No TDS on Hotel Guarantee Fee for Unsold Rooms | ITAT

Case Details: Oravel Stays Ltd. vs. Deputy Commissioner of Income-tax - [2025] 181 taxmann.com 155 (Delhi-Trib.)

Judiciary and Counsel Details

• Yogesh Kumar U.S., Judicial Member & Avdhesh Kumar Mishra, Accountant Member
• Ajay Vohra, Sr. Adv. & Ms Somya Jain, CA for the Appellant.
• Sumer Singh Meena, CIT-DR & Gouranga Chandra, Sr. DR for the Respondent.

Facts of the Case

The assessee, Oravel Stays Ltd., operated an online platform for booking hotel and guesthouse rooms across India and entered into agreements with various hotels under a Minimum Guarantee Revenue Model (MGRM).

Under this model, the assessee assured hotels of a minimum revenue. In the event of a shortfall in bookings or in the sale of rooms below the agreed tariff, the assessee paid a minimum guarantee fee to the hotels. The assessee did not have any exclusive right to use or occupy the hotel rooms, which were made available to the general public through its platform.

The Assessing Officer (TDS) treated the minimum guarantee fee paid to hotels as rent and held that the assessee was liable to deduct tax at source under section 194-I, thereby raising a demand under section 201. The Commissioner (Appeals) upheld the Assessing Officer’s action. The matter reached before the Delhi Tribunal.

The Tribunal examined the nature of the agreements and observed that the assessee neither had exclusive possession nor any right to use the hotel rooms for its own use. The rooms were booked directly by customers, and the payments made by the assessee were compensation for failure to achieve minimum guaranteed bookings or tariffs, not for the use of any property.

Relying on the decision of the Supreme Court in Japan Airlines Co. Ltd. v. CIT [2015] 60 taxmann.com 71 (SC), the Tribunal held that for the applicability of section 194-I, there must be a payment for the use of land or a building coupled with a lessor-lessee relationship. In the present case, no such relationship existed, and the payments were not for the use of rooms but for a business shortfall under the contractual arrangement.

ITAT Held

Accordingly, the Tribunal held that the minimum guarantee fee paid by the assessee did not constitute rent under section 194-I and that the Assessing Officer was not justified in treating the assessee as an assessee in default. The TDS demands raised were deleted, and the appeals were allowed in favour of the assessee.

List of Cases Reviewed

• Japan Airlines Co. Ltd. v. CIT [2015] 60 taxmann.com 71 (SC)/[2015] 234 Taxman 175 (SC)/[2015] 377 ITR 372 (SC)(para17) – followed.

List of Cases Referred to

• Japan Airlines Co. Ltd. v. CIT [2015] 60 taxmann.com 71 (SC)/[2015] 234 Taxman 175 (SC)/[2015] 377 ITR 372 (SC) (para 9)
• Apeejay Surrendera Park Hotels Ltd. v. Union of India [2016] 67 taxmann.com 291 (Delhi)/[2016] 383 ITR 697 (Delhi) (para 9)
• Krishna Oberoi v. Union of India [2002] 123 Taxman 709 (Andhra Pradesh)/[2002] 257 ITR 105 (Andhra Pradesh) (para 9)
• Sahana Dwellers (P.) Ltd. v. ITO [2016] 67 taxmann.com 202 (Mumbai)/[2016] 158 ITD 78 (Mumbai) (para 9)
• Johnson Watch Company (P.) Ltd. v. ACIT [ITAppeal No. 1738(Del) of 2020. dated 9-11-2022] (para 9)
• Oravel Stays (P.) Ltd. v. ACIT [2024] 159 taxmann.com 423/206 ITD 74 (Delhi – Trib.) (para 22).