Hotel saloon receipts lacked direct nexus with core business and were denied deduction under section 80IB(7)(a).

Income from a saloon operated in a hotel was held not to qualify as profits derived from the hotel business for deduction under section 80IB(7)(a). The saloon began only in the relevant year under a franchise arrangement, was not shown to be an inseparable or necessary part of the hotel's core operations, and its receipts from hair dressing, hair dying and cosmetic sales lacked a direct nexus with the eligible undertaking. The claim for deduction therefore failed.

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Issues: Whether income from the saloon activity in the hotel was eligible for deduction under section 80IB(7)(a) as profits derived from the hotel business.

Analysis: The saloon activity commenced only in the relevant year through a franchise arrangement and was not shown to be an inseparable or necessary part of the hotel's core business. The hotel had earlier operated without a saloon, and the receipts from hair dressing, hair dying and sale of cosmetic products did not have a direct nexus with the hotel business so as to satisfy the requirement that the profits be derived from the eligible undertaking. The principle limiting deduction to income directly arising from the core business was applied, and the distinction between eligible hotel receipts and a separate source of income was maintained.

Conclusion: The saloon income was not eligible for deduction under section 80IB(7)(a) and the assessee's claim failed.

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