Delhi Tribunal holds minimum guarantee revenue payable by e-commerce platform to hotel owner as compensation, and not “rent”

In the case of Oravel Stays Ltd. ^[1] (Taxpayer), the issue arose whether minimum guarantee revenue (MGR) payable by e-commerce platform to various hotels, guest house etc. is liable for withholding as “rent”. 

The Taxpayer, engaged in operating online platform for booking rooms, hotels, guest house etc. facilitated reservation or booking between end-customers and hotels. As per the agreement between the Taxpayer and hotel owners, the Taxpayer was liable to pay MGR for unsold hotel inventory or sale of hotel inventory at less than benchmarked price. If the rooms are sold for more than assured benchmark, then hotel is liable to pay service charges to the Taxpayer. The Tax Authority contended that MGR payable by Taxpayer to hotels is “rent” for use of the hotel rooms which was upheld by First Appellate Authority. The Tax Authority relied on Central Board of Direct Taxes (CBDT) Circular No. 5/2002 dated 30 July 2002 which clarified that amount payable to hotels under “regular arrangement” is “rent” which attracts withholding but mere rate/price contract without obligation on hotel to provide or earmark rooms is not “rent”. 

The Delhi Tribunal noted the business model of the Taxpayer and noted that the Taxpayer does not have exclusive right to use the hotel rooms. There is no lessor-lessee relationship between the parties in absence of exclusive right to use the rooms. The bookings remained open to the public at large, and bills were raised by hotel in customers’ names. The MGR was payable for shortfall in achieving assured benchmark price and not for using the rooms for Taxpayer’s own purpose. The MGR is the compensation for default in securing the minimum room tariff.

The Tribunal applied ratio of Supreme Court’s (SC) decision in the case of Japan Airlines Co. Ltd. v. CIT (2015) (377 ITR 372) and other judicial precedents^[2]  wherein it was held that “use” contemplates control over the premises. In Japan Airlines’ case, the SC held that landing charges paid by airlines for landing, parking and take-off of aircrafts are in substance not for the use of land but for various other facilities, such as lounge facilities, air traffic services, ground safety services, aeronautical communication facilities, etc. The airlines did not obtain such services on exclusive basis but availed them on shared basis along with other airlines who also availed such facilities as per similar agreed terms. 

^[1] [TS-1561-ITAT-2025(DEL)]
^[2] Apeejay Surrendra Park Hotels Ltd. v. UOI (2016) (383 ITR 697) (Delhi); Krishna Oberoi v. UOI (2002) (257 ITR 105)