1. Provisions at a glance
69
EXPENDITURE TAX ACT, 1987
|
SECTION/SCHEDULE
|
PARTICULARS
|
|
5
|
Collection of expenditure tax by hotels 1-4
|
Explanatory Notes
1. The levy of tax on expenditure incurred in certain hotels came into force from 1st November, 1987. The Expenditure Tax Act, 1987 provides for a levy at the rate of 10 per cent of the ‘chargeable expenditure’ incurred by a person in a hotel. Hotels where such a tax is levied on a person incurring chargeable expenditure are those where the room charges for any unit of accommodation is Rs. 400 or more per day per individual. Chargeable expenditure means any expenditure incurred or payments made to a hotel in connection with the provision of any accommodation or food or drinks by the hotel. It also includes any expenditure or payment made for any other services provided at the hotel by way of beauty parlour, health club, swimming pool or other similar services. Excluded from the meaning of the term chargeable expenditure is, inter alia, any payment made in foreign exchange. The Act further provides that in certain cases and in certain circumstances, payment made in Indian currency obtained by conversion of foreign exchange into Indian currency will be deemed to have been made in foreign exchange. As a result all foreign tourists visiting India are exempt from payment of expenditure tax.
2. In pursuance of clause ( a) of the Explanation below section 5 of the Act, rule 4 of the Expenditure Tax Rules, 1987, prescribes the cases and circumstances where payment in Indian currency obtained by conversion of foreign exchange is deemed to have been made in foreign exchange. One of the cases prescribed in the rule is, where a payment to a hotel is made in Indian currency obtained by conversion of foreign exchange brought into India through an authorised dealer by a travel agent on behalf of a foreign tourist or a group of foreign tourists. The rule also provides that the travel agent must hold a valid licence granted under section 32 of the Foreign Exchange Regulation Act, 1973.
3. Foreign tourists who visit India are required to make payment to a hotel in foreign exchange as per the Foreign Exchange Regulation Act, 1973. Tour Operators/Travel Agents who organise and manage the visits by foreign tourists to India makes payments to hotels in Indian currency after the foreign exchange is received from abroad and converted into Indian currency. As this receipt of foreign exchange and conversion into Indian currency takes some time, a question arose as to whether expenditure tax was recoverable from the foreign tourists who incur any expenditure in the hotels. The hotels were of the view that in view of sections 7(3) and 15, expenditure tax was recoverable at the time when a bill was raised in respect of a foreign tourist also. This view is based on the interpretation of section 7 which lays down that the tax collected during any calendar month shall be paid to the credit of the Central Government by the 10th day of the month immediately following the said calendar month and further that since it was the responsibility of the hotel to collect the tax, the same has to be paid to the credit of the Central Government even if the tax had not actually been collected.
4. This matter has been examined. Under clause (a) of the Explanation below section 5 of the Act, payment made in Indian currency obtained by conversion of foreign exchange into Indian currency shall, in such cases and in such circumstances as may be prescribed, be deemed to have been made in foreign exchange. Rule 4(1) of the Expenditure Tax Rules, 1987, made in pursuance of this provision provides that if any payment in respect of any expenditure incurred in a hotel is made in Indian currency obtained by conversion of foreign exchange brought into India through an authorised dealer by a travel agent on behalf of a foreign tourist or a group of foreign tourists it shall be deemed to have been incurred in foreign exchange. Section 5 of the Act provides that any expenditure which is incurred or payment for which is made in foreign exchange is exempt from payment of expenditure tax. As such, the Board has been advised that the expenditure incurred by foreign tourists (payment for which is made by tour operators/travel agents in Indian currency obtained by conversion of foreign exchange) does not attract expenditure tax at all. Consequently, the question of collecting expenditure tax at the time when chargeable expenditure is incurred by a foreign tourist or a group of foreign tourists, payment for which is to be made by a travel agent, does not arise. Hotels, therefore, are not liable to collect tax on bills raised by them in respect of foreign tourists and pay the same to the credit of the Central Government by the 10th day of the following month, where such a payment is to be made by the travel agent in Indian currency obtained by conversion of foreign exchange into Indian currency.
2. Provisions explained
1. Provisions at a glance
69
EXPENDITURE TAX ACT, 1987
|
SECTION/SCHEDULE
|
PARTICULARS
|
|
5
|
Collection of expenditure tax by hotels 1-4
|
Explanatory Notes
1. The levy of tax on expenditure incurred in certain hotels came into force from 1st November, 1987. The Expenditure Tax Act, 1987 provides for a levy at the rate of 10 per cent of the ‘chargeable expenditure’ incurred by a person in a hotel. Hotels where such a tax is levied on a person incurring chargeable expenditure are those where the room charges for any unit of accommodation is Rs. 400 or more per day per individual. Chargeable expenditure means any expenditure incurred or payments made to a hotel in connection with the provision of any accommodation or food or drinks by the hotel. It also includes any expenditure or payment made for any other services provided at the hotel by way of beauty parlour, health club, swimming pool or other similar services. Excluded from the meaning of the term chargeable expenditure is, inter alia, any payment made in foreign exchange. The Act further provides that in certain cases and in certain circumstances, payment made in Indian currency obtained by conversion of foreign exchange into Indian currency will be deemed to have been made in foreign exchange. As a result all foreign tourists visiting India are exempt from payment of expenditure tax.
2. In pursuance of clause ( a) of the Explanation below section 5 of the Act, rule 4 of the Expenditure Tax Rules, 1987, prescribes the cases and circumstances where payment in Indian currency obtained by conversion of foreign exchange is deemed to have been made in foreign exchange. One of the cases prescribed in the rule is, where a payment to a hotel is made in Indian currency obtained by conversion of foreign exchange brought into India through an authorised dealer by a travel agent on behalf of a foreign tourist or a group of foreign tourists. The rule also provides that the travel agent must hold a valid licence granted under section 32 of the Foreign Exchange Regulation Act, 1973.
3. Foreign tourists who visit India are required to make payment to a hotel in foreign exchange as per the Foreign Exchange Regulation Act, 1973. Tour Operators/Travel Agents who organise and manage the visits by foreign tourists to India makes payments to hotels in Indian currency after the foreign exchange is received from abroad and converted into Indian currency. As this receipt of foreign exchange and conversion into Indian currency takes some time, a question arose as to whether expenditure tax was recoverable from the foreign tourists who incur any expenditure in the hotels. The hotels were of the view that in view of sections 7(3) and 15, expenditure tax was recoverable at the time when a bill was raised in respect of a foreign tourist also. This view is based on the interpretation of section 7 which lays down that the tax collected during any calendar month shall be paid to the credit of the Central Government by the 10th day of the month immediately following the said calendar month and further that since it was the responsibility of the hotel to collect the tax, the same has to be paid to the credit of the Central Government even if the tax had not actually been collected.
4. This matter has been examined. Under clause (a) of the Explanation below section 5 of the Act, payment made in Indian currency obtained by conversion of foreign exchange into Indian currency shall, in such cases and in such circumstances as may be prescribed, be deemed to have been made in foreign exchange. Rule 4(1) of the Expenditure Tax Rules, 1987, made in pursuance of this provision provides that if any payment in respect of any expenditure incurred in a hotel is made in Indian currency obtained by conversion of foreign exchange brought into India through an authorised dealer by a travel agent on behalf of a foreign tourist or a group of foreign tourists it shall be deemed to have been incurred in foreign exchange. Section 5 of the Act provides that any expenditure which is incurred or payment for which is made in foreign exchange is exempt from payment of expenditure tax. As such, the Board has been advised that the expenditure incurred by foreign tourists (payment for which is made by tour operators/travel agents in Indian currency obtained by conversion of foreign exchange) does not attract expenditure tax at all. Consequently, the question of collecting expenditure tax at the time when chargeable expenditure is incurred by a foreign tourist or a group of foreign tourists, payment for which is to be made by a travel agent, does not arise. Hotels, therefore, are not liable to collect tax on bills raised by them in respect of foreign tourists and pay the same to the credit of the Central Government by the 10th day of the following month, where such a payment is to be made by the travel agent in Indian currency obtained by conversion of foreign exchange into Indian currency.
