Prospective amendment to section 80HHD and money-changing receipts: deduction denied for hotel income linked to foreign tourists.

Amendments to section 80HHD introducing eligibility for hotels, tour operators and travel agents receiving Indian currency on behalf of foreign tourists were treated as prospective, not retrospective, because they enlarged the class of recipients and imposed a new certificate condition; deduction was therefore unavailable for assessment year 1989-90. Receipts from authorised restricted money-changing activity were also held ineligible, as that activity was regarded as a statutory facility rather than profit derived from services to foreign tourists, with no profit element shown and the income not forming part of gross total income. The assessee's claim for deduction under section 80HHD failed on both grounds, and the disallowance was sustained.

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Issues: (i) Whether the Explanation to section 80HHD(2) and section 2A inserted by the Finance (No. 2) Act, 1991 were retrospective and applicable to assessment year 1989-90 for claiming deduction on receipts in Indian currency from travel agents and tour operators of foreign tourists; (ii) Whether the amount received by the assessee in the capacity of an authorised restricted money changer was eligible for deduction under section 80HHD.

Issue (i): Whether the Explanation to section 80HHD(2) and section 2A inserted by the Finance (No. 2) Act, 1991 were retrospective and applicable to assessment year 1989-90 for claiming deduction on receipts in Indian currency from travel agents and tour operators of foreign tourists.

Analysis: The unamended provision granted deduction to the first recipient of convertible foreign exchange. The amending provisions, introduced with effect from 1-4-1992, were inserted to extend the benefit to hotels, tour operators and travel agents receiving Indian currency out of converted foreign exchange on behalf of foreign tourists, and to require a prescribed certificate. The memorandum explaining the amendment and the CBDT circular indicated a prospective operation from assessment year 1992-93. The amendment was treated as enlarging the class of eligible recipients and creating a new statutory condition rather than merely clarifying an existing ambiguity.

Conclusion: The amendment was prospective and not applicable to assessment year 1989-90. The assessee was not entitled to deduction on the sum of Rs. 4,03,09,863.

Issue (ii): Whether the amount received by the assessee in the capacity of an authorised restricted money changer was eligible for deduction under section 80HHD.

Analysis: The money-changing activity was treated as a statutory facility attached to the hotel's status and not as a service yielding profits derived from services provided to foreign tourists. The amount was immediately passed on at the same rate, no profit element was shown in the profit and loss account, and the income was not included in the gross total income as required for Chapter VI-A deductions. The conditions of section 80HHD were therefore not satisfied.

Conclusion: The amount of Rs. 5,27,22,837 was not eligible for deduction under section 80HHD and the disallowance was upheld.

Final Conclusion: The assessee's claim for deduction under section 80HHD failed on both counts, and the Commissioner's revisionary action was sustained.

Ratio Decidendi: An amendment introducing a deeming benefit and fresh compliance requirements, expressed to operate from a stated date and supported by the legislative memorandum, is prospective unless clearly shown to be declaratory; deduction under Chapter VI-A is unavailable unless the relevant income forms part of gross total income and the statutory conditions are fulfilled.

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