JANUARY 16, 2017

By Netizen

Impact:

THE travel agents generally enter into agreements with hotels for providing hotel reservations services to customers. It might enter into following types of contracts with hotels in India:

++ Pure rate contract: These agreements merely fix the room tariffs for specified types of hotel rooms during the agreed period.

++ Rate contract with inventory (Room-nights) blocking: – In this arrangement the travel agents pays advance money for blocking a number of room nights in the hotel for particular dates. However, in case travel agent is unable to sell all room nights to the customers prior to a fixed deadline from the check-in date, the same stands automatically released and it can be sold by the hotel directly to other customers. For the room nights which are released before the agreed deadline, the amount of advance is refundable to ABC.

As per Circular No 715 dated 8/8/1995, payments made to hotel for accommodation taken on regular basis will be in nature of rent and hence, would be liable to TDS deduction u/s 194I. Further, as per Circular No 5/2002, it is clarified that these provisions would not be applicable in case of rate contracts where merely room tariffs are fixed and no rooms are earmarked or hotel has no obligation to provide such rooms during the currency of agreements.

As a result, all modified versions of rate contracts (even 2nd category) would attract TDS u/s 194I.

Recommendation

The travel agents merely act as an agent for customers and since rooms are occupied by individuals who are not required to withhold tax; the travel agents acting as an intermediary/agent for its customers should not be withholding tax u/s 194-I of the Act.

The arrangement for room nights is never finalized till the confirmation for room nights is made. As at the time of payment it is not known whether any room would be taken and in case of unblocking/release the hotels would be required to refund the whole amount of advance paid. So, the TDS deduction in such cases would be detrimental to hotels as no income has accrued in such cases.

Hence, it should be clarified that these provisions should not be applicable to travel agents.