Deduction in respect of earnings in convertible foreign exchange
80HHD. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of a hotel or of a tour operator, approved by the prescribed authority in this behalf or of a travel agent, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of a sum equal to the aggregate of—
( a) fifty per cent of the profits derived by him from services provided to foreign tourists; and
( b) so much of the amount out of the remaining profits referred to in clause (a) as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee in the manner laid down in sub-section (4).
(2) This section applies only to services provided to foreign tourists the receipts in relation to which are received 92a[ by the assessee in convertible foreign exchange].
(3) For the purposes of sub-section (1), profits derived from services provided to foreign tourists shall be,—
( a) in a case where the business carried on by the assessee consists exclusively of services provided to foreign tourists resulting in receipts in convertible foreign exchange, the profits of the business as computed under the head "Profits and gains of business or profession";
( b) in a case where the business carried on by the assessee does not consist exclusively of services provided to foreign tourists resulting in receipts in convertible foreign exchange, the amount which bears to the profits of the business (as computed under the head "Profits and gains of business or profession") the same proportion as the receipts in convertible foreign exchange bear to the total receipts of the business carried on by the assessee.
The following sub-section (3) shall be substituted for the existing sub-section (3) by the Finance Act, 1990, w.e.f. 1-4-1991:
(3) For the purposes of sub-section (1), profits derived from services provided to foreign tourists shall be the amount which bears to the profits of the business (as computed under the head "Profits and gains of business or profession") the same proportion as the receipts specified in sub-section (2) bear to the total receipts of the business carried on by the assessee.
(4) The amount credited to the reserve account under clause (b ) of sub-section (1), shall be utilised by the assessee before the expiry of a period of five years next following the previous year in which the amount was credited for the following purposes, namely:—
( a) construction of new hotels approved by the prescribed authority in this behalf or expansion of facilities in existing hotels already so approved;
( b) purchase of new cards and new coaches by tour operators already so approved or by travel agents;
( c) purchase of sports equipment for mountaineering, trekking, golf, river-rafting and other sports in or on water;
( d) construction of conference or convention centres;
( e) provision of such new facilities for the growth of Indian tourism as the Central Government may, by notification in the Official Gazette, specify in this behalf:
Provided that where any of the activities referred to in clauses (a) to (e) would result in creation of any asset owned by the assessee outside India, such asset should be created only after obtaining prior approval of the prescribed authority.
(5) Where any amount credited to the reserve account under clause ( b) of sub-section (1),—
( a) has been utilised for any purpose other than those referred to in sub-section (4), the amount so utilised; or
( b) has not been utilised in the manner specified in sub-section (4), the amount not so, utilised,
shall be deemed to be the profits,—
( i) in a case referred to in clause (a), in the year in which the amount was so utilised; or
( ii) in a case referred to in clause (b), in the year immediately following the period of five years specified in sub-section (4),
and shall be charged to tax accordingly.
(6) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form 93, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed on the basis of the amount of convertible foreign exchange received by the assessee for services provided by him to the foreign tourists.
Explanation : For the purposes of this section,—
( a) "travel agent" means a travel agent or other person (not being an airline or a shipping company) who holds a valid licence granted by the Reserve Bank of India under section 32 of the Foreign Exchange Regulation Act, 1973 (46 of 1973);
( b) "convertible foreign exchange" shall have the meaning assigned to it in clause (a) of the Explanation to section 80HHC;
( c) "services provided to foreign tourists" shall not include services by way of sale in any shop owned or managed by the person who carries on the business of a hotel or of a tour operator or of a travel agent.]