Supreme Court rules airlines liable to deduct TDS on supplementary commission under IT Act

Supreme Court rules airlines liable to deduct TDS on supplementary commission under IT Act

It annulled the judgment of the Bombay High Court

In a significant ruling that will impact the airlines adversely, the Supreme Court has held that Tax Deducted at Source (TDS) under the Income Tax Act, 1961 is attracted in the case of Supplementary Commission amounts earned by the travel agent. Therefore, the airlines are liable to deduct TDS.

The bench comprising Justice Surya Kant and Justice MM Sundresh while upholding the judgment of the Delhi High Court overruled the judgment of the Bombay High Court in the CIT vs Qatar Airways case.

The petitioners, Singapore Airlines and others had approached the apex court against a ruling of the high court. Prior to that, the Delhi High Court held that the airlines-assessees were required to deduct TDS under the Act on the Supplementary Commission accrued to travel agents entrusted by the appellants to sell airline tickets.

The appellant airlines contended before the top court, underlining the points:

1. 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.

2. The Supplementary Commission was income earned via proceeds from the sale of the tickets and not a commission received from the assessee airline.

3. The airline would have no way of knowing the price at which the travel agent eventually sold the flight tickets. The IT department contended that the language of Section 194H was inclusive and covered 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 for it to fall under the ambit of the Commission and be subject to TDS.

Thus, ruling in favor of the revenue department, the two-judge bench held, "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 favor of the revenue department. Section 194H is to be read with Section 182 of the Indian Contract Act, 1872.

It further stated, "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 principal-agent relationship as defined under the Contract Act, then the definition of 'Commission' under the IT Act stands attracted and the requirement to deduct TDS arises."