The Supreme Court ruled that the airlines are liable to deduct the TDS on ‘Supplementary Commission’ earned by Travel Agents.
The batch of Civil Appeals arises from a judgment passed by the High Court of Delhi whereby the High Court allowed the appeal by the Respondents/Revenue and held that Appellants/Assessees were required to deduct TDS under Section 194H of the Income Tax Act, 1961, on the Supplementary Commission accrued to travel agents entrusted by the Appellants to sell airline tickets.
As a consequence of the Assessees’ failure to carry out the subtraction of the requisite amount of TDS, they were declared “assessees in default” under Section 201 and would accordingly be subject to payment of interest and penalties under Sections 201(1A) and 271C of the IT Act.
Senior Advocate C.S. Agarwal, appearing for the Assessees, urged that after the tickets are provided to the travel agent to sell, the Assessees no longer have any control over the price at which the agent finally sells them.
He contended that thus, the Supplementary Commission that accrues to the travel agent is due to dealings between the agent and the customer.
Vikramjit Banerjee, Additional Solicitor General, and Advocate Rupesh Kumar, contended that the distinction that the Assessees have attempted to draw between the two purported legs of the ticket selling process is artificial and irrelevant.
They submitted that the overall relationship that exists between the airline and the travel agents is that of principal agent, and having admitted this position before the High Court, no contrary stands were possible at this stage.
The division bench of Justice Surya Kant and Justice M.M. Sundresh noted that the contract is one of agencies that does not distinguish in terms of stages of the transaction involved in selling flight tickets.
The bench further noted that while Assessees had readily accepted the existence of the principal agent relationship, their consternation had been directed at the so called second limb of the deal that is exclusively between the agent and the customer.
It was observed by the court that the High Court in the impugned judgment is correct in its holding that the arrangement between the agent and the purchaser is not a separate and distinct arrangement but is merely part of the package of activities undertaken pursuant to the PSA.
The court noted that Section 194H of the IT Act, does not distinguish between direct and indirect payments. Both fall under Explanation (i) to the provision in classifying what may be called a “Commission”.
“If we view the ambit of Section 194H in an expansive manner, the factum of the exact source of the payment would be of no consequence to the requirement of deducting TDS. Even on an indirect payment stemming from the consumer, the Assessees would remain liable under the IT Act. Consequently, the contention of the airlines regarding the point of origination for the amounts does not impair the applicability of Section 194H of the IT Act” the court said.
It was added by the court that the landscape in regard to Section 194H and its applicability to the auxiliary amounts earned by a travel agent on top of the Net Fare demonstrates a lack of uniformity among High Courts.
The court stated that the lack of control that the airlines have over the Actual Fare charged by the travel agents over and above the Net Fare, cannot form the legal basis for the Assessees to avoid their liability.
It was held by the court that the interpretation of the PSA, through the prism of Section 182 of the Contract Act and Section 194H of the IT Act, provided by the Revenue appears to be the correct position.
It affirmed the conclusion reached by the Delhi High Court in the judgment on the nature of the relationship between the airlines and the travel agents, and the liability that is attached to deduction of TDS on the Supplementary Commission.
As a consequence the court overruled the view taken by the Bombay High Court in QatarAirways.
The court said that if the recipient of income on which TDS has not been deducted, even though it was liable to such deduction under the IT Act, has already included that amount in its income and paid taxes on the same, the Assessee can no longer be proceeded against for recovery of the shortfall in TDS.
The bench concluded that Section 194H is to be read with Section 182 of the Contract Act.
The court directed the Assessing Officer to expeditiously complete the assignment of determining the interest payable in accordance with the guidelines laid down, so as to bring a quietus to the litigation.
Case title: Singapore Airlines Ltd. v/s C.I.T., Delhi
Citation: Civil appeal no. 69646965 of 2015