SC: Supplementary Commission Earned by Travel Agents is Covered u/s 194H of Income Tac Act

Sakina Tashrifwala

The?Supreme Court?ruled that Supplementary Commission sums collected by the travel agent are subject to?Section 194H of the Income Tax Act, and as a result, Airlines are required to deduct TDS in this situation.

The bench of?Justices Surya Kant?and?MM Sundresh?upheld the Delhi High Court decision and set aside the Bombay High Court decision in CIT v. Qatar Airways.

The?Finance Act of 2001?added?Section 194H to the IT Act, which became effective on April 1, 2000. From payments that meet the definitions of “Commission” or “Brokerage” under the Section, the provision mandates the deduction of tax at source (“TDS”) at 10% + surcharge.

According to the explanation, “commission or brokerage” refers to any payment made directly or indirectly to a person acting on behalf of another person for services provided that are not professional services, for services provided in connection with the purchase or sale of goods, or in connection with any transaction involving any asset, valuable item, or thing that is not a security.

The High Court of Delhi ruled that in this instance, the?airlines-assessees were required to deduct TDS in accordance with Section 194H on the Supplementary Commission paid to travel brokers who were given the go-ahead by the appellants to sell airline tickets.

The appellant-airlines’ main arguments included the following:

• The “Supplementary Commission” was income earned via proceeds from the sale of the tickets, not a commission received from the Assessee airline;
• The airline itself would have no wavier if the amount realised by the travel agent over and above the Net Fare owed to the air carrier was income in its own hands and payable by the customer purchasing the ticket instead of the airline;
• The amount realised by the travel;

On the other hand, the revenue argued that the inclusive language of Section 194H embraces any “direct or indirect” payments to the agent. In order for the payment to qualify as “Commission” and be subject to TDS, the Assessees did not need to make it directly to the travel agency.

Supporting the revenue’s position, the bench noted:

“We come to the unavoidable conclusion that the Revenue will benefit from the application of Section 194H of the IT Act to the Supplementary Commission sums earned by the travel agent. Together with Section 182 of the Contract Act, read with Section 194H.”

“The definition of “Commission” under Section 194H of the IT Act stands attracted, and the requirement to deduct TDS arises, if a relationship between two parties, as discerned from their intentions as expressed in the terms of the contract between them, indicates the existence of a principalagent relationship, as defined under Section 182 of the Contract Act.”

The court made it clear that there can be no further recovery of the shortfall in TDS owed by the Assessees but that any interest may be levied under?Section 201(1A) of the IT Act?after taking into account the parties’ agreement that the travel agents have already paid income tax on the Supplementary Commission.