Summary
This appeal concerned airline tickets sold through IATA travel agents for assessment year 2001-02. Agents kept the difference between the airline's net fare and the price they charged, recorded on the Billing and Settlement Plan as Supplementary Commission. The Supreme Court held that this amount is commission under Section 194H, so the airlines had to deduct tax on it. Under the agency agreement the tickets remained the airline's property, and the margin was an incidental benefit of selling on its behalf. Section 194H covers indirect payments, and the BSP data made deduction workable. The Bombay High Court's Qatar Airways view was overruled. As the agents had already paid tax, recovery was limited to interest, and penalty was quashed for reasonable cause.
Issues
- Whether the amount retained by travel agents over the airline's net fare (Supplementary Commission) is 'commission' under Section 194H of the Income Tax Act, 1961 requiring the airlines to deduct tax at source.
- Whether the airlines could be proceeded against for the shortfall, interest and penalty where the agents had already paid income tax on those amounts.
Provisions considered
- Section 194H, Explanation (i), Income Tax Act, 1961The inclusive definition covers payments received directly or indirectly by a person acting on behalf of another; read with Section 182 of the Contract Act, the agents' margin over the net fare is commission attracting TDS. (¶¶ 19, 20, 34, 35, 63)
- Section 182, Indian Contract Act, 1872The Passenger Sales Agency Agreement created a principal-agent relationship covering the whole sale; title in tickets never passed to the agents and they sold on the carrier's behalf. (¶¶ 21, 26, 28, 31, 32)
- Sections 215 and 216, Indian Contract Act, 1872An agent dealing on its own account does not alter the nature of the agency; these provisions were of no assistance to the airlines. (¶¶ 48, 49)
- Sections 201(1) and 201(1A), Income Tax Act, 1961Since the payees had paid tax on the amounts, the shortfall could not be recovered from the airlines, but interest runs from the date of default to the date the agents paid tax. (¶¶ 56, 57, 58, 64)
- Sections 271C and 273B, Income Tax Act, 1961Penalty proceedings were quashed because the question was nascent and High Courts had differed, giving reasonable cause for non-deduction. (¶¶ 59, 60, 61, 62)
Held
- The tickets remained the carrier's property under Clause 6.1 of the PSA, all sales were made on the carrier's behalf and under its tariffs, the carrier indemnified the agent and fixed its remuneration; the contract is one of agency that does not divide the sale into a separate agent-customer transaction, and the agent's dealing with the purchaser is part of the activities under the PSA. (¶¶ 26, 28, 29, 30, 31, 32)
- Section 194H draws no distinction between direct and indirect payments, so the fact that the Supplementary Commission comes from the customer and not the airline is immaterial; the agent's discretion to fix the actual fare does not change the agency, the margin being an incidental benefit with a close nexus to the duties entrusted, and under Clause 7.2 all monies collected are held in trust for the carrier until settled. (¶¶ 34, 35, 44, 45, 46, 47)
- The BSP records Supplementary Commission separately and reports twice a month, so the airlines could make a consolidated deduction after settlement; the information being available to them, they cannot escape liability, and the Delhi High Court's view is affirmed while the Bombay High Court's decision in Qatar Airways is overruled. (¶¶ 42, 43, 47, 50, 51)
- Following Hindustan Coca Cola and Eli Lilly, where the payee has included the income and paid tax on it, the shortfall in TDS cannot be recovered from the deductor, but interest under Section 201(1A) is payable from the date of default till the date the payee paid tax; the matter is remitted to the Assessing Officer to compute interest and verify payment, with liberty to recover the shortfall where any agent has not paid. (¶¶ 56, 57, 58, 64, 65)
- Because the airlines' liability on Supplementary Commission had not been settled when the controversy arose, airlines took differing views and High Courts gave contradictory rulings, there was reasonable cause under Section 273B, and penalty proceedings under Section 271C are quashed. (¶¶ 61, 62, 65)
Result
Civil Appeal Nos. 6964-6965 of 2015 and connected appeals partly allowed: liability to deduct TDS on Supplementary Commission under Section 194H affirmed; no recovery of the shortfall where agents have paid tax; matter remitted to the Assessing Officer to compute interest under Section 201(1A); penalty proceedings under Section 271C quashed.