Service Tax Applicability For Tour Operator.

Applicability of Service Tax on Tour & Travel Operator

Who is a “Tour Operator” under the Service Tax Laws?

Tour operator means any person engaged in the business of planning, scheduling, organizing, arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours.

What is the value of taxable service provided by a tour operator?

The value of taxable service provided by a tour operator to a client is the gross amount charged by such operator from the client for services in relation to a tour and includes the charges for any accommodation, food or any other facilities provided in relation to such tour.

What are the rates of service tax applicable on various services provided by a tour operator?

S.No.	Taxable Service	Partial abatement/ Composition Scheme	Conditions	Statutory Reference
1	Accommodation booking service	10% of amount charged	1) No CENVAT Credit. 2) Invoice should be inclusive of cost of accommodation	S. No. 11(ii) of Notif. No. 26/2012-ST dt 20.6.12
2	Package tours - wherein transportation, accommodation for stay, food, tourist guide, entry to monuments and other similar services in relation to tour are provided as part of the package	Tax is payable on 25% of gross amount charged	1)  No CENVAT credit available. 2)  Bill to be inclusive of all charges for the tour.	S. No. 11(i) of Notif. No. 26/2012-ST dt 20.6.12
3	Tour operator – providing services solely of arranging or booking accommodation for any person in relation to a tour.	Tax is payable on 10% of  amount charged	1)  No CENVAT credit available. 2)  Bill to be inclusive of all charges for such accommodation. 3)  This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation.	S. No. 11(ii) of Notif. No. 26/2012-ST dt 20.6.12
4	Tour operator – Other than abovementioned services	Tax is payable on 40% of amount charged.	1)  No CENVAT credit available. 2)  Bill to be inclusive of all charges for the tour. 3)  The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour.	S. No. 11(iii) of Notif. No. 26/2012-ST dt 20.6.12
5	Air Travel Agent	Option to pay service tax at flat rate on ‘basic fare’ @0.6% in case of domestic booking and 1.2% in case of international booking – plus E. Cess	No restriction on availment of CENVAT credit. Option, once exercised, will apply uniformly in respect of all the bookings of passage for travel by air made during the financial year.	Rule 6(7) of Service Tax Rules

Who is an Air Travel Agent? Are his services chargeable to Service Tax?

An “Air Travel Agent” is any person engaged in providing any service connected with the booking of passage for travel by air.

Any service provided or to be provided to any person, by an air travel agent in relation to booking of passage for travel by air is a taxable service.

How is the taxable value of service provided by an air travel agent to be computed? What are the specific inclusions or exclusions?

In case of air travel agent, the value of taxable service is the gross amount charged by such agent from the customer for services in relation to the booking of passage for travel by air, excluding the air fare but including the commission, if any received from airline in relation to such booking.

Thus, the value of taxable services will include the commission received by the travel agent from the airline. However, it will exclude the fare amount collected from the customer.

The air travel agents receive certain commission for domestic and international tickets from the airlines. The details of the commissions payable by the airlines is indicated in the agency agreement entered into between the airline and the air travel agent. The travel agent files a fortnightly return to the airlines indicating the details of tickets booked, fare collected and the commission earned along with other particulars. After adjusting the commission, he remits the balance amount to the airlines. This fortnightly return would be the basis for assessment of Service Tax in respect of air travel agents.

Can the air travel agent pay service tax under any composition scheme?

An option has been given to the air travel agents to pay the Service Tax under the composition scheme as follows:

·         For booking domestic tickets: @ 0.6% of the basic fare

·         For booking international tickets: @ 1.2% of the basic fare

The basic fare is defined as that part of the fare on which commission is payable by the airlines.

E. Cess and S. H. E. Cess @3% of the tax amount determined as above will be payable additionally.

Which are the specified categories of persons, providing services to whom are exempt from service tax?

Services provided to the following persons are fully exempt:

·         United Nations or any such specified International Organization

·         Office of a foreign diplomatic mission or consular post in India

·         Personal use or for the use of family members of diplomatic agents or career consular officers posted in a foreign diplomatic mission or consular post in India

What is the place of provision of passenger transportation services?

The place of provision of a passenger transportation service is the place where the passenger embarks on the conveyance for a continuous journey.

What does a “continuous journey” mean?

A “continuous journey” means a journey for which:-

(i)                  a single ticket has been issued for the entire journey; or

(ii)                more than one ticket or invoice has been issued for the journey, by one service provider, or by an agent on behalf of more than one service providers, at the same time, and there is no scheduled stopover in the journey.

What is the meaning of a stopover? Do all stopovers break a continuous journey?

“Stopover” means a place where a passenger can disembark either to transfer to another conveyance or break his journey for a certain period in order to resume it at a later point of time. All stopovers do not cause a break in continuous journey. Only such stopovers will be relevant for which one or more separate tickets are issued. Thus a travel on Delhi-London-New York-London-Delhi on a single ticket with a halt at London on either side, or even both, will be covered by the definition of continuous journey. However if a separate ticket is issued, say New York-Boston-New York, the same will be outside the scope of a continuous journey.

Whether service tax will apply on related fees/charges on journeys starting outside India, even if the transaction for related charges is made in India?

and

Whether service tax will apply on related fee charges on journeys starting in India, even if the transaction for related charges is made outside India?

As per Clarification given in Draft Circular F. No.354 /146/2012 – TRU dated 27.09.2012:

“According to Rule 11 of Place of Provision of Services Rules, 2012, the place of provision of a passenger transportation service is the place where the passenger embarks on the conveyance for a continuous journey. Therefore, if place of embarkation of passenger is located within the taxable territory, service tax is leviable on the gross amount payable for such continuous journey, irrespective of where the ticket is booked and where fees/charges are collected. If the place of embarkation of a passenger on a continuous journey falls outside the taxable territory, service tax is not leviable, irrespective of where the tickets are booked and where fees/charges are collected. However, only such charge will be determined under Rule 11 of POP as are directly related to the continuous journey. The POP of other charges will be judged on their own merits.”

However, it is to be noted that as per Rule 8 of Place of Provision for Service Rules, 2012, where the service receiver and service provider are located in the taxable territory, the provision of service would be the location of service receiver irrespective of where the service is performed, delivered or consumed.

For determining “location of service” as above, if the service recipient has obtained service tax registration, it is the registered premises of the service receiver. However, if the service receiver is not registered under service tax, his location will be determined as follows:

1.       Location of business establishment

2.       Location of fixed establishment

3.       Where services are used at more than one establishment, the establishment most directly concerned with the use of service

4.       In the absence of above, the usual place of residence.

GIFT RECEIVED FROM HUF IS NOT TAXABLE

GIFT RECEIVED FROM HUF IS NOT TAXABLE

Rajkot Bench of ITAT in the case of  Vineetkumar Raghavjibhai Bhalodia v. Income tax Officer, Rajkot has discussed the  controversial issue of taxability of gifts from HUF to its members. The issues taken up were 

1.    Whether a gift received from 'relative', irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax under provisions of section 56(2)(vi)?

Answer: Held, yes.

2.    Whether HUF is a group of relatives and therefore, gift received from HUF would be exempt from tax under section 56(2)(vi)?

Answer: Held, yes

3.    Whether for getting exemption under section 10(2) two conditions are to be satisfied, firstly, a person must be a member of HUF and secondly he should receive sum out of income of such HUF, may it be income of earlier year?

Answer: Held, yes

4.    Whether where assessee was a member of HUF and received gift from HUF which was out of income of family and there was no material on record to show that gift amount was part of any assets of HUF, same would be exempt under section 10(2)?

Answer: Held, yes

Fact of the case: During the course of assessment proceedings the Assessing Officer noticed that the assessee had accepted gift of Rs. 60 lakhs from HUF and the Assessing Officer was of the view that HUF is not covered in the definition of 'relative'. Therefore, the gift received from the HUF was held to be taxable. The Commissioner (Appeals) confirmed the view of the Assessing Officer that the sum 'relative' is defined in Explanation to proviso to clause (v) of sub-section (2) of section 56. He further observed that if the legislature wanted that money exceeding Rs. 25,000 is received by the member of the HUF from the HUF is also not chargeable to tax, it would have specifically mentioned so in the definition in 'relatives'. He also considered the alternative submissions of the assessee that the said gift was exempt under section 10(2). He observed that under section 10(2) if the sum is received by any coparcener of HUF on partial or total division is exempt. The case under consideration was not a case that the said amount of Rs. 60 lakhs received by way of total or partial partition of the HUF. The Commissioner (Appeals) further observed that the above section speaks about sum received by a member of HUF if the same is out of income of the estate belonging to the family. If    section 10(2) is read with section 64(2) what is to be seen is that sum received by a member of the HUF from the income of the HUF cannot exceed the amount which can be apportioned to his share in the estate or property or asset of the HUF. The Commissioner (Appeals) held that the assessee had failed to make out a case either before the Assessing Officer or before him to prove and to establish that Rs. 60 lakhs received from HUF was equal to or less than the income, which could be apportioned to his share of income in the HUF.

On second appeal :

HELD

Gift received from HUF is a gift receive from relative

A Hindu Undivided Family is a person within the meaning of section 2(31) and is a distinctively assessable unit under the Act. The Income-tax Act does not define expression 'Hindu Undivided Family'. It is well defined area under the Hindu Law which has received recognition throughout. Therefore, the expression 'Hindu Undivided Family' must be construed in the sense in which it is understood under the Hindu Law as has been in the case of Surjit Lal Chhabda v. CIT [1975] 101 ITR 776 (SC). Actually a 'Hindu Undivided Family' constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. All these persons fall in the definition of 'relative' as provided in Explanation to clause (vi) of section 56(2). The observation of the Commissioner (Appeals) that HUF was as good as 'a body of individuals' and could not be termed as 'relative' was not acceptable. Rather, an HUF is 'a group of relatives'. Now having found that an HUF is 'a group of relatives', the question now arises as to whether would only the gift given by the individual relative from the HUF be exempt from taxation and would, if a gift collectively given by the 'group of relatives' from the HUF not exempt from taxation. To better appreciate and understand the situation, it would be appropriate to illustrate an example, thus - an employee amongst the staff members of an office retires and in token of their affection and affinity towards him, the secretary of the staff club on behalf of the members of the club presents the retiring employee with a gift could that gift presented by the secretary of the staff club on behalf of the staff club be termed as a gift from the secretary of the staff club alone and not from all the members of the club, as such? Answer to this quoted example would be that the gift presented by the secretary of the club represents the gift given by him on behalf of the members of the staff club and it is the collective gift from all the members of the club and not the secretary in his individual capacity. And if it is held otherwise, it will lead to an absurdity of interpretation which is not acceptable in interpretation of statutes.

Further, from a plain reading of section 56(2)(vi ) along with the Explanation to that section and on understanding the intention of the legislature from the section, it could be seen that a gift received from 'relative', irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax under the provisions of section 56(2)(vi) as a group of relatives also falls within the Explanation to section 56(2)(vi). It is not expressly defined in the Explanation that the word 'relative' represents a single person. And it is not always necessary that singular remains singular. Sometimes a singular can mean more than one, as in the case on hand. In the instant case the assessee received gift from his HUF. The word 'Hindu Undivided Family', though sounds singular unit in its form and assessed as such for income-tax purposes, finally at the end a 'Hindu Undivided Family' is made up of 'a group of relatives'. Thus, a singular words/words could be read as plural also, according to the circumstance/situation. To quote an example, the phrase 'a lot'. Here, the phrase 'a lot' remains as such, i.e., plural, in all circumstances and situations, where in the case of 'one of the friends' or 'one of the relatives', the phrase remains singular only as the phrase states so that one amongst the relatives and at no stretch of imagination it could mean as plural whereas in the phrase 'a lot' the words 'a' and 'lot' are inseparable and if split apart both give distinctive numbers, i.e. 'a' singular and 'lot' plural and whereas when read together, it can only read as plural in number unlike in the case of    'one of the relatives' where 'one' is always singular in number whereas 'relatives' is always plural in number, but when read together it could read as singular in number. Applying this description with the case on hand, it could be said that though for taxation purpose, an HUF is considered as a single unit, rather, an HUF is 'a group of relatives' as it is formed by the relatives. Therefore, the 'relative' explained in Explanation to section 56(2)(vi) includes 'relatives' and as the assessee received gift from his 'HUF', which is 'a group of relatives', the gift received by the assessee from the HUF should be interpreted to mean that the gift was received from the 'relatives' therefore the same was not taxable under section 56(2)(vi ).

Section 10(2) exemption in case of gift from HUF

Section 10(2) provides that tax shall not be payable by an assessee in respect of any sum which he receives from a member of Hindu Undivided Family and as the sum has been paid out of the family income, or in the case of an impartible estate, whose such sum has been paid out of the income of the estate belonging to the family, subject however, to the provisions of section 64(2). The object of the provision is that a Hindu Undivided Family, according to section 2(31) is a 'person' and a unit of assessment. Income earned by a HUF is assessable in its own hands, so as to avoid double taxation of one and same income once in the hands of the HUF which earns it, and again in the hands of the member whom, it is paid. In respect of the family property qua its members it has been held by various authorities and courts that there is an antecedent title of some kind of a Member in the properties of HUF and a family arrangement which merely acknowledges and defines how that title is looked at and it is not an alienation of property at all. But even if it should be regarded as a transfer, the object of avoiding family litigation is consideration in money's worth. The real consideration in a family arrangement is based upon a recognition of a pre-existing right hence, there is no transfer of property at all. The Apex Court in CGT v. N.S. Getti Chettiar [1971] 82 ITR 599based its observation on that ground in a case of unequal family partition and held that it is not transfer, hence no gift tax liability is attracted. Every member of the HUF has a claim as to his maintenance. Receiving anything in consideration of his pre-existing right in a property or income covers by section 10(2).

There are two ways involved in a transaction, i.e., (i) amount given and (ii) the amount received. If one relate the provisions of Income-tax Act to these ways of 'given' and 'received' in case of an HUF it could be said that the case of amount received by an HUF from its member is provided in section 64(2). Section 64(2) was inserted by the Taxation Laws (Amendment) Act, 1970 with effect from 1-4-1971. This section was inserted to avoid creation of multiple HUFs and others. Similar provisions was also inserted in the Gift-tax Act, 1958 and accordingly transfer of assets in such case was termed as deemed gift. The provisions of section 64(2) provides that - where in the case of an individual being a member of a Hindu Undivided Family, any property having been the separate property of the individual has been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration then, notwithstanding anything contained in any other provisions of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act. The individual shall be deemed to have transferred the converted property, though the family, to the members of the family for being held by them jointly. The income derived from the concerted property or any part thereof shall be deemed to arise to the individual and not to the family. Where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse on partition shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse and the provisions of sub-section (1) shall, so far as may be, apply accordingly. To cover the transaction between a member of HUF and the HUF the Income-tax Act provides section 10(2) and section 64(2). Section 10(2) is not similar to section 64(2). It deals with the transaction differently which would mean that the legislature in their own wisdom was aware about the circumstances and accordingly provisions are enacted in the Act. Therefore, in our opinion, both the situation of amount received and amount given to HUF by a member is to be dealt with accordingly. 

Firstly, there is no provision in the Act to contend that it is applicable only to the extend of income of the year. Secondly, the property or the income of HUF belongs to the members thereof who are either entitled to share in the property on partition or have a right to be maintained. For getting exemption under section 10(2) two conditions are to be satisfied, firstly, a person must be a member of HUF and secondly he should receive the sum out of the income of such HUF may be of earlier year.

The assessee received gift from HUF and had satisfied both the conditions of section 10(2) that the assessee was a member of HUF and received amount out of the income of family. There was no material on record to hold that the gift amount was part of any assets of HUF. It was out of income of family to a member of HUF, therefore, the same was exempt under section 10(2). 

Exemption of any sum or property received by a HUF from its members [ Section 56(2)(vii)] [W.e.f. 1.10.2009]

The definition of relative as given in section 56(2)(vii) is only in relation to an individual and not in relation to a HUF. It is therefore proposed to amend the provisions of section 56 so as to provide that any sum or property received without consideration or inadequate consideration by a HUF from its members would also be excluded from taxation.