No TDS on Minimum Guarantees Paid to Hotels: ITAT grants Relief to OYO Rooms [Read Order]

The Delhi Bench Income Tax Appellate Tribunal ( ITAT ), while granting relief to the Oravel Stays Private Limited, the company which runs OYO Rooms, has ruled that the company is not obligated to pay Tax Deduction at Source ( TDS ) on Minimum Guarantees Paid to Hotels. The ITAT ruled against the disallowance of Rs. 1,08,59,584 under Section 40(a)(ia) of the Income-tax Act, 1961, related to minimum guarantee expense.

The dispute arose when the Assessing Officer (AO), during scrutiny assessment proceedings, observed that Oravel Stays had not TDS  on minimum guarantee expenses amounting to Rs. 3,61,98,948. Despite the assessee/petitioner/Oravel Stays’  explanation that these payments were not subject to TDS as they were not governed by Chapter XVII-B of the Act, the AO disallowed the expenses under section 40(a)(ia). Upon appeal, the CIT(A) confirmed the disallowance under section 194-C of the Income Tax Act, considering the minimum guarantee expense as a payment for carrying out work. However, the ITAT took a different stance, ruling in favour of the assessee. The bench noted that the agreement between Oravel Stays/ Oyo and various hotels primarily involved the provision of technology, sales, and marketing services by Oravel Stays/Oyo, rather than the execution of specific work by the hotels.

Therefore, the provisions of Section 194-C, which pertain to deductions for payments made for carrying out work, were deemed inapplicable.

The two-member bench of Khul Bharat (Judicial Member) and N. K. Billaiya (Technical member) observed that “The contention of the ld. DR that in furtherance of its business objectives/model, the assessee is providing service, cannot be accepted as neither the Assessing Officer nor the ld. CIT(A) have invoked the relevant provisions of the Act applicable for provisions of service. On the facts of the case, we hold that section 194C of the Act is not applicable.” The Delhi ITAT bench emphasised that the minimum guarantee expense was compensatory in nature, intended to address shortfalls in room occupancy, rather than payment for specific services rendered. Consequently, the tribunal directed the Assessing Officer to delete the disallowed addition.

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