Facts of the Case

The assessee, Le Passage to India Tour & Travels Pvt. Ltd., is engaged in arranging tours for foreign tourists visiting India. Besides providing transport, boarding, lodging, sightseeing, and guides, the company also took tourists for shopping and received commissions from shops for directing foreign tourists to purchase merchandise.

During the relevant year, the assessee received a shopping commission totaling ₹1,31,34,402/- and claimed it as business receipts in its Profit & Loss account while also seeking a deduction under Section 80 HHD of the Income Tax Act.

The Assessing Officer (AO) excluded this commission from business receipts eligible for deduction, reasoning that Section 80 HHD applies only to profits derived from services rendered directly to foreign tourists. The CIT(A) and ITAT reversed the AO’s decision, holding that the shopping commission is incidental to tour services and constitutes business income, though not received in convertible foreign exchange.

The Revenue challenged this order under Section 260A, raising the question whether commission income received indirectly from shopkeepers qualifies for Section 80 HHD deduction.

 

Issues Involved

  1. Whether commission earned from shopkeepers (on purchases made by foreign tourists) qualifies as profits derived from services provided to foreign tourists under Section 80 HHD.
  2. Interpretation of “derived from services provided to foreign tourists” in the context of deductions under Section 80 HHD.
  3. Applicability of prior judgments on similar deductions.

 

Petitioner’s Arguments (Revenue)

  • Deduction under Section 80 HHD is available only for profits received directly from foreign tourists in convertible foreign exchange.
  • Income from shopping commission, received from shops and not directly from tourists, does not meet the statutory criteria.
  • Relied on M/s Lotus Trans Travels P. Ltd. vs. Commissioner of Income Tax (ITA 241/2004), which held that only income directly derived from services to foreign tourists qualifies for deduction.

 

Respondent’s Arguments (Assessee)

  • Shopping commission is an integral part of tour operations and thus constitutes business receipts.
  • Deduction under Section 80 HHD should be allowed after calculating eligible profits using the formula in Section 80 HHD(3).
  • Argued that Section 80 HHD is a self-contained code and prior judgments should not apply.

 

Court Findings / Order

  • The High Court emphasized the principle from Lotus Trans Travels P. Ltd. (supra), holding that the phrase “derived from services provided to foreign tourists” implies direct nexus with the services rendered.
  • Commission earned from shops is not directly derived from foreign tourists; it is received in Indian currency from shopkeepers.
  • Pre-conditions of Section 80 HHD—receipts in convertible foreign exchange directly from foreign tourists—are not satisfied.
  • Consequently, the Court set aside the orders of CIT(A) and ITAT and restored the AO’s order denying the deduction.

 

Important Clarifications

  • Direct Nexus Requirement: Deduction under Section 80 HHD applies only to profits directly received from foreign tourists.
  • Convertible Foreign Exchange: Income must be in or converted to foreign exchange to qualify.
  • Business Incidental Income: While shopping commissions are part of business receipts, they do not meet statutory conditions for deduction under Section 80 HHD.

 

Sections Involved

  • Section 80 HHD, Income Tax Act – Deduction in respect of earnings in convertible foreign exchange from services provided to foreign tourists.
  • Section 260A, Income Tax Act – Appeals to High Court on substantial questions of law.

 

Link to download the order- https://delhihighcourt.nic.in/app/case_number_pdf/2011:DHC:2149-DB/AKS08042011ITA18592010.pdf

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