By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi
Chartered Accountants
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5. (2013) 55 SOT 356 (Delhi)
ITO vs. Interserve Travels (P.) Ltd.
ITA No.3526 (Delhi) of 2010
A.Y.2006-07. Dated 18-05-2012
Sections 194H read with section 40(a)(ia) of the Income Tax Act, 1961 – Mere distribution of the collected amount of commission does not require tax deduction if it is not shown as an expense.
Facts
The assessee was engaged in business of travel agents. It had entered into a consortium agreement with 12 other members who were travel agents for booking air tickets through platform provided by `A’. The consortium members agreed that assessee would act as a lead member and authorised it to enter into contracts with `A’ to make collections and distribute monies to each of the consortium travel agents in proportion to segment bookings effected by each travel agent. The assessee collected commission for services rendered by other members and distributed said commission amongst members on priority basis. Though the TDS certificate issued by `A’ reflected commission of Rs. 65.72 lakh, the assessee distributed an amount of Rs. 52.22 lakh amongst members for services rendered by them in booking tickets, etc. Since assessee did not deduct tax at source while making payment of commission to travel agents, the Assessing Officer disallowed the amount of Rs. 52.22 lakh u/s. 40(a)(ia).
The CIT(A) held that since the amount of Rs. 52.22 lakh was not received for any services rendered by the assessee to `A’, the amount could not be treated as income of the assessee. Further, since the assessee did not claim the said amount as expenditure in its accounts, no tax was deducted at source by the assessee. Therefore, no disallowance could be made in terms of provisions of section 40(a)(ia).
Held
On further appeal by the Revenue, the Tribunal upheld the CIT(A)’s order. The Tribunal noted as under :
1. As is evident from the terms and conditions of the consortium agreement, the payment by the assessee to other consortium members is not voluntary. The assessee is under a legal obligation in terms of the agreement to pay the amount to other consortium members in accordance with settled terms.
2. There is nothing to suggest that the assessee rendered any service to `A’. It is the settled legal position that income accrues when an enforceable debt is created in favour of an assessee. In other words, income accrues when the assessee acquires the right to receive the same. The terms of the consortium agreement do not reveal any such right in favour of assessee. Income of Rs. 52.22 lakh rightfully belonged to the other consortium members to whom the amount was distributed by the assessee.
3. Since the assessee only distributed the income in terms of the agreement and this did not amount to incurring of an expenditure nor did the assessee claim any expenditure, there was no infirmity in the findings of the CIT(A) in deleting the disallowance u/s. 40(a)(ia).
