TDS on supplementary travel-agent commission remains deductible, but recovery is limited to interest where tax was already paid

Supplementary commission paid to travel agents was treated as falling within section 194-H because the arrangement disclosed a principal-agent relationship under section 182 of the Contract Act, so the deductor's liability to deduct tax at source was maintained. However, where the agents had already paid income tax on the commission, further recovery of the TDS shortfall from the airlines was not warranted; only interest under section 201(1-A) could be levied. The assessing officer was therefore directed to confine the demand to interest and not reopen whether the agents had paid tax after the long lapse of time.

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Issues: Whether the assessee was liable to deduct tax at source on supplementary commission paid to travel agents and, in the circumstances of the case, whether the assessee could be fastened only with interest without further recovery of the shortfall in TDS.

Analysis: The issue was treated as covered by the earlier Supreme Court ruling, which held that supplementary commission paid to travel agents falls within the scope of section 194-H where the contractual arrangement discloses a principal-agent relationship under section 182 of the Contract Act. The same ruling also recognised that, where the travel agents had already paid income tax on the supplementary commission, no further recovery of the shortfall in TDS could be made from the airlines, though interest could still be levied under section 201(1-A) of the Income-tax Act. The Court also accepted that, after a long lapse of time, the assessee should not be put to the burden of proving tax payment by the agents and directed that the assessing officer confine the demand to interest on the applicable TDS amount.

Conclusion: The assessee's liability on merits under section 194-H stood maintained, but the demand was confined to interest and no fresh enquiry was to be made by the assessing officer as to whether the agents had paid tax.

Ratio Decidendi: Where tax on the underlying commission has already been paid by the recipient, the defaulting deductor remains liable for interest for failure to deduct tax at source, but further recovery of the TDS shortfall is not warranted.

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