Case: BIR HOTELS PVT LTD vs ASSISTANT COMMISSIONER OF INCOME TAX AND ANR, HC Allahabad

Listen to the case summary BIR HOTELS PVT LTD vs ASSISTANT COMMISSIONER OF INCOME TAX AND ANR, HC Allahabad here

Background:

  • The assessee, a 3-star hotel entered into a franchise agreement with Lakme saloon and claimed deduction u/s 80IB on the receipts from saloon business.
  • The saloon facility was available to outsiders and record of its customer wasn’t maintained.
  • The hotel business started in the year 2001 while the saloon section started in the year 2005-06.

Assessee’s argument:

  • The saloon is an integral part of a business like a restaurant and it is directly connected with the general needs of people.

Tribunal’s holding:

  • The phrase ‘derived from’ restricts to the qualifying profits directly arising from the particular activity and not from unrelated business activity.
  • A saloon business is related to cosmetics and cannot be equated with food and refreshment.
  • The saloon business could not be considered as an integral part of hotel activity.
  • The department was right in denying the deduction.    

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