Income tax dept wants luxury sea liners to be taxed as floating hotels

SC issues notice to Star cruises after I-T dept appeals that Luxury cruises were being camouflaged as passenger transport by the respondent to pay tax on 7.5% of income instead of 25% of accruals

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Is a Mumbai-to-Mumbai round trip on a luxury liner merely a transport facility for passengers or is it akin to a luxury hotel stay? 

The income tax department raised the question before the Supreme Court on Friday while challenging a Bombay high court decision that had rejected the department's contention that a Mumbai-to-Mumbai round cruise should be classified as a hotel stay on high seas for the imposition of higher tax on luxury liners. as per an ET report.

A bench of Chief Justice S H Kapadia and justices A K Patnaik and Swatanter Kumar issued a notice toStar Cruises (India) Private Limited after hearing brief arguments from additional solicitor general Vivek Tankha, who said luxury cruises were being camouflaged as passenger transport by the respondent to pay tax on 7.5% of income instead of 25% of accruals. 

The I-T department said Superstar Libra Ltd, a company based outside India, was conducting cruises originating from Mumbai and terminating in Mumbai by way of single-night cruises to the high seas and back (two days and one night), multiday cruises (Mumbai-Goa-Mumbai ; three days and two nights) and Mumbai-Lakshadweep-Mumbai (five days and four nights). 

The department in its appeal said the business of Superstar Libra was not restricted to carrying passengers and that its main activity was to provide hospitality and entertainment during the cruise. "The business was akin to running a 'hotel on sea'. Accordingly, the assessing officer was correct in estimating the deemed income tax at the rate of 25% as against 7.5% claimed by Superstar Libra's owners under section 44B of the Income Tax Act," the department said. 

It said the liner's cruises were package deals, where passengers embarked at Mumbai and disembarked at the same port after enjoying luxury facilities depending on the money paid by them. "The accommodation varied from state-room to economy to executive suite for those who wanted maximum luxury. The passengers were also charged for shopping, room service and anything not specifically mentioned in the package," the department said. 

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