On Monday, a division bench of the Supreme Court comprised of Justices Surya Kant and MM Sundresh ruled that supplementary commission amounts earned by the travel agent are subject to Section 194H of the Income Tax Act, and thus airlines are required to deduct TDS in this regard.

The court also upheld the Delhi High Court's decision and overruled the Bombay High Court's decision in CIT v. Qatar Airways, which had held otherwise.

The High Court of Delhi ruled in this case that the airlines-assessees were required to deduct TDS under Section 194H from the Supplementary Commission paid to travel agents entrusted by the Appellants to sell airline tickets.

Some of the main contentions raised by the appellant airlines were

• The amount realised by the travel agent in excess of the net fare owed to the airline is income in its own right, payable by the customer purchasing the ticket rather than the airline.
• The "Supplemental Commission" was thus income earned through proceeds from the sale of the tickets, rather than a commission received from the assessee airline; and
• The airline itself would have no way of knowing the price at which the travel agent eventually sold the tickets.

Furthermore, the bench reiterated, "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 into account the parties' agreement that the travel agents had already paid income tax on the Supplementary Commission, the court clarified that the assesses' shortfall in TDS could not be recovered further but that interest could be levied under Section 201(1A) of the IT Act.

"Having said this, in light of the consensus between the parties that the travel agents have already paid income tax on the Supplementary Commission, there can be no further recovery of the shortfall in TDS owed by the Assessees. However, interest may be levied under Section 201(1A) of the IT Act. As an epilogue to this aspect of the matter, the Assessing Officer is directed to compute the interest payable by the Assessees for the period from the date of default by them in terms of failure to deduct TDS, till the date of payment of income tax by the travel agents. It will be open to the Assessing Officer to look into any details that are necessary for completion of this exercise, including verification of whether   tax   was   actually   paid   at   all   by   the   agents   on   the amounts from which TDS was supposed to be subtracted."

Case Title: Singapore Airlines Ltd. vs C.I.T., Delhi 

CA 6964-­6965 OF 2015 

 Read the Complete Judgment on the following Link:-

https://main.sci.gov.in/supremecourt/2009/22328/22328_2009_11_1501_39658_Judgement_14-Nov-2022.pdf