Section 80HHD of Income Tax Act "Deduction in respect of earnings in convertible foreign exchange"
80HHD. (1) Where an assessee, being an Indian company or
a person (other than a company) resident in India, is
engaged in the business of a hotel or of a tour operator,
approved by the prescribed authority in this behalf or of a
travel agent, there shall, in accordance with and subject to
the provisions of this section, be allowed, in computing the
total income of the assessee-
(a) for an assessment year beginning on the 1st day of
April, 2001, a deduction of a sum equal to the aggregate of-
(i) forty per cent of the profits derived by him from
services provided to foreign tourists; and
(ii) so much of the amount not exceeding forty per cent of
the profits referred to in sub-clause (i) as is debited to
the profit and loss account of the previous year in respect
of which the deduction is to be allowed and credited to a
reserve account to be utilised for the purposes of the
business of the assessee in the manner laid down in
sub-section (4);
(b) for an assessment year beginning on the 1st day of
April, 2002, a deduction of a sum equal to the aggregate of-
(i) thirty per cent of the profits derived by him from
services provided to foreign tourists; and
(ii) so much of the amount not exceeding thirty per cent of
the profits referred to in sub-clause (i) as is debited to
the profit and loss account of the previous year in respect
of which the deduction is to be allowed and credited to a
reserve account to be utilised for the purposes of the
business of the assessee in the manner laid down in
sub-section (4);
(c) for an assessment year beginning on the 1st day of
April, 2003, a deduction of a sum equal to the aggregate of-
(i) twenty-five per cent of the profits derived by him from
services provided to foreign tourists; and
(ii) so much of the amount not exceeding twenty-five per
cent of the profits referred to in sub-clause (i) as is
debited to the profit and loss account of the previous year
in respect of which the deduction is to be allowed and
credited to a reserve account to be utilised for the
purposes of the business of the assessee in the manner laid
down in sub-section (4);
(d) for an assessment year beginning on the 1st day of
April, 2004, a deduction of a sum equal to the aggregate of-
(i) fifteen per cent of the profits derived by him from
services provided to foreign tourists; and
(ii) so much of the amount not exceeding fifteen per cent of
the profits referred to in sub-clause (i) as is debited to
the profit and loss account of the previous year in respect
of which the deduction is to be allowed and credited to a
reserve account to be utilised for the purposes of the
business of the assessee in the manner laid down in
sub-section (4),
and no deduction shall be allowed in respect of the
assessment year beginning on the 1st day of April, 2005 and
any subsequent assessment year :
Provided that a hotel or, as the case may be, a tour
operator approved by the prescribed authority on or after
the 30th day of November, 1989 and before the 1st day of
October, 1991, shall be deemed to have been approved by the
prescribed authority for the purposes of this section in
relation to the assessment year commencing on the 1st day of
April, 1989 or the 1st day of April, 1990 or, as the case
may be, the 1st day of April, 1991 if the assessee was
engaged in the business of such hotel or as such tour
operator during the previous year relevant to any of the
said assessment years.
(2) This section applies only to services provided to
foreign tourists the receipts in relation to which are
received in, or brought into, India by the assessee in
convertible foreign exchange within a period of six months
from the end of the previous year or, within such further
period as the competent authority may allow in this behalf.
Explanation 1.-For the purposes of this sub-section, any
payment received by an assessee, engaged in the business of
a hotel or of a tour operator or of a travel agent, in
Indian currency obtained by conversion of foreign exchange
brought into India through an authorised dealer, from
another hotelier, tour operator or travel agent, as the case
may be, on behalf of a foreign tourist or group of foreign
tourists, shall be deemed to have been received by the
assessee in convertible foreign exchange if the person
making the payment furnishes to the assessee a certificate
specified in sub-section (2A).
Explanation 2.-For the purposes of this sub-section, the
expression "competent authority" means the Reserve Bank of
India or such other authority as is authorised under any law
for the time being in force for regulating payments and
dealings in foreign exchange.
(2A) Every person making payment to an assessee referred to
in the Explanation 1 to sub-section (2) out of Indian
currency obtained by conversion of foreign exchange received
from or on behalf of a foreign tourist or a group of foreign
tourists shall furnish to that assessee a certificate in the
prescribed form indicating the amount received in foreign
exchange, its conversion into Indian currency and such other
particulars as may be prescribed.
(3) For the purposes of sub-section (1), profits derived
from services provided to foreign tourists shall be the
amount which bears to the profits of the business (as
computed under the head "Profits and gains of business or
profession") the same proportion as the receipts specified
in sub-section (2) [as reduced by any payment, referred to
in sub-section (2A), made by the assessee] bear to the total
receipts of the business carried on by the assessee.
(4) The amount credited to the reserve account under clause
(b) of sub-section (1), shall be utilised by the assessee
before the expiry of a period of five years next following
the previous year in which the amount was credited for the
following purposes, namely :-
(a) construction of new hotels approved by the prescribed
authority in this behalf or expansion of facilities in
existing hotels already so approved;
(b) purchase of new cars and new coaches by tour operators
already so approved or by travel agents;
(c) purchase of sports' equipment for mountaineering,
trekking, golf, river-rafting and other sports in or on
water;
(d) construction of conference or convention centres;
(e) provision of such new facilities for the growth of
Indian tourism as the Central Government may, by
notification in the Official Gazette, specify in this
behalf;
(f) subscription to equity shares forming part of any
eligible issue of capital made by a public company:
Provided that where any of the activities referred to in
clauses (a) to (f) would result in creation of any asset
owned by the assessee outside India, such asset should be
created only after obtaining prior approval of the
prescribed authority.
(5) Where any amount credited to the reserve account under
clause (b) of sub-section (1),-
(a) has been utilised for any purpose other than those
referred to in sub-section (4), the amount so utilised; or
(b) has not been utilised in the manner specified in
sub-section (4), the amount not so utilised,
shall be deemed to be the profits,-
(i) in a case referred to in clause (a), in the year in
which the amount was so utilised; or
(ii) in a case referred to in clause (b), in the year
immediately following the period of five years specified in
sub-section (4),
and shall be charged to tax accordingly.
(5A) Where any amount credited to the reserve account under
clause (b) of sub-section (1) has been utilised for
subscription to any equity shares referred to in clause (f)
of sub-section (4) and either whole or any part of such
equity shares are transferred or converted into money by the
assessee at any time within a period of three years from the
date of their acquisition, the aggregate amount so utilised
in respect of such equity shares shall be deemed to be the
profits of the previous year in which the equity shares are
transferred or converted into money.
Explanation.-A person shall be treated as having acquired
any shares on the date on which his name is entered in
relation to those shares in the register of members of the
public company.
(6) The deduction under sub-section (1) shall not be
admissible unless the assessee furnishes in the prescribed
form, along with the return of income, the report of an
accountant, as defined in the Explanation below sub-section
(2) of section 288, certifying that the deduction has been
correctly claimed on the basis of the amount of convertible
foreign exchange received by the assessee for services
provided by him to foreign tourists, payments made by him to
any assessee referred to in sub-section (2A) and the
payments received by him in Indian currency as referred to
in the Explanation 1 to sub-section (2).
(7) Where a deduction under sub-section (1) is claimed and
allowed in respect of profits derived from the business of a
hotel, such part of profits shall not qualify to that extent
for deduction for any assessment year under any other
provisions of this Chapter under the heading "C.-Deductions
in respect of certain incomes", and shall in no case exceed
the profits and gains of such hotel.
Explanation.-For the purposes of this section,-
(a) "travel agent" means a travel agent or other person (not
being an airline or a shipping company) who holds a valid
licence granted by the Reserve Bank of India under section
32 of the Foreign Exchange Management Act, 1999 (42 of
1999);
(b) "convertible foreign exchange" shall have the meaning
assigned to it in clause (a) of the Explanation to section
80HHC;
(c) "services provided to foreign tourists" shall not
include services by way of sale in any shop owned or managed
by the person who carries on the business of a hotel or of a
tour operator or of a travel agent;
(d) "authorised dealer", "foreign exchange" and "Indian
currency" shall have the meanings respectively assigned to
them in clauses (b), (h) and (k) of section 2 of the Foreign
Exchange Management Act, 1999 (42 of 1999);
(e) "eligible issue of capital" means an issue made by a
public company formed and registered in India and the entire
proceeds of the issue is utilised wholly and exclusively for
the purpose of carrying on the business of-
(i) setting up and running of new hotels approved by the
prescribed authority; or
(ii) providing such new facility for the growth of tourism
in India, as the Central Government may, by notification in
the Official Gazette, specify.
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