A tax tribunal has ruled that Oravel Stays Private Limited, the company which runs OYO Rooms, is not required to pay the tax deducted at source (TDS) on the minimum guarantee payments made to hotels.
The Delhi-based Income Tax Appellate Tribunal (ITAT) observed that hotels conduct their operations in terms of providing lodging and accommodation services whereas OYO Rooms provides technology, sales, and marketing services through its platform.
OYO Rooms assures minimum benchmarks, occupancy of hotels and in case such benchmark is exceeded, the service fee is payable by the hotel and in case of shortfall, the former is required to meet the same.
ITAT accepted the company’s submission that it guarantees the hotels for certain minimum occupancy of the rooms and if the occupancy is not achieved, it compensates the shortfall by way of minimum guarantee.
As such, no work is carried out so as to invoke provisions of TDS under the Income Tax Act, the tribunal said.
It rejected the income tax officer’s argument that OYO Rooms is providing service in furtherance of its business since neither the assessing officer nor the commission of income tax (appeals) invoked the relevant provisions applicable for provisions of service.
Sandeep Sehgal, a tax partner at AKM Global, said the characterisation of the minimum guarantee payment as compensatory in nature for shortfall in room occupancy does not reflect any payment made for works qualifying TDS deduction under provisions of the Income Tax Act.
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