Sec.194H Income Tax Act Attracted For 'Supplementary Commission' Earned By Travel Agents ; Airlines Liable To Deduct TDS : Supreme Court

The Supreme Court held that Section 194H of the Income Tax Act is attracted in the case of Supplementary Commission amounts earned by the travel agent and therefore Airlines are liable to deduct TDS in this regard.

The bench comprising Justices Surya Kant and MM Sundresh upheld the Delhi High Court judgment and overruled the Bombay High Court judgment in CIT v. Qatar Airways [2009 SCC OnLine Bom 2179] that had held otherwise.

Section 194H

Section 194H of the IT Act was introduced by the Finance Act, 2001, with effect from 01.04.2000. The provision requires deduction of tax at source ("TDS") at 10% plus surcharge from payments falling under the definition of "Commission" or "Brokerage" under the Section. The explaination provides that the "commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities.

In this case, the High Court of Delhi held that the airlines-assessees were required to deduct TDS under Section 194H on the Supplementary Commission accrued to travel agents entrusted Page 6 of 53 by the Appellants to sell airline tickets.

Some of the main contentions raised by the appellant-airlines were (i) The amount realized by the travel agent over and above the Net Fare owed to the air carrier is income in its own hands and is payable by the customer purchasing the ticket rather than the airline; (ii) The "Supplementary Commission", therefore, was income earned via proceeds from the sale of the tickets, and not a commission received from the Assessee airline; (iii) The airline itself would have no way of knowing the price at which the travel agent eventually sold the flight tickets. 

The revenue on the other hand, contended that the language of Section 194H is inclusive and covers any "direct or indirect" payments to the agent. Hence, there was no need for the payment to be made directly by the Assessees to the travel agents in order for it to fall under the ambit of "Commission" and be subject to TDS.

Upholding the stand taken by the revenue, the bench observed:

"Our conclusion in terms of the application of Section 194H of the IT Act to the Supplementary Commission amounts earned by the travel agent is unequivocally in favour of the Revenue. Section 194H is to be read with Section 182 of the Contract Act. If a relationship between two parties as culled out from their intentions as manifested in the terms of the contract between them indicate the existence of a principal­agent relationship as defined under Section 182 of the Contract Act, then the definition of "Commission" under Section 194H of the IT Act stands attracted and the requirement to deduct TDS arises."

Taking note of the consensus between the parties that the travel agents have already paid income tax on the Supplementary Commission, the court clarified that there can be no further recovery of the shortfall in TDS owed by the Assessees but any interest may be levied under Section 201(1A) of the IT Act.

Case details

Singapore Airlines Ltd. vs C.I.T., Delhi | 2022 LiveLaw (SC) 959 | CA 6964-­6965 OF 2015 | 14 Nov 2022 | Justices Surya Kant and MM Sundresh

For Appellant(s) Mr. Shekhar Prit Jha, AOR Mr. Bhargava V. Desai, AOR Mr. Rahul Gupta, Adv.

For Respondent(s) Mr. Raj Bahadur Yadav, AOR

Headnotes

Income Tax Act, 1961 ; Section 194H - Indian Contract Act, 1870 ; Section 182 - Application of Section 194H of the IT Act to the Supplementary Commission amounts earned by the travel agent - Section 194H is to be read with Section 182 of the Contract Act. If a relationship between two parties as culled out from their intentions as manifested in the terms of the contract between them indicate the existence of a principal­agent relationship as defined under Section 182 of the Contract Act, then the definition of "Commission" under Section 194H of the IT Act stands attracted and the requirement to deduct TDS arises.

Income Tax Act, 1961 ; Section 271C - 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 short fall in TDS. However, it would be open to the Revenue to seek payment of interest under Section 201(1A) for the period between the date of default in deduction of TDS and the date on which the recipient actually paid income tax on the amount for which there had been a shortfall in such deduction. (Para 56)

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