3.1 The issue again recently came up before the Delhi High Court in the case of Singapore Airlines and 12 other airlines — CIT vs. Singapore Airlines Ltd. (ITA Nos.306/2005 and 123/2006).
3.2 In this case, a survey was conducted on the airlines. This revealed that supplementary commission was being paid to travel agents. The travel agent, after sale, would send the details every two weeks to an organisation Billing Settlement Plan (‘BSP’), which was an organisation approved by the International Air Transport Association, which would prepare an analysis of the billing and send it to each airline. In this analysis, this amount was shown as supplementary commission. The airlines either accounted for this as supplementary commission or incentives/deals. Some travel agents confirmed that such supplementary commission had not been passed on by them to customers. From April 2002, the procedure was changed and tickets were sold at the net price. The Department started proceedings against the airlines for non-deduction of TDS under Section 194H on such supplementary commission.
3.3 The Commissioner (Appeals) upheld the stand of the Department. The Tribunal however allowed the airline’s appeal, holding that the airline received only the net fare from the agent, that any surplus or deficit from such net fare was the profit or loss of the agent, and since such profit or loss was on account of his own efforts and on his own account, did not emanate from services rendered to the airline.
3.4 Before the Delhi High Court, on behalf of the Department it was argued that:
i) the relationship between the assessee-airline and the travel agent was that of a principal and agent and not one of principal to principal.
ii) the supplementary commission retained by the travel agent was not a discount as claimed by the assessee-airline since it was paid for services rendered by the travel agent in the course of buying and selling of tickets;
iii) the submission of the assessee-airline that they had a dual/hybrid relationship with their agent, that is, insofar as the transaction which involved payment of standard commission was that of agency, while that which involved the retention of supplementary commission by the travel agent, that is, price obtained over and above the net fare, was a result of a principal-to-principal relationship ought to be rejected, for the reason that no evidence whatsoever was placed by the assessee-airline to establish that there was such a dual relationship between the parties. The Standard Format Agreement (as approved by lATA), that is, the Passenger Sales Agency (PSA) Agreement executed by the assessee airline was silent as regards any such dual relationship to which the assessee-airline had adverted to;
v) the main provision of Section 194-H included within its ambit payment by cash, cheque, draft or by any other mode. Thus retention of money by the travel agent was covered by the main provisions of Section 194H. It was not the case of the assessee-air line either before the Assessing Officer or the CIT(A) that the travel agent was required to only remit the net fare to the airlines, and this was not even a condition in the PSA Agreement. The net fare was actually arrived at by deducting from the gross fare, tax, standard commission and supplementary commission. While standard commission was fixed by lATA the supplementary commission was variable, as it was dependent on the policies of the airline vis-a-vis their agents. If net fare was the basis for the entire transaction, then there was no necessity of intervention of BSP to carry out a billing analysis, as then the amount payable by the travel agent to the assessee-airline could easily be calculated by taking into account the product of the number of tickets sold and the net fare; and
vi) the amount of supplementary commission which had to be paid on each transaction was embedded in the deal code which was known only to the three concerned parties, that is, the assessee-airline, the travel agent and BSP.Since the assessee-airline was the person responsible for payment of supplementary commission to the travel agent, the tax could have been deducted as and when the billing analysis statement was handed over by the BSP to the airline. It was thus contended that the supplemen-tary commission fell within the ambit of the explanation to Section 194H.
3.5 On behalf of the assessee-airlines, it was argued before the Delhi High Court that:
i) supplementary commission was only a nomenclature which finds mention in the billing analysis statement of BSP.The said supplementary commission denotes a notional figure which is the difference between the published fare less standard IATAcommission (9% or 7%). The net fare is the amount received by the assessee from its travel agents. In other words, the
supplementary commission is not a commission within the meaning of Section 194H;
ii) supplementary commission can only be brought within the ambit of Section 194H, if it fulfils the following criteria as prescribed under the said provision-
a. the sum received must be in the nature of income,
b. such income must denote any payment received or receivable directly or indirectly by the payee from the payer, that is, the assessee, and
c. the recipient should be a person acting on behalf of that another person, and that, the sum received or receivable whether directly or indirectly should be for services rendered in the course of buying and selling of goods, that is, tickets in the present case.
iii) the Department had not been able to produce any evidence to show that the difference between the published fare and the net fare (i.e., the fare the assessee received from the travel agents) was realised by the travel agents. The difference as reduced by standard commission and taxes which is referred to as supplementary commission is only a notional figure and this cannot be termed as a commission within the meaning of Section 194H. What the assessee is entitled to receive is only the net fare. There is no right in the assessee-airline to receive the published fare from the travel agent on sale of tickets;
iv) the notional figure of supplementary commission as appearing in the billing analysis statement of the BSP is neither income nor can it be construed as payment received or receivable, directly or indirectly by the travel agents in its capacity as the agent of the assessee-airline for any services rendered to the assessee-airline. The billing analysis statement of BSP is not a statement of account as contended by the Revenue;
v) since there was no evidence to suggest that the difference between published fare and the net fare was actually received by the travel agent, there was no obligation on the part of the assessee-airline to deduct tax at source on such notional commission which had not been realised;
vi) in these circumstances the provisions of Section 194H were unworkable;
vii) the travel agents had paid tax on the said supplementary commission and hence the Revenue was precluded from raising demands on the assessee-airline.
3.6 Analysing the provisions of Section 194H, the Delhi High Court noted that the provisions of Section 194H would be attracted only if:
i) there is a principal-agent relationship between the assessee-airline and the travel agent;
ii) the payments made by assessee-airline to the travel agent, who is a resident is an income by way of commission;
iii) the income by way of commission should be paid by the assessee-airline to the travel agent for services rendered by the travel agent or for any services in the course of buying or selling of goods;
iv) the income by way of commission may be received or be receivable by the travel agent from the assessee-airline either directly or indirectly; and
v) lastly, the point in time at ‘which obligation to deduct tax at source of the assessee-airline will arise only when credit of such income by way of commission is made to the account of the travel agent or when payment of income by way of commission is made by way of cash, cheque or draft or by any other mode, whichever is earlier.
3.7 Analysing the terms of the PSA agreement and the manner in which the airlines and travel agents functioned, the Delhi High Court concluded that:
i) the travel agent acted on behalf of the airline to establish a legal relationship between an airline and a passenger, and was therefore an agent of the airline, which was his principal;
ii) since it was undisputed that the amount received and retained by the travel agent over and above the net fare would be assessable to tax in his hands as his income, and tax had actually been paid by agents on such income, supplementary commission was ‘income’ within the meaning of Section 194H;
iii) the supplementary commission is not a discount, on account of the fact that the payment retained by the travel agent is inextricably linked to the sale of the traffic document/ air ticket, and the travel agent does not obtain proprietary rights to the traffic documents/air tickets;
iv) there are no two transactions, for one of which commission is paid to the agent, and the second of which is between principal to principal, but just one transaction of sale of tickets on behalf of the airline to the passenger;
v) the amount received by the travel agent over and above the net fare is known to the airline when it receives the billing analysis made by BSP.
The Delhi High Court therefore held that the amount received and retained by the travel agent over and above the net fare was in the nature of commission, liable to deduction of TDS under Section 194H.
4. Observations:
4.1 The conclusions of the Delhi High Court are weighed by one of the facts that the travel agent is an agent of the airline and therefore all and any receipt by him represents commission in his hands, including the difference between the published fare and the net fare.
4.2 The difference between the published fare and the net fare really consists of two components – one component is that of commission as a pre-agreed percentage of the published fare, which is undoubtedly commission covered by the provisions of Section 194H. The other component is the amount not realised by the agent from the client, and therefore not paid to the airline.
4.3 To illustrate, take a situation where the published fare is Rs.50,OOO, the agent’s commission is 7% (Rs.3,500), and the agent sells the ticket to the passenger for Rs.27,500. The agent would collect Rs.27,500 from the passenger and pay Rs.24,OOO to the airline as net fare (ignoring tax), after deducting his commission of Rs.3,500. In this case, the difference between the published fare and the net fare is Rs.26,OOO, consisting of the agent’s commission of Rs.3,500 and the discount passed on to the client of Rs.22,500. This amount of Rs.22,500 is really a discount given by the airline to the passenger through its agent, the travel agent. The travel agent is therefore holding such discount of Rs.22,500 in trust for the passenger, to whom the airline has permitted him to grant such discount.
4.4 With respect to the concerned parties, it was not impressed upon the Delhi High Court that the difference between the published fare and the net fare, in fact was a discount given to the passenger by the airline through the agent and it was the airline alone, ‘which undoubtedly had proprietary rights in the tickets, till such time it was sold to the passengers and the benefit derived by the passenger was a benefit passed on by the airline and not by the agent who received it in trust for the passenger. If the difference is viewed as a discount given to the passenger routed through the agent, as was done by the Bombay High Court, the view taken by the Delhi High Court might have been quite different. As rightly appreciated by the Bombay High Court, the factual position is that the airline has merely granted a permission to the agent to sell the tickets at a lower price, which discount granted through the agent can certainly not be regarded as commission.
4.5 The issue, if any, arises only where in the above example, the travel agent pays to the airline, Rs. 23,000 and not Rs. 24,000 and in the process retains for himself an amount of Rs. 1000. It is this Rs. 1000, whose true nature has to be examined w.r.t. the provisions of s. 194H. This difference so retained may not be a commission within the meaning of Section 194H, unless it is brought within the ambit of Section 194H by proving that the sum received was in the nature of income received or receivable directly or indirectly by the payee from the payer, (that -, IS, the airlines.) and the recipient, (that is, travel agent,) should be a person acting on behalf of that another person, and that, the sum received or reeivable, whether directly or indirectly should be for services rendered in the course of buying and selling of goods, (that is, tickets in the present case). The difference cannot be termed as a commission within the meaning of Section 194H. What the airline is entitled to receive is only the net fare. There is no right in the assessee-airline to receive the published fare from the travel agent on sale of tickets. It cannot be construed as payment received or receivable, directly or indirectly, by the travel agents in its capacity as the agent of the airline for any services rendered to the airline.
4.6 Therefore, the view taken by the Bombay High Court that such discount is not liable to deduction of TDS u/s.194H seems to be the better view of the matter, as compared to the view taken by the Delhi High Court.
