CIT vs. Singapore Airlines (Delhi High Court)

TDS required even on commission retained by agent

Where the assessee-airline supplied blank tickets to the travel agent, on terms that the same be sold at a minimum price and the difference between the said minimum price and the price at which the tickets were sold to the passenger was retained by the travel agent and the question arose whether the amount so retained by the agent was “commission” and whether the assessee was required to deduct tax thereon u/s 194-H of the Act, HELD, reversing the decision of the Tribunal:

(a) The relationship between the airline and the travel agent was that of a principal and agent as all the requirements of s. 182 of the Contract Act were fulfilled by the PSA. By the acts of the travel agent, a legal relationship was created between the airline and the passenger;

(b) The monies retained by the travel agent in the form of supplementary commission is not a “discount” because the travel agent never obtains proprietary rights to the tickets and has never paid a “price” for the same. Instead, the same is “commission” because it is received for services rendered on behalf of the assessee-airline and the airline ought to have deducted tax u/s 194-H;

(c) The argument that the assessee-airline is unable to deduct tax at source since it is unaware of the commission retained by the agent till a billing analysis is done is not acceptable because once an obligation is cast, it is for the assessee-airline to retrieve the necessary information from the travel agent and put itself in a position to deduct tax. The assessee cannot take up the stand that the machinery for deduction of tax has failed;

(d) However, in respect of the issue of “concessional” tickets to the agents, the difference between the full value and the concessional price was not “commission” because though it was a reward for services, title to the ticket passes to the agent and the relationship was that of a principal to principal. The difference was a “discount”.

Note: The Bombay High Court has taken a contrary view in CIT Quatar Airways.