In a significant ruling having an impact against the airlines, the Supreme Court has held that TDS under section 194H of the Income Tax Act, 1961 is attracted in the case of Supplementary Commission amounts earned by the travel agent and therefore, the Airlines are liable to deduct TDS.
The bench comprising Justices Surya Kant and MM Sundresh while upholding the Delhi High Court judgment has overruled the Bombay High Court judgment in CIT v. Qatar Airways.
The petitioners, Singapore Airlines and others approached the Apex Court against a ruling of the High Court.
Earlier, the Delhi High Court 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.
The appellant-airlines contended before the Apex Court that (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 income tax department 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.
Ruling in favour of the Revenue, the two-judge bench held that “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.”
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