss has to be borne by the appellant assessee.

The Ld. Sr. Counsel submitted that the appellant assessee had provided only the service of securing booking of rooms in hotels and guest houses through its e-commerce platform maintained and run by it. The rooms could be booked by anyone and the bill would be raised in the name of customer occupying the room. It was further submitted that the appellant assessee, vide its e-platform and agreement entered with hotels, had not booked any room exclusively for its use but had enabled various customers to book rooms through its e-platform as evident from the agreement entered into with the hotel (A copy of an agreement at page 119-136 of the Paper Book was filed before us.).

The Ld. Sr. Counsel further submitted that hotels/guest houses were required to keep earmarked rooms available, as per agreements, for booking & 452 /Del/2023 Oravel Stays Limited through only the appellant assessee’s e-platform. The Ld. Sr. Counsel drew our attention to one of terms & conditions of the agreement, wherein it had been specifically provided that if the hotel/guest house would book any room(s) out of rooms agreed upon, then the minimum guarantee fee for the said room(s) would not be paid by the appellant assessee and the said booked room(s) would be considered as part of the minimum booking guarantee. Further, it was submitted that the appellant assessee did not get access/right to use hotel rooms even in the case where minimum booking had not been met. The Ld. Sr. Counsel thus summed up that the appellant assessee had not booked rooms for exclusive its use but had provided a e- platform for hotel bookings as a business model carried out by it with hotels as per agreements.

The Ld. Sr. Counsel further contended that the guarantee fee had been paid to various hotels/guest houses for not meeting the contractual obligations for unsold rooms (booking of minimum number of rooms not met through e-platform of the appellant assessee) and loss from sold rooms (booking of rooms at a lesser price than the minimum agreed room tariff through e-platform of the appellant assessee) in accordance with the terms and conditions of the agreement for not using any room for itself but for the default on the part of appellant to secure the number of bookings of rooms at a minimal tariff (for unsold rooms and loss from sold rooms). The Ld. Sr. Counsel further categorically submitted that the guarantee fee paid by & 452 /Del/2023 Oravel Stays Limited appellant assessee for unsold rooms and loss from sold rooms was not for use of any room by the appellant assessee as an occupant but was for non- use of rooms as per the agreement. In nutshell, he contended that the guarantee fee was nothing but in the nature of compensation paid by the appellant assessee to hotels/guest houses owners.

The Ld. Sr. Counsel drew our attention to the Section 194I of the Act and in particular the definition of the ‘rent’ therein. He emphasized on the phrase ‘for the use of (either separately or together)’…. He contended that the TDS liability arose in section 194I of the Act only when the payer assessee pays rent/credit such rent in the recipient accounts ‘for the use of (either separately or together)’ any building, machinery, plant, equipment, furniture, fittings etc…. Hence, in the case in hand, the Ld. Assessing Officer (TDS) had to establish that the guarantee fee paid to hotel/guest house was for the appellant assessee’s use. He submitted that the guarantee fee or by whatever name called had not been paid for the use of ….; hence, provisions of section 194I of the Act did not get attracted in the present case. In support of his contention, the Ld. Sr. Counsel placed reliance on the decision of Hon’ble Supreme Court in the case of Japan Airlines company Ltd. 377 ITR 372 and also on the decision of Hon’ble Delhi High Court in the case of Apeejay Surrendera Park Hotels Ltd. (2016) 287 CTR 161, the decision of Hon’ble Andhra Pradesh High Court in the case of Krishna Oberoi 257 ITR 105 and on decisions of Tribunal in cases of Johnson Watch Company Pvt. Ltd. ITA & 452 /Del/2023 Oravel Stays Limited No. 1738/Del/2020 (Delhi), Sahana Dwellers (P.) Ltd. [2016] 67 taxmann.com 202 (Mumbai).

Further, the Ld. Sr. Counsel drew our attention to the order of the Ld. CIT(A) in the case of the assessee in AY 2015-16 (order dated 30.05.2019) wherein the Ld. CIT(A) had held “where an agreement is merely in the nature of rate contract, it cannot be said to accommodation ‘taken on regular basis’, as there is no obligation on the part of the hotel to provide a room or specified set of rooms. So the provision of section 194I while applying to hotel accommodation on regular basis would not apply to rate contract agreement” and the Revenue had accepted this finding and did not contest in appeal. Thus, his argument was that non-applicability of provisions of section 194I of the Act had already accepted by the Revenue and thus, this issue had attained finality.

The Ld. Sr. Counsel drawing our attention to the following part of the Circular No. 5/2002 dated 30.07.2002 which reads as under:

The Board have considered the matter. First, it needs to be emphasised that the provisions of section 194-I do not normally cover any payment for rent made by an individual or HUF except in cases where the total sales, gross receipts or turnover from business and profession carried on by the individual or HUF exceed the monetary limits specified under clause (a) or clause (b) of section 44AB. Where an employee or an individual representing a company (like a consultant, auditor, etc.) makes a payment for hotel accommodation directly to the hotel as and when he stays there, the question of tax deduction at source would not normally arise (except where he is covered under section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the company merely reimburses the expenditure. Furthermore, for purposes of section 194-I, the meaning of ‘rent’ has also been considered. “‘Rent’ means any payment, by whatever name called, under any lease . . . or any other agreement or arrangement for the use of any land. . . .” [Emphasis supplied]. The meaning of ‘rent’ in section 194-I is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on ‘regular basis’. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on ‘regular basis’. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement.

However, often, there are instances, where corporate employers, tour operators and travel agents enter into agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers. Such agreements, usually entered into for lower tariff rates, are in the nature of rate-contract agreements. A rate- contract, therefore, may be said to be a contract for providing specified types of hotel rooms at pre-determined rates during an agreed period.

On the other hand, the Ld. Senior Departmental Representative (‘Sr. DR’) drawing our attention to the answer to Question No. 20 of the Circular No. 5/2002 dated 30.07.2002 which reads as under:

We have heard both parties and have perused the material available on record. Keeping in view the facts in totality, we find merit in the arguments/contentions/submission of the Ld. Sr. Counsel that the assessee has not any exclusive and absolute right to use the hotel/guest house rooms as per the agreement. The said rooms are available to all for booking through the e-platform of the appellant assessee.

The definition of ‘rent’ for the purpose of section 194I of the Act reads as under:

We have gone through the decision of Hon’ble Supreme Court in the case of Japan Airlines Co. Limited (supra), wherein it has been held that the charges paid by the international airlines for landing and take-off services, and for parking of aircrafts are in substance not for the use of land but for various other facilities, such as air traffic services, ground safety services, aeronautical communication facilities, etc. The real character of the service provided for which the payment is made has to be judged, and the same need not be seen in isolation. The taxpayer did not rent out the lounge premises nor have exclusive use of the lounge for its customers. The customers of the taxpayer along with those of other airlines were allowed to use all such facilities at the lounge as per the agreed terms.

In view of the decision Hon’ble Supreme Court in the case of Japan Airlines Co. Limited (supra), we are of the considered opinion that following parameters are required to be looked into before invoking section 194I of the Act; (i) character of the services as per agreement & business model and (ii) right of exclusive use of room. Here, in the present case, the appellant assessee is not having exclusive right to use room(s) of any hotel/guest house for itself as per the agreement. The booking of rooms has to be made & 452 /Del/2023 Oravel Stays Limited available to general public at large through the e-platform of the appellant assessee. The perusal of the agreement in substance reveals that there is no lessor and lessee relationship between hotel/guest house owners and the appellant assessee, which gives exclusive right to the appellant assessee to use the said room(s) for itself only. the word ‘sell’ used by the Ld. CIT(A) in para 4.2.15 of his order in the is not found in the agreement in the said context. The payment referred in para 4.2.13 of the Ld. CIT(A)’s order in the refer to minimum guarantee fee for 18 rooms @ Rs.1,200/- per room exclusive of taxes for 30 days whether occupied or not. We, in view of the bare reading of the agreement do not see any substance in para 4.2.13 to 4.2.15 of the Ld. CIT(A)’s order in the .

Keeping in view the facts of the case, foregoing comments/discussion and judicial pronouncements relied upon by the Ld. Sr. Counsel, we are of the considered opinion that the guarantee fee paid to various hotels/guest houses for not meeting the contractual obligations for unsold rooms (booking of minimum number of rooms not met through e-platform of the appellant assessee) and loss from sold rooms (booking of rooms at a lesser price than the minimum agreed room tariff through e-platform of the appellant assessee) in accordance with the terms and conditions of the agreement is not rent as per section 194I of the Act as the same has been paid for not using any room for itself but for the default on the part of appellant assessee & 452 /Del/2023 Oravel Stays Limited to secure the number of bookings of rooms at a minimal tariff (for unsold rooms and loss from sold rooms). Ordered accordingly. Consequentially, we hold that the Ld. Assessing Officer (TDS) is not justified to treat payments aggregating to Rs.31,25,07,038 as rent liable for TDS under section under section 194I of the Act. Hence, the TDS liability upheld by the Ld. CIT(A) vide impugned order is hereby deleted. The assessee gets consequential relief. Thus, Grounds numbered 3 to 3.4 are allowed accordingly.

The second issue that whether the TDS demand be continued to be raised in TAN No. DLO04346G even after demerger of the business, in view of the above finding, has become academic. Hence, the same is not being adjudicated by us.

The relevant facts giving rise to this appeal is that the assessee filed its Income Tax Return (‘ITR’) of the relevant year on 30.11.2016 declaring loss of (-) Rs.464,66,92,672/-. The case was scrutinized and the consequential assessment was completed, vide order dated 24.12.2018 passed under section 143(3) of the Act; wherein the Ld. Assessing Officer disallowed (i) guarantee fee of Rs.42,58,93,218/- under section 40(a)(ia) of the Act and (ii) PF & ESI of Rs.62,04,444/- under section 2(24)(x) rws 36(1)(va) of the Act. Dissatisfied with the assessment order, the appellant assessee filed appeal Before the Ld. CIT(A) but did not succeed.

At the outset, the Ld. Sr. Counsel drew our attention to the Tribunal decision in the assessee’s own case in AY 2015-16; wherein it had been held that the provisions of section 194C of the Act were not attracted. Thereafter, the Revenue had accepted the decision in the assessee’s own cases in AYs 2018-19 2019-20. Hence, he submitted that the issue of TDS, in the case of assessee, under section 194C of the Act had attained finality.

We have heard both parties and have perused the material available on record. Keeping in view the facts in totality, we find merit in the arguments/contentions/submission of the Ld. Sr. Counsel that the assessee is neither liable to deduct tax at source under section 194C of the Act nor under section 194I of the Act. In view of the above finding in AY 2020-21 and the decision of coordinate bench in the assessee’s own case in AY 2015-16, it is hereby held that the appellant assessee is not liable to deduct tax at source either under section 194C or under section 194I of the Act. Hence, the disallowance of & 452 /Del/2023 Oravel Stays Limited guarantee fee of Rs.42,58,93,218/- under section 40(a)(ia) of the Act made by the Assessing Officer and sustained by the Ld. CIT(A) is not justified. Hence, the same is deleted. The assessee gets consequential relief. Thus, Grounds numbered 1 to 3 are allowed accordingly.

The issue of disallowance of PF & ESI of Rs.62,04,444/- under section 2(24)(x) rws 36(1)(va) of the Act raised vide Grounds 4 to 4.2 was not pressed. Hence, these Grounds stand dismissed accordingly.

In the result, both appeals of the assessee are allowed as above.