TDS Supplementary Commission Received by Travel Agents from Airlines whether Attract TDS Under Section 194H—Recent Decision of Supreme Court

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The Tax Publishers Income Tax--TDS Supplementary Commission Received by Travel Agents from Airlines whether Attract TDS Under Section 194H--Recent Decision of Supreme Court CA. Nisha Bhandari Recently an issue was raised before the Supreme Court in Singapore Airlines Ltd.'s case regarding applicability of TDS provision contained under Section 194H in case of supplementary commission received by the travel agents from airlines. The learned author analyses the outcome of the said decision. 1. Tax when required to be deducted under Section 194H Section 194H provides for deduction of tax at source from any income by way of commission or brokerage to a resident. Accordingly any person, not being an individual or a Hindu undivided family, who is responsible for paying, to a resident, any income by way of commission (not being insurance commission referred to in Section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent. The term 'commission' for purpose of Section 194H is defined in Explanation (i) to Section 194H. Accordingly, 'commission or brokerage' includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities. 2. Commission or brokerage, etc. received by travel agents from airlines In Around the World Travels & Tours (P) Ltd. v. Union of India (2004) 141 Taxman 53 (Mad), it was held that tax should be deducted at source under Section 194H on the amount available to agents being the difference between airfare fixed by Airlines and the price at which agents are enabled to sell tickets, vide Order dated 2-10-2009 of the High Court of Madras. The above decision of the Madras High Court has been further reinforced by the decision of Hon'ble High Court of Delhi in CIT v. Singapore Airlines Ltd. & Ors. (2009) 180 Taxman 128 (Del), in which it has been held that commissions and the supplementary commissions received by travel agents from Airlines are liable to tax deduction at source under Section 194H and in case of default, the mandatory interest under Section 201(1A) is leviable. The above decision of High Court is to be circulated for kind information and necessary action at your end.--Vide F.No. 275/70/2009-IT(B), dt. 22-12-2009. However in CIT v. Qatar Airways 2009 SCC OnLine Bom 2179 : 2011 TaxPub(DT) 0038 (Bom-HC) it was held that for Section 194H to be attracted, the income being paid out by the assessee must be in the nature of commission or brokerage. It was not the case of the Revenue that this difference between the principal price of the tickets and the minimum fixed commercial price amounted to payment of brokerage. In order to deduct tax at source the income being paid out must necessarily be ascertainable in the hands of the assessee. In the present case, it is seen that the airlines would have no information about the exact rate at which the tickets were ultimately sold by their agents since the agents had been given discretion to sell the tickets at any rate between the fixed minimum commercial price and the published price and it would be impracticable and unreasonable to expect the assessee to get a feed back from their numerous agents in respect of each ticket sold. Further, if the airlines have discretion to sell the tickets at the price lower than the published price then the permission granted to the agent to sell it at a lower price, can neither amount to commission nor brokerage at the hands of the agent. Any amount which the agent may earn over and above the fixed minimum commercial price would naturally be income in the hands of the agent and will be taxable as such in his hands. Hence there is no question of deducting TDS in such case. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--TDS

Supplementary Commission Received by Travel Agents from Airlines whether Attract TDS Under Section 194H--Recent Decision of Supreme Court

CA. Nisha Bhandari

Recently an issue was raised before the Supreme Court in Singapore Airlines Ltd.'s case regarding applicability of TDS provision contained under Section 194H in case of supplementary commission received by the travel agents from airlines. The learned author analyses the outcome of the said decision.

1. Tax when required to be deducted under Section 194H

Section 194H provides for deduction of tax at source from any income by way of commission or brokerage to a resident. Accordingly any person, not being an individual or a Hindu undivided family, who is responsible for paying, to a resident, any income by way of commission (not being insurance commission referred to in Section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent.

The term 'commission' for purpose of Section 194H is defined in Explanation (i) to Section 194H. Accordingly, 'commission or brokerage' includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities.

2. Commission or brokerage, etc. received by travel agents from airlines

In Around the World Travels & Tours (P) Ltd. v. Union of India (2004) 141 Taxman 53 (Mad), it was held that tax should be deducted at source under Section 194H on the amount available to agents being the difference between airfare fixed by Airlines and the price at which agents are enabled to sell tickets, vide Order dated 2-10-2009 of the High Court of Madras. The above decision of the Madras High Court has been further reinforced by the decision of Hon'ble High Court of Delhi in CIT v. Singapore Airlines Ltd. & Ors. (2009) 180 Taxman 128 (Del), in which it has been held that commissions and the supplementary commissions received by travel agents from Airlines are liable to tax deduction at source under Section 194H and in case of default, the mandatory interest under Section 201(1A) is leviable. The above decision of High Court is to be circulated for kind information and necessary action at your end.--Vide F.No. 275/70/2009-IT(B), dt. 22-12-2009.

However in CIT v. Qatar Airways 2009 SCC OnLine Bom 2179 : 2011 TaxPub(DT) 0038 (Bom-HC) it was held that for Section 194H to be attracted, the income being paid out by the assessee must be in the nature of commission or brokerage. It was not the case of the Revenue that this difference between the principal price of the tickets and the minimum fixed commercial price amounted to payment of brokerage. In order to deduct tax at source the income being paid out must necessarily be ascertainable in the hands of the assessee. In the present case, it is seen that the airlines would have no information about the exact rate at which the tickets were ultimately sold by their agents since the agents had been given discretion to sell the tickets at any rate between the fixed minimum commercial price and the published price and it would be impracticable and unreasonable to expect the assessee to get a feed back from their numerous agents in respect of each ticket sold. Further, if the airlines have discretion to sell the tickets at the price lower than the published price then the permission granted to the agent to sell it at a lower price, can neither amount to commission nor brokerage at the hands of the agent. Any amount which the agent may earn over and above the fixed minimum commercial price would naturally be income in the hands of the agent and will be taxable as such in his hands. Hence there is no question of deducting TDS in such case.