SINGAPORE AIRLINES LTD. versus C.I.T., DELHI

Citation: [2022] 9 S.C.R. 1 · Decided: 14-11-2022 · Supreme Court of India · Bench: SURYA KANT · Disposal: Case Partly allowed

Cited by 4 judgment(s) · cites 8 · see the full citation network in Lexace

Judgment (excerpt)

A
B
C
D
E
F
G
H
1
[2022] 9 S.C.R. 1
1
SINGAPORE AIRLINES LTD.
v.
C.I.T., DELHI
(Civil Appeal No. 6964-6965 of 2015)
NOVEMBER 14, 2022
[SURYA KANT AND M. M. SUNDRESH, JJ.]
Income Tax Act, 1961: s. 194H – Tax Deduction at the Source
on Commission and brokerage – Interpretation of s. 194H – On
facts, assessee airlines selling their flight tickets through the travel
agents – Arrangement between the airlines and the travel agents
governed by Passenger Sales Agency Agreements, wherein agents
are entitled for 7% of the Base Fare as the Standard Commission,
however, they were at liberty to set a price higher than the Net Fare
demanded by the airline and the additional amount that the travel
agents charged over and above the Net Fare that was quoted by the
airlines as the agent’s own income – Issue pertaining to the
characterization of the income earned by the agent besides the
Standard Commission of 7% and if this additional portion would be
subject to TDS requirements u/s. 194H – High Court held that
assessees were required to deduct TDS u/s.194H, on the
Supplementary Commission accrued to travel agents entrusted by
the assesses to sell airline tickets, as a result of the assessees’ failure
to carry out the subtraction of the requisite amount of TDS, they
were declared “assessees in default” u/s.201 for not deducting the
TDS from the supplementary commission of the travel agent other
than the designated standard commission @ 7% and would thus,
be subject to payment of interest and penalties u/s. 201(1A) and
271C – On appeal, held: Intentions as manifested in the terms of
the contract between the parties indicate the existence of a principal-
agent relationship as defined u/s.182 of the Contract Act, the
definition of ‘Commission’ u/s. 194H stands attracted and the
requirement to deduct TDS arises – Lack of control that the airlines
have over the Actual Fare charged by the travel agents over and
above the Net Fare, cannot form the legal basis for the Assessees to
avoid their lability – Accretion of the Supplementary Commission to
the travel agents is an accessory to the actual principal-agent
relationship under the PSA – Incidental benefit gained by an agent
A
B
C
D
E
F
G
H
2
SUPREME COURT REPORTS
[2022] 9 S.C.R.
which has a reasonably close nexus with the responsibilities that
were entrusted to it by the principal must come under the ambit of
the relationship – Thus, the agents additional amount that the travel
agents charged over and above the Net Fare comes under the ambit
of Supplementary commission is liable for the deduction of TDS –
However, 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 u/s. 201(1A) from the date of default by them in terms of
failure to deduct TDS till the date of payment of income tax by the
travel agents – ss. 201, 201(1A), 271C – Contract Act, 1872 – s.
182.
Partly allowing the appeals, the Court
HELD: 1.1 Explanation (i) of Section 194H of the Income
Tax Act, 1961 highlights the nature of the legal relationship that
exists between two entities for payments between them to qualify
as a “commission”. Consequently, the endeavour must be to
determine whether the travel agents were “acting on behalf of”
the airlines during the process of selling flight tickets. The
assessees do not dispute that a principal-agent relationship
existed during the payment of the Standard Commission. The
point on which the air carriers differ from the Revenue is the
purported second part of the transaction i.e. when the tickets
were sold to the customer and for which the travel agents earned
certain amounts over and above the Net Fare set by the
Assessees. [Para 20][20-G-H; 21-A-B]
1.2 On taking a closer look at the Passenger Sales Agency
Agreement-PSA, there are numerous portions which crystallize
the intentions of the parties when entering into the
agreement.Several elements of a contract of agency are satisfied
by these clauses, and the recitals. Every action taken by the travel
agents is on behalf of the air carriers and the services they provide
is with express prior authorization. The airline also indemnifies
the travel agent for any shortcoming in the actual services of
transportation, and any connected ancillary services, as it is the
former that actually retains title over the travel documents and
is responsible for the actual services provided to the final
customer. Fu

Excerpt shown. Read the full judgment & AI analysis in Lexace.