Facts of the Case

The Revenue filed an appeal against the order passed in favour of Royal Jordanian Airlines in relation to Assessment Year 2008-09, concerning non-deduction of tax at source on supplementary commission paid to travel agents. The Revenue contended that such supplementary commission constituted “commission” within the meaning of Section 194H of the Income-tax Act and that the assessee was liable to deduct tax at source. The issue was stated to be squarely covered in favour of the Revenue by the earlier judgment of the Delhi High Court in Commissioner of Income Tax vs. Singapore Airlines Ltd., which was subsequently affirmed by the Hon’ble Supreme Court.

The assessee opposed the appeal on the ground of low tax effect in view of CBDT Circular No. 5/2024 read with Circular No. 9/2024 and alternatively prayed for disposal of the appeal in terms of the Supreme Court judgment in Singapore Airlines, limiting the liability.

Issues Involved

Whether supplementary commission paid by an airline to travel agents attracts TDS under Section 194H of the Income-tax Act, whether the principal–agent relationship exists between the airline and its agents, and whether recovery can be restricted to interest only where the agents have already paid income tax on such commission.

Petitioner’s Arguments

The Revenue submitted that the issue was fully covered in its favour by the decision of the Delhi High Court in Commissioner of Income Tax vs. Singapore Airlines Ltd., as affirmed by the Hon’ble Supreme Court in Singapore Airlines Ltd. vs. Commissioner of Income Tax. It was argued that supplementary commission paid to travel agents clearly fell within the ambit of “commission” under Section 194H and that the airline was liable for failure to deduct TDS.

Respondent’s Arguments

The assessee submitted that the appeal deserved to be dismissed on account of low tax effect as per the applicable CBDT circulars. Alternatively, it was submitted that in light of the Supreme Court judgment in Singapore Airlines, even if liability under Section 194H is upheld, the Revenue should be restricted to recovery of interest only, as the agents had already paid income tax on the supplementary commission. The assessee further submitted that given the passage of more than ten years and cessation of operations in India, it would be extremely difficult to obtain proof of tax payment by agents.

Court Order / Findings

The Delhi High Court held that the issue of applicability of Section 194H to supplementary commission paid by airlines to travel agents was conclusively settled in favour of the Revenue by the judgment in Singapore Airlines, as affirmed by the Supreme Court. The Court agreed that a principal–agent relationship existed between the airline and its agents and that the obligation to deduct TDS under Section 194H arose.

However, the Court accepted the alternative submission of the assessee and disposed of the appeal in terms of paragraphs 68 to 71 of the Supreme Court judgment in Singapore Airlines. The Court held that where the travel agents had already paid income tax on the supplementary commission, there could be no further recovery of the shortfall in TDS from the airline. The Revenue was held entitled only to levy interest under Section 201(1A) of the Income-tax Act for the period of default. The Assessing Officer was directed to compute interest accordingly and not to enquire into whether the agents had paid tax, as such verification lay within the jurisdiction of the agents’ respective Assessing Officers.

Important Clarification

The High Court clarified that while liability to deduct tax at source under Section 194H is attracted on supplementary commission paid to travel agents, recovery of tax itself cannot be made from the airline if the agents have already discharged their tax liability. In such cases, the Revenue’s remedy is limited to recovery of interest under Section 201(1A), and penalty proceedings are barred in view of Section 273B.

Final Outcome

The appeal filed by the Revenue was disposed of. The liability of Royal Jordanian Airlines to deduct tax at source under Section 194H was affirmed, but recovery was restricted to interest under Section 201(1A) of the Income-tax Act only. The Assessing Officer was directed to issue demand solely in respect of interest and complete the exercise expeditiously in accordance with law.

 

Link to download order https://www.mytaxexpert.co.in/uploads/1769503860_COMMISSIONEROFINCOMETAXDELHIXVIIVsROYALJORDANIANAIRLINES.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.