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2022 (11) TMI 783
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....re lower than the Base Fare, but not higher. "Net Fare" In essence, the IATA set the ceiling price for how much airlines may charge their customers. This formed part of the IATA's overall responsibility of overseeing the functioning of the industry. 3. The air carriers were also required to provide a fare list to the Director General of Civil Aviation ("DGCA") for approval. The prices that were rubber stamped by the DGCA may be equivalent to or lower than the Base Fare set by the IATA. Alongside setting the standard pecuniary amount for tickets, the IATA would provide blank tickets to the travel agents acting on behalf of the airlines to market and sell the travel documents. The arrangement between the airlines and the travel agents would be governed by Passenger Sales Agency Agreements ("PSA"). The draft templates for these contracts are drawn up by the IATA and entered into by various travel agents operating in the sector, with the IATA which signs on behalf of the air carriers. The PSAs set the conditions under which the travel agents carry out the aforementioned sale of flight tickets, along with other ancillary services, and the remuneration they are entitled to for these a....
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....0 = Rs. 20,000 Ceiling Price Income of the Assessee Rs. 20,000 left after payment of Net Fare to the Assessee Income of the travel agent Additional Income of the travel agent 8. This auxiliary amount charged on top of the Net Fare was portrayed on the BSP as a "Supplementary Commission" in the hands of the travel agent. Thus, the heart of the dispute between the Assessee airlines and the Revenue in this case lies in the characterization of the income earned by the agent besides the Standard Commission of 7% and whether this additional portion would be subject to TDS requirements under Section 194H. B. FACTUAL BACKGROUND 9. This batch of Civil Appeals arises from a judgement passed on 13.04.2009 by the High Court of Delhi whereby the High Court allowed the appeal by the Respondents/Revenue and held that Appellants/Assessees were required to deduct TDS under Section 194H of the Income Tax Act, 1961 ("IT Act"), on the Supplementary Commission accrued to travel agents entrusted by the Appellants to sell airline tickets. As a consequence of the Assessees' failure to carry out the subtraction of the requisite amount of TDS, they were declared "assessees ....
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.... Rs. 5,31,76,079 13. Penalty proceedings were directed to be initiated against all the Assessees under Section 271C of the IT Act. The Assessees proceeded to file their respective appeals before the Commissioner of Income Tax (Appeals) against the Assessment Orders. The Commissioner (Appeals) passed a common order, rejecting the appeals on merits but directing that any transactions dated prior to 01.06.2001, the date on which Section 194H came into effect, would be excluded from the demand for TDS. 14. The Assessees subsequently approached the Income Tax Appellate Tribunal, Delhi ("ITAT"). In CA No. 69646965 of 2015 concerning Singapore Airlines, the ITAT accepted the contentions of the Assessee and set aside the Assessment Order passed against it, while holding that: (i) 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; (ii) The "Supplementary Commission", therefore, was income earned via proceeds from the sale of the tickets, and not a commission received from the Assessee airline; (iii) The airline its....
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....tricably linked with the overall principalagent relationship and the responsibilities that they were entrusted with by the Assessees; (iv) There was no transfer in terms of title in the tickets and they remained the property of the airline companies throughout the transaction; (v) The Assessees were only required to make the deductions under Section 194H of the IT Act when the total amounts were accumulated by the BSA. 16. The High Court reimposed the tag of "assessee in default" under Section 201 and the levy of interest on short fall of TDS under Section 201(1A) on the Assessees.^8 The aggrieved Assessees are now before this Court in this batch of appeals. C. SUBMISSIONS 17. Mr. C.S. Agarwal, learned Senior Counsel, appearing for the Assessees in CA Nos. 69646965 of 2015, and Nos. 69666967 of 2015, has vehemently urged us to appreciate the incorrectness of the impugned judgment, on the following grounds: (i) After the tickets are provided to the travel agent to sell, the Assessees no longer have any control over the price at which the agent finally sells them. Thus, the Supplementary Commission that accrues to the travel agent is due to dealing....
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....; (vi) The usage of the "Supplementary Commission" nomenclature by the BSP when aggregating the amounts involved in the transaction is of no legal consequence as this terminology is employed purely for convenience. This does not cloak the amount earned by the agent from the customer as a "Commission" within the meaning of Section 194H; (vii) The actions undertaken by the agents are of their own accord and do not fall under the terms of the PSA. Such a scenario is most appropriately characterized as an agent acting on his own account without the knowledge of the principal under Section 216 of the Contract Act. (viii)The travel agents had already filed tax returns which were inclusive of the amounts earned by them from the sale of tickets over and above the Net Fare. Hence, income tax had already been imposed on this additional portion of income and the matter was revenue neutral. Consequently, no TDS was liable to be deducted at this stage as it would be akin to taxing the same amount twice. A judgement of this Court in Hindustan Coca Cola Beverages Pvt. Ltd. v. Commissioner of Income Tax (2007) 8 SCC 463 was cited in this regard. Learned Counsel appear....
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.... will now proceed to examine the rival submissions. D. ANALYSIS D.1 INTERPRETATION OF SECTION 194H OF THE IT ACT 19. The central point for our consideration lies in the interpretation of what amounts to a "Commission" under Section 194H of the IT Act. The Assessees and the Revenue emphasized upon the nature of the relationship between an airline and a travel agent under the framework of the PSA that governs their arrangement. Before analysing the competing interpretations placed before us, the relevant part of Section 194H requires examined and reads as follows: 194H. Commission or brokerage. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, 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 incometax thereon at the rate of five per cent: Provided that no deduction shall be made under thi....
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....an agent is thus indicated in Powell's Law of Agency, at page 16 : (a) Generally a master can tell his servant what to do and how to do it. (b) Generally a principal cannot tell his agent how to carry out his instructions. (c) A servant is under more complete control than an agent, and also at page 20 : ( a) Generally, a servant is a person who not only receives instructions from his master but is subject to his master's right to control the manner in which he carries out those instructions. An agent receives his principal's instructions but is generally free to carry out those instructions according to his own discretion. (b) Generally, a servant, qua servant, has no authority to make contracts on behalf of his master. Generally, the purpose of employing an agent is to authorise him to make contracts on behalf of his principal. (c) Generally, an agent is paid by commission upon effecting the result which he has been instructed by his principal to achieve. Generally, a servant is paid by wages or salary. 11. The statement of the law contained in Halsbury's Laws of England Hailsham Edition Volume 22, page....
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....y scrutinize the contract between the parties and opined that: "5. Whether a particular agreement is an agency agreement or an agreement of sale depends upon the terms of the agreement. For deciding that question, the terms of the agreement have got to be examined. The true nature of a transaction evidenced by a written agreement has to be ascertained from the covenants and not merely from what the parties choose to call it. The terms of the agreement must be carefully scrutinised in the light of the surrounding circumstances." 25. This was reiterated in Bhopal Sugar Industries Ltd. v. STO, Bhopal (1977) 3 SCC 147 by a 3judge bench which held: "5...Thus the essence of the matter is that in a contract of sale, title to the property passes on to the buyer on delivery of the goods for a price paid or promised. Once this happens the buyer becomes the owner of the property and the seller has no vestige of title left in the property. The concept of a sale has, however, undergone a revolutionary change, having regard to the complexities of the modern times and the expanding needs of the society, which has made a departure from the doctrine of laissez faire by includin....
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....travel documents "...are and remain the sole property of the Carrier...until duly issued and delivered pursuant to a transaction under this Agreement." No rebuttal on this averment was forthcoming from learned Senior Counsel for the Assessees, and hence, we have no hesitation in agreeing with Mr. Kumar's submission that the tickets remained the property of the airline. No contract of sale between two principals was ever in existence between the Assessees and the travel agent as per the criteria laid down in Bhopal Sugar Industries (Supra) and Gordon Woodroffe & Co. (Supra). 29. When we take a closer look at the PSA, there are numerous portions which crystallize the intentions of the parties when entering into the agreement. The recitals of the PSA state: Each IATA Member (hereinafter called "Carrier") which appoints the Agent, represented by the Director General of IATA acting for and on behalf of such IATA Member. 30. In the same vein, Clauses 3, 9 & 15 also indicate that: 3.1 The Agent is authorized to sell air passenger transportation on the services of the Carrier and on the services of other are carriers as authorized by the Carrier. The sale of air pas....
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.... to provide full and final compensation to the travel agent for the acts it carries out under the PSA. 32. The irresistible conclusion is that the contract is one of agency that does not distinguish in terms of stages of the transaction involved in selling flight tickets. While Assessees had readily accepted the existence of the principalagent relationship, their consternation had been directed at the socalled second limb of the deal that is exclusively between the agent and the customer. However, the submissions advanced in this regard are clearly not supported by the bare wording of the PSA itself. The High Court in the impugned judgment is correct in its holding that the arrangement between the agent and the purchaser is not a separate and distinct arrangement but is merely part of the package of activities undertaken pursuant to the PSA. 33. Regardless, learned Senior Counsel, Mr. Agarwal, remained resolute in his submission that the principalagent relationship does not cover the Supplementary Commission on the basis of arguments that are independent of the PSA. We shall now turn to a discussion of those. Primarily, he contended that Supplementary Commission goes from the....
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....al Fare for which the flight tickets are sold, and as a symptom of this, the airline itself has no knowledge whatsoever regarding how much Supplementary Commission it has drawn for itself. 37. Before delving into this aspect of the matter, it would be remiss of us to not mention that this issue has seen contradictory stands taken among different High Courts. Learned Senior Counsel for the Assessees brought to our notice a decision by the Bombay High Court in Qatar Airways (Supra) during the course of his submissions. The Division Bench in that case held: 3...For Section 194H to be attracted, the income being paid out by the Assessee must be in the nature of commission or brokerage. Counsel for the Revenue contended that 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. We find however, that in order to deduct tax at source the income being paid out must necessarily be ascertainable in the hands of the Assessee. In the facts of the present case, it is seen that the airlines would have no information about the exact rate at which the tickets were ultim....
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....e actual income received by the travel agent on sale of each of such traffic documents/air tickets sold on behalf of the assesseeairline. Since the best evidence in respect of the sale of Traffic Documents/Air Tickets is available with the assesse airline or its agents it cannot in our view take up the stand that the machinery for deduction of tax has failed. The very fact that this information is made available by the billing analysis made by BSP would show that it is possible to retrieve the information by the assesse airline, therefore, we do not accept the view of the Tribunal that there is no evidence of monies having been received by the travel agent over and above the net fare or that the said information is not available at the relevant point in time and, therefore, the assesse airline cannot be held to be an assessee-in default. 39. For completeness, there is another decision of the Madras High Court as well which takes the same stance as the Delhi High Court in the impugned judgment (Supra). In Around the World Travel and Tours P. Ltd. v. Union of India 2003 SCC OnLine Mad 1027 the Assessee was a travel agent that had filed a Writ Petition before the High Court seeking....
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....kets is stored. According to him, the BSP agglomerates the data from multiple transactions and transmits it twice a month, or bimonthly. The expectation from the Revenue is not that the Assessees make TDS deductions in real time as the sale of tickets by the agents is recorded on the BSP. Rather, a more reasonable approach is taken whereby the air carriers must simply calculate the accumulated amount of TDS, at the end of each month after having received the requisite date from the IATA and the BSP and make a single comprehensive deduction. It was submitted that the Assessee cannot be absolved from its statutory duties under Section 194H, irrespective of the viability of operating in this manner. 43. Having analysed the rival contentions and keeping in mind the principalagent relationship between the parties, we find significant merit in the arguments by the Revenue. The mechanics of how the airlines may utilize the BSP to discern the amounts earned as Supplementary Commission and deduct TDS accordingly is an internal mechanism that facilitates the implementation of Section 194H of the IT Act. The specifics of this system were seemingly not placed before the Bombay High Court in....
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.... position was therefore this: the Trustees as agents had express authority to name another person to act for the principal in the business of the agency, and they named the appellant with the approval of the Board of Directors. Therefore, the appellant, was neither a servant nor a mere subagent. He was an agent of the principal for such part of the business of the agency as was entrusted to him." 45. The fact that the travel agent has discretion to set an Actual Fare which is above the Net Fare has no effect on the nature of the relationship between the parties. A contract of agency permits an agent to carry out acts on its own volition provided it does not contravene the purpose of the agency contract and the interests of the principal. The accretion of the Supplementary Commission to the travel agents is an accessory to the actual principalagent relationship under the PSA. In such a commercial arrangement, the benefit gained by an agent is incidental to and has a reasonably close nexus with the responsibilities that were entrusted to it by the principal air carrier. Such incidental benefits or actions must come under the ambit of the relationship, subject to any express limita....
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....geous to him. xxx 216. Principal's right to benefit gained by agent dealing on his own account in business of agency.- If an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction. 49. In the facts before us, we find that Sections 215 and 216 of the Contract Act are of no assistance. We have already ascertained that the PSA does not explicitly address the issue of Supplementary Commission at all. Further, an agent acting of its own account does not, in principle, alter the nature of a contract of agency and only gives rise to the consequences mentioned under Sections 215 and 216 of the Contract Act if the conditions contained within them exist. We do not consider it helpful to dwell on this point. 50. In any case, given that information regarding the Supplementary Commission was available to the airlines, we have no doubt that the airlines could not have absolved themselves of liabilities under the IT Act attached to the accrual of that additional portion of in....
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....rightly held to be an 'assessee in default', there could be no recovery of the tax alleged to be in default once again from the appellant considering that Pradeep Oil Corporation had already paid taxes on the amount received from the appellant. It is required to note that the department conceded before the Tribunal that the recovery could not once again be made from the tax deductor where the payee included the income on which tax was alleged to have been short deducted in its taxable income and paid taxes thereon. There is no dispute whatsoever that Pradeep Oil Corporation had already paid the taxes due on its income received from the appellant and had received refund from the tax department. The Tribunal came to the right conclusion that the tax once again could not be recovered from the appellant (dedicatorassessee) since the tax has already been paid by the recipient of income. .... 9. Be that as it may, the circular No. 275/201/95IT( B) dated 29.1.1997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares "no demand visualized under Section 201(1) of the Incometax Act should....
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....ctually paid income tax on the amount for which there had been a shortfall in such deduction. 57. As noted earlier, learned Counsels for the parties were ad idem on the fact that the travel agents had already paid taxes on the amounts earned by them. The Revenue had contended that the default in payment of TDS could not be excused purely on this ground. However, the decisions in Hindustan Coca Cola (Supra) and Eli Lilly & Co. (Supra) clearly bar their ability to pursue the Assessee airlines for recovery of the shortfall in TDS and restricts them to imposing interest for the default. 58. In this context, the Assessees have not provided us with the specifics of when the travel agents paid their taxes on the Supplementary Commission. Furthermore, the CBDT Circular of 29.01.1997 Circular No. 275/201/95 IT( B), invoked in Hindustan Coca Cola (Supra) has not been placed before us either. It will be necessary to fill in these missing details and determine the amount of interest that the Assessees are liable to pay before this matter can be closed. Thus, we deem it appropriate to remand the matter back to the Assessing Officer to flesh out these points in terms of the interest paymen....
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....e said failure. 60. The ambit of "reasonable cause" under Section 273B requires our scrutiny before we reach the conclusion that the Assessing Officer is required to also calculate potential penalties to be levied against the Assessees. This Court in Eli Lilly & Co. (Supra) had elaborated, in the passage extracted below, on the context in which Section 273B may be utilized: 94...Section 273B states that notwithstanding anything contained in Section 271C, no penalty shall be imposed on the person or the assessee for failure to deduct tax at source if such person or the assessee proves that there was a reasonable cause for the said failure. Therefore, the liability to levy of penalty can be fastened only on the person who do not have good and sufficient reason for not deducting tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. The burden, of course, is on the person to prove such good and sufficient reason. 95. In each of the 104 cases before us, we find that non deduction of tax at source took place on account of controversial addition. The concept of aggregation or consolidation of ....
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....Section 182 of the Contract Act. 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 Section 182 of the Contract Act, then the definition of "Commission" under Section 194H of the IT Act stands attracted and the requirement to deduct TDS arises. The realities of how the airline industry functioned during the period in question bolsters our conclusion that it was practical and feasible for the Assessees to utilize the information provided by the BSP and the payment machinery employed by the IATA to make a consolidated deduction of TDS from the Supplementary Commission to satisfy their mandatory duties under Chapter XVIIB of the IT Act. 64. Having said this, in light of the consensus between the parties that the travel agents have already paid income tax on the Supplementary Commission, there can be no further recovery of the shortfall in TDS owed by the Assessees. However, interest may be levied under Section 201(1A) of the IT Act. As an epilogue to this aspect of the matter, the Assessing Officer is directed to compute the intere....
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....not being insurance commission referred to in section 194D) and brokerage. 6 [133A. Power of survey.- (1) Notwithstanding anything contained in any other provision of this Act, an incometax authority may enter- (a) any place within the limits of the area assigned to him, or (b) any place occupied by any person in respect of whom he exercises jurisdiction, [or] [(c) any place in respect of which he is authorised for the purposes of this section by such income tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place,] [at which a business or profession or an activity for charitable purpose is carried on, whether such place be the principal place or not of such business or profession or of such activity for charitable purpose, and require any proprietor, trustee, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession or such activity for charitable purpose-]... 7 201. Consequences of failure to deduct or pay.- [(1) Where any....