OYO Not Liable To Deduct TDS On Minimum Guarantee Payments Made To Hotels: ITAT

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the assessee OYO is not liable for TDS under Section 194C of the Income Tax Act on the minimum guarantee payments made to hotels.

The bench of Kul Bharat (Judicial Member) and N.K. Billaiya (Accountant Member) has observed that the assessee, for the purpose of carrying on its business operations, enters into merchant agreements with various hotels for facilitating the reservation and booking of hotel rooms through the platform of the assessee. As per the terms of the agreement, the hotel conducts its operations in terms of providing lodging and accommodation services, whereas the assessee provides technology, sales, and marketing services to the hotels relating to the provision of lodging and accommodation services through its platform.

The appellant/assessee electronically filed its Return of Income, declaring a loss of Rs. 29,82,76,660. The return was selected for scrutiny assessment through CASS, and accordingly, statutory notices were issued and served upon the assessee.

During the course of the scrutiny and assessment proceedings, the assessing officer noticed that the assessee had not deducted tax at source on the minimum guarantee expense of Rs. 3,61,98,948. The assessee was asked to show cause why the expense should not be disallowed under Section 40(a)(ia).

The assessee explained that these payments are not governed by provisions of Chapter XVII-B of the Act, and therefore, no TDS has been deducted.

The contention of the assessee did not find any favor with the Assessing Officer, who was of the firm belief that the assessee has violated the provisions of Section 194-I and, alternatively, Section 194-C by not deducting tax at source and invoking provisions of Section 40(a)(ia) of the Act. He made a disallowance of Rs. 1,08,59,584.

When the matter was agitated before the CIT(A), the assessee strongly contended that the payments made by the assessee towards the minimum guarantee expense cannot be considered as payment of rent, liable for TDS.

After considering the facts and submissions and drawing support from CBDT Circular No. 5/2002 dated July 30, 2002, the CIT(A) was convinced that the payment was not rent-liable for TDS. The CIT(A) confirmed the assessment, holding that the provisions of Section 194C squarely apply.

The ITAT noted that the assessee being a service provider assures the minimum benchmarks that the service recipient will receive or expect to receive from the service provider. In the event that such benchmarks are exceeded, the service fee is payable by the service recipient to the service provider, and in the event of a shortfall, the service provider is required to meet the same.

“On such a business model, provisions of Section 194C of the Act provide that any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and a specified person shall deduct tax on the sum paid or credited to the account of the contractor, sine qua non for the applicability of this provision, “carrying out any work,"” the tribunal said while allowing the appeal.

Counsel For Appellant: Ajay Vohra

Counsel For Respondent: Ajay Kumar Arora

Case Title: M/s Oravel Stays Pvt Ltd. Versus The A.C.I.T

Case No.: ITA No. 6370/DEL/2019 [A.Y. 2015-16]

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